Companies operating in Democratic Republic of Congo's crisis-stricken and cash-strapped mining sector will struggle in 2009, with only the biggest projects likely to survive the year.
Boosted by surging metal prices and encouraged by successful post-war polls in 2006, investors flocked to Congo hoping to cash in on the vast central African nation's abundant and largely untapped copper, cobalt, gold and cassiterite reserves.
But prices tumbled in the second half of 2008 on falling demand from emerging economies in Asia, the main market for Congolese mineral exports, and many firms have now cut back or abandoned projects altogether.
This year will really be a year of survival. For the companies with an economy of scale, they will be able to resist, Simon Tuma-Waku, vice president in charge of mining for Congo's business federation, FEC, told Reuters.
For others it will be very, very difficult to hold on.
World copper prices have halved in the past six months, squeezing profit margins and forcing the majority of smaller operators out of the southern province of Katanga, the country's copper and cobalt heartland. At least 45 of 75 mining companies closed last year.
Difficulties in raising funds on stock markets as a result of the global financial crisis have taken a heavy toll on larger industrial mining projects as well.
In December, the International Monetary Fund lowered its projection for direct foreign investment to Congo in 2009, most of which had targeted the mining sector, by over two thirds to $800 million.
BHP Billiton, the world's largest diversified miner, abandoned exploration activities in Katanga last month.
Australia's Anvil Mining , Central African Mining & Exploration and First Quantum have placed key assets on care and maintenance.
Shares in Toronto-listed Katanga Mining , which paid $2 billion in 2007 to buy out rival Nikanor to create Africa's biggest copper producer by 2011, have fallen 98 percent in the last year.
In December, Congo lowered its 2009 copper export forecast to 365,000 tonnes from a pre-crash projection of 410,000 tonnes. Production forecasts for cobalt, which is widely used in electronics, were more than halved to 32,000 tonnes.
GLOBAL CRISIS HITS CONGO
Gold has held up well in the financial crisis.
However, AngoGold Ashanti, which has been drilling at Mongwalu in northeastern Ituri district since 2005, scaled back exploration activities towards the end of 2008 amid a resurgence of armed militias there.
And Canadian gold miner Banro , which has now settled a dispute over its permits in South Kivu and Maniema provinces, is seeking a partner to take a majority stake in its operations in order to fund mine construction.
Congo's government, which has seen its largely mineral-funded foreign currency reserves crash to just $36 million in early February from over $225 million last April, has grown increasingly desperate for cash.
Last month, Congolese state-owned mining firms approached companies to pay new signing bonuses they say they are owed following a recently completed contract review process. But the move was resisted by miners already struggling to stay afloat.
In an attempt to boost output from companies still exporting as well as those due to start production in the coming months, the mines ministry has slashed taxes on mineral exports to 1 percent from 23 percent.
The message is, 'Produce, and we'll keep taxes down, until we can get business going', Deputy Mines Minister Victor Kasongo told Reuters.
I'll have four or five good mines operating soon. That could give us some hope.
The massive Tenke Fungurume copper and cobalt mine being developed by Freeport-McMoRan and minority stakeholder Lundin Mining is expected to begin production in the second quarter of 2009, and CAMEC could also soon restart exports.
But even the mines ministry admits turning around the sector, which has already seen around 300,000 jobs lost in Katanga province alone, will depend more on a global economic recovery than on ramping up output.
We're all dependent upon the U.S. If this (stimulus) package works, it could help us. The Chinese are dependent upon the U.S. too, Kasongo said.
(Editing by Daniel Magnowski)
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