What's left of the fairly tightly knit mining community in Katanga Province, Democratic Republic of the Congo, is aghast that six or so companies have been targeted under the country's co-called mining contracts revisitation. For four of them, AngloGold Ashanti, Gold Fields, Banro, and Mwana Africa, the stakes are not as high as for the two that have already spent hundreds of millions of dollars building mining operations in the region.
For starters, there are particular concerns over the position of Freeport-McMoRan, the world's biggest listed copper producer, biggest molybdenum miner, and a leading gold digger. Amid the most recent drama, it is no secret that Freeport-McMoRan's 58.8%-held Tenke Fungurume copper cobalt mine has been threatened with a shut down in six month's time. Whether this is true or not, the atmosphere is dark and cold.
The first phase at the mine cost USD 1.8bn to build, and recently produced its first copper cathode. Lundin holds 24.8% of the mine and DRC parastatal Gécamines (La Générale des Carrières et des Mines) the balance of 17.5%. If the mine proceeds through its planned phases, it would one day be producing more than 500,000 tonnes a year of copper, and also rank as one of the world's biggest cobalt producers.
More than a few fingers are being pointed at Gécamines mandarin Paul Fortin, who is openly accused of holding a xenophobic position. It is open knowledge that Freeport-McMoRan negotiated every detail of the Tenke Fungurume agreement over several years, with Gécamines. The negotiations took place after the latest Congo war; indeed, the final documents have the authority of being formalised under a democratically elected government environment.
No company would have proceeded with an investment way north of USD 1bn without full knowledge that its rights were fully vested and fully protected. The latest reported moves against Freeport-McMoRan, which are not up for discussion by any of the relevant parties, openly make a mockery of the very concept of the DRC's Mining Code, the foundation of the investment code for a country embattled on every possible front.
On the contrary, the DRC government has bent itself into all sorts of shapes to attract Chinese investment, in vague and fuzzy deals where valuable mining ground is swapped for loans to develop infrastructure. This ground is moved around in some interesting ways. In one sampling, it was on 29 January 2008 that Katanga Mining announced that its Dikuluwe and Mashamba West deposits would be transferred to Gécamines. No secret: the ground was destined for a Chinese deal.
As for compensation for valuable returned ground, on March 31 this year, Katanga Mining stated that it had been agreed that Gécamines had to find as replacement reserves of some 3,992,185 tonnes of copper and 205,629 tonnes of cobalt. As at 1 July 2015, to the extent that there is a shortfall in replacement deposits, the parties shall calculate the proportion of the shortfall and the financial compensation payable shall be calculated as the shortfall percentage multiplied by USD 285m. This is big money for Katanga Mining, which is now on its knees in every sense.
And then there is directly targeted First Quantum, pioneer in the modern brownfields resuscitation of the copperbelt straddling the DRC and Zambia. First Quantum is rapidly approaching completion of the USD 553m Kolwezi tailings operation, 65% held by it, with Gécamines holding 12.5% and the DRC government itself holding 5%. Once again, First Quantum is simply not going to proceed with building an operation for more than half a billion dollars without watertight agreements.
For years First Quantum has been a serious contributor to the DRC's tax revenue, through mining at 100%-owned Lonshi (now phased out), and also 95%-owned Frontier, a USD 226m investment that achieved commercial production in the fourth quarter of 2007. Freeport-McMoRan and First Quantum rank as two copper companies at the top of their game. The record shows that mining investment in the DRC requires such companies, more than anything else: top management, big balance sheets, and best-of-breed mining and processing abilities.
Selected DRC/Zambia copper-cobalt stocks
El Nino Ventures
* 12-month ** DRC only
Source: market data; table compiled by Barry Sergeant