Mining groups victim to African uncertainty
By William MacNamara
Published: October 5 2009 18:34 | Last updated: October 5 2009 18:34
ft.com
A resurgence of antagonism between international mining companies and governments of some of Africa’s least developed countries is raising questions about the world’s future supply of industrial metals.
Under the jungles of countries such as Guinea, where rampaging soldiers killed 157 demonstrators last week, and Congo, struggling to recover from civil war, lie some of the richest unexploited mineral deposits. Yet exploiting those deposits poses problems that scare off most of the companies best able to develop them.
Traditional sources of metals – Australia, Chile, South Africa, Russia – still have abundant reserves. But as they are gradually exhausted, many in the industry believe Africa’s volatile mining frontiers will have to take over.
But ensuring that licences are secure is essential to protect the large-scale investments of companies such as Rio Tinto, the Anglo-Australian mining giant. That security shows no signs of improving in either Guinea or Congo – which are extraordinarily rich in copper, cobalt and diamonds.
The story of Vancouver-based First Quantum Minerals is the latest warning. The Congo-focused miner halted construction on its $550m Kolwezi copper project on September 16 on government orders. The project had fallen behind schedule, the government claimed in an August letter to the company. The penalty, it said, was First Quantum handing over its 65 per cent interest to Gecamines, the state-owned mining company. International arbitration now looms.
A similar issue is besetting Rusal, the Russian aluminium producer, in Guinea, which has the world’s largest deposits of bauxite, used to make aluminium. On September 10 a court in Guinea expropriated Rusal’s Friguia alumina refinery, the country’s biggest industrial project, ruling that Rusal bought it for an illegally low price in 2006 under a previous regime. Rusal has confirmed that it plans to pursue legal action to defend its “interests as the legitimate owner of the asset”.
The Rusal dispute is the first to emerge from an “audit” of mining operations in Guinea undertaken by the junta headed by Moussa Dadis Camara, the army captain who took power in December following the death of the long-time dictator Lansana Conté and whose rule has become increasingly erratic.
The audit follows a long-running dispute between Guinea and Rio Tinto over the rights to develop Simandou, one of the world’s richest undeveloped iron ore deposits. Claiming that Rio had taken 10 years too long to bring Simandou into production, Guinea handed over half of the concession to Beny Steinmetz Group, an Israeli-African diamond miner, in December.
In all these cases investors were worried not so much by evidence of African resource nationalism – a constant over the past decade – or the state’s authority to press legal claims. The most problematic factor was the unpredictable, seemingly capricious application of the law.
Under such conditions, it is impossible to be sure that a licence will not be revoked because of the rise of a faction or minister or the death of a leader. Even if it is revoked, it is near impossible to determine how final the edict is. For Rio, such conditions still prevail at Simandou after investment of more than $400m (€274m, £251m) in sunk costs.
Such uncertainties are overshadowing Tenke Fungurume, the enormous new copper mine in the Congo built by Freeport McMoran, the US miner. Freeport brought the project into production this year. But it and First Quantum are the last two companies not to reach agreement over new licence terms the Kinshasa government is trying to enforce, as a two-year review of mining licences draws to a close. Tuesday is Freeport’s deadline for agreeing new terms.
The review started in 2007 as an attempt to clarify licences and accrue more mining revenues to the state, but it has ended as “a brilliant farce, if it were not such a tragedy”, an African mining executive said.
“A number of companies agreed to increased upfront payments, but in the face of the economic slowdown even the short-term benefits are likely to prove illusory,” said Peter Rosenblum, a Columbia law school professor, in April. He was working there under the auspices of the Carter Centre, which ended its involvement in the review, citing the government’s failure to conduct it transparently.
Despite the risks, investment in Africa’s mining frontiers has picked up. In July Randgold and Anglogold Ashanti, two of the continent’s biggest goldminers, jointly offered C$546m ($508m) for Moto Goldmines, owner of a huge undeveloped gold deposit in the Congo. On September 18 Eurasian Natural Resources Corp, the Kazakh miner, offered £584m ($931m) for Camec, the Congo-based copper and cobalt miner.
Acknowledging the risks of such an investment, ENRC’s chief executive said the high quality of Camec’s Congo cobalt assets far outweighed the risks, especially given the “cheap” purchase price.
As commodity prices rise, such calculations may become more common among mining companies needing to stake a claim on the dwindling number of high-quality, undeveloped metal deposits. But the rising price alone will not ensure that the metals get to markets.
Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web. |
