The Congo – A Misunderstood Mining Review

11th Nov 2008, 12:00 am by Sam Kiri The Democratic Republic of Congo (DRC) is again in the lime light, and again for the wrong reasons. After a brief lull, the civil conflict is raising its ugly head in the eastern Congo. Rebels are about to capture Goma, a town close to Rwanda. According to the Economist, UN forces are failing to safeguard civilians. African leaders are urging an immediate ceasefire. Similar to the previous conflict African nations are expected to get involved in an attempt to arrive at a lasting solution.

Meanwhile, The Congolese government also appears to have lost its direction. Instead of working towards economic stability which would usher an environment of lasting peace, the government went on a witch hunt in the form of a Mining review last year. The review entails among many things the potential cancellation of mining contracts awarded to multinationals. Shares of all mining companies with assets in the DRC have fallen sharply since then.

Against this backdrop it is important to note that not all companies with assets in the DRC are affected by the Mining review. For instance assets of Canadian Venture listed El Nino Ventures (TSX.V: ELN) are not under review and the company has been continuing with its development efforts.  ELN has been operating in the DRC for a number of years and have always maintained good relations with the government and respective authorities.

More than the contract review itself, it is the lack of clarity that really hurts the DRC mining sector. The Vice Minister of Mines, Victor Kasongo, made a commitment to institute a “brief and open administrative appeal process” for the mining contract review before “a specially constituted panel”. Provisions include an appeal process for affected companies for ‘reclassification’. There has been little progress however on all fronts and authorities have provided little clarity on the exact process it intends to follow in regards to the review. 

The proposed contract review was prompted by some irregularities that alleged to have taken place at the time of awarding contracts to various foreign companies. Some of these contracts were awarded prior to the Mining Code that was introduced in 2003. According to the authorities some companies have obtained licences through less than transparent ways. Allegations are yet to be proved and are naturally contested by relevant parties.

The DRC government remains committed to the Mining Code. Drafted under the supervision of the World Bank, the code has a number of positive provisions. They include exemptions from import duties, exemption from sales tax and exemption from certain domestic inputs. The Code also provides the permit holder with broad access to explore its properties under a transparent and efficient permitting process. On discovery of an economically viable deposit, the holder can apply for a Permit of Exploitation.

Interestingly, the DRC government organised a big mining conference from 14th to17th of March in Kinshasa, during which the Mining Code was discussed. As the conference was after the dreaded contract review one would have expected wholesale changes to the Mining Code. However, the conference concluded that only minor modifications to the Code are necessary, thus virtually endorsing all its provisions.

The resurgence of civil strife is the latest concern that overshadows mining companies in the DRC. While no one downplays the horrors of war, it is important to highlight that the conflict area is in the eastern part of Congo well away from the copper belt which is in the south. The DRC is the second largest country in the African continent with little infrastructure facilities. There is virtually no link to rebels in Goma and towns in the South such as Lubumbashi, Kolwezi and Likashi where mining companies have their operations. The conflict has not spread to other parts of the DRC. In any event, the government together with other African nations is on its way to quell the rebels and their ambitions.

Given the DRC’s less than inspiring economic conditions and the need for foreign investments for its development, major changes to existing contracts appear to be unlikely. However, there will be changes to those contacts that were acquired in dubious means and deserve little sympathy in our view. Some of these contracts, which are likely to be reacquired by the government, are expected to be reissued to new developers. Chinese companies are at the forefront among likely recipients.

El Nino meanwhile is less perturbed by these events and is focused on their development endeavours. The company has recently signed a Letter of Intent with Phoenix Mining Corporation (PMC) a Congolese mining company, to earn into a 70 percent interest on Research Permit (PR) 9316 in the DRC Copper belt. PMC was granted exclusive rights to explore this area under a contract, signed with the Centre de Recherches Geologiques et Minieres (CRGM), a Congolese government agency on July 4, 2008. Under the terms of the Letter of Intent ELN will be the Operator of the exploration programs to be developed for this Permit, which occupies just over 25 square kilometres underlain by highly prospective geology.

El Nino has also made a significant Copper/Cobalt discovery on its research permit PR 5214, located in south-eastern Katanga Province. Analytical results indicate a 29 meter intersection grading 2.82% copper between 17 and 46 meters, which includes an intersection of 4.11% copper and 0.50% cobalt between 21 and 26 meters. Remaining samples from the other mineralized drill holes completed in this area are being shipped to the ALS Chemex facilities in Johannesburg where they will be analyzed. The Company has requested that ALS Chemex perform priority analysis of these samples.

As for El Nino, the company has acquired its licences in a transparent manner and is not expected to be a victim of the process. Headed by Jean Luc Roy, who was the former Managing Director of First Quantum Minerals (2001-2006), during which time one mine was put in production while another project was developed to advance stages, El Nino is no stranger to the DRC. El Nino has no plans to leave the DRC and Jean Luc Roy is looking to take the company to the next level.