(IVN-T) Congo Doing OK on Mining, 12 Years after Reform
In 2002, the Democratic Republic of Congo (DRC) instituted some major revisions to its mining code. Imran Patel has close ties to the mineral exploration sector in the DRC and currently serves as an Advisor to Kilo Goldmines Ltd., a well-followed Canadian based and listed exploration firm with operations in the Congo.
I asked: Should we consider investments in the DRC, a country that is considered high-risk for investors?
“Historically, since independence in 1960, mining in the Congo was controlled by state-owned enterprises. It’s not until 2002, when the new mining code was introduced, that private investors and private groups could acquire exploration and mining rights through the mining registry, called the Cadastre Minier, which is overseen by the Ministry of Mines.
“Through to the early 1990s, the DRC had a large mineral-based economy, with significant copper and cobalt production in the Katanga province, tin mining in the Kivus, Maniema, and northern Katanga, diamond mining in the Kasais, and gold mining in the Orientale province. Artisanal mining activity was also present in addition to the state-controlled production. So when mining investors first started coming into the DRC in the late 1990s and early 2000s, they focused on the ‘low hanging fruit’ which largely consisted of state-owned deposits and historically producing mines. In many instances, these investors entered into joint venture agreements with the state-owned companies and gained majority ownership stakes in these projects in exchange for providing development capital and technical expertise.
“These assets often had proven reserves and existing infrastructure that needed rehabilitation. Hence, this low-hanging fruit served as the primary focus of private investors. These were not ‘green fields’ or grassroots exploration stories; instead, they were developing or re-developing assets and bringing known deposits into production. For instance, Phelps Dodge and Lundin Mining partnered with Gecamines (the state-owned copper producer) and began re-developing the world-class Tenke-Fungurume mine. Subsequently, Phelps Dodge was acquired by Freeport McMoran, which continued the investment push by bringing the mine into production and is currently undertaking an expansion of production capacity. Gecamines similarly entered into joint ventures with various other companies, foreign and domestic owned.”
While known deposits were coming online or being expanded in the Congo, some exploration firms also raised money to seek out undiscovered mineral deposits. Although the Congo is considered rich in minerals, the war-torn country had little exploration activity before the new mining code was established. Thanks to modern exploration techniques backed by extensive historical geological information, there is reason to believe that the potential for multiple significant new discoveries in the area is high. Many major mining firms have spent considerable amounts on exploration projects, especially in the Katanga province.
“The Kamoa deposit, which was discovered by Robert Friedland’s Ivanhoe Mines, is a world-class copper project discovered in 2009. You also had companies like Glencore, Trafigura, and Randgold come in with major investments, especially after 2008 when global miners acquired various projects and mines from private investors, often Congolese entrepreneurs, in order to build these projects into mines. In Katanga province, we saw a lot of investment inflows from Freeport McMoran and its partners, as it spent about $3 billion on the Tenke Fungurume mining complex, with further investments still underway. Trafigura was a major investor in Anvil Mining and funded the construction of the Kinsevere mine with a major capital injection even during the Global Financial Crisis. Anvil was subsequently acquired by MMG, a Chinese-controlled global mining company based in Australia. Glencore acquired control of Katanga Mining’s Kamoto-KOV complex and went on to build the Mutanda mine, having spent $2 or $3 billion.”
Since investors were allowed into Congo’s mining sector, most capital has been spent in the Katanga province. We are now beginning to see exploration and development in other parts of the country, which is a good sign, says Mr. Patel:
“What we are starting to see now is large investment outside the Katanga province. We had the Kibali mine commissioned by Randgold in September of 2013, which is located in the Northeast of the country, in Orientale province. Randgold is on track to produce 550,000 ounces of gold this year from the Kibali mine. Randgold and its partner AngloGold Ashanti invested nearly $2 billion in this project, and they’re reinvesting cash flows to fund the large capex requirement to continue to expand production and as well as the construction of several more hydro-power dams. All the while, they are aggressively exploring around the region.”
“Randgold has also partnered with mining group Kilo Goldmines in a green fields exploration project located in the Isiro and Ngayu Greenstone belts. Randgold has announced that it is finding geological similarities on these projects with those found at Kibali, which is very encouraging. It is important to note that the massive Kibali gold resources were discovered off of one soil sample.”
Mr. Patel believes that the country is stabilizing and becoming safer for investors.
“The prospects are good for the Congo. Investment risk is perceived as very high because of governance and security issues, the latter almost exclusively contained in northeastern DRC and some parts of northern Katanga. Those have been relatively isolated, and have not spread across the country. Although progress and continued improvements in governance and stability would be welcome, we are not at the brink of civil war.
“In the last couple of years, there has been an aggressive campaign to ‘flush out’ the various militias and ‘rebel’ – for lack of a better word – forces. One has to understand that there are various armed groups from neighboring countries that have been hiding out in the DRC due to porous borders. These groups are now being brought under control, with support from the United Nations and African Union. Security concerns are actively being addressed and can be witnessed through recent actions undertaken to stabilize what was once a conflict area. We’re still seeing large investors, such as private equity groups, multinational industrial groups, and large miners come in and deploy capital.
“You are seeing a big presence from major miners, such as Freeport, Randgold, Glencore. With these come large investments and improvements in infrastructure. Everybody is very confident that we will see stability brought back into the northeast of the country. Roads are being built to connect to the East African corridor, and a rail link is being planned as well. An existing railway, controlled by SNCC, the state-owned rail operator, connects the DRC all the way to South Africa, which could see investments to increase capacity. These improvements should facilitate further investment in the Congo.
“In the last ten years or so, inflation has remained relatively stable. The economy has improved and grown a lot. Sure, there are issues like the debates over changes in the administration, amongst the various political parties, and whether the constitution will be amended or not, but it looks like the direction of investment is upwards, and I don’t believe that much will cause this direction to reverse.” |
