DRC to speed up mineral contract review

Victor Kasongo, deputy mines minister, DRC

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DRC to speed up mineral contract review
Allan Seccombe
Posted: Wed, 06 Feb 2008

[miningmx.com] -- THE government of the Democratic Republic of Congo will fast track the renegotiation of mining contracts as part of its review which has revealed a surprising number of flawed deals and agreements, vice mines minister Victor Kasongo said.

The government is reviewing 61 contracts and a leaked early draft of a report from the review commission in November said 37 of the contracts needed to be re-negotiated and the other 24 should be terminated. The process had been expected to be wrapped up in 2007.

“We will fast track that (the review process),” Kasongo said at the Mining Indaba in Cape Town.

fast track

Companies would be notified in writing of their classification and those unhappy with their rating “must prove that we are wrong,” Kasongo said.

Companies would have 30 days in which to lodge an appeal against their ratings and the process would start in coming months.

The leaked report said First Quantum Minerals and Anvil Mining were among the companies that should have their contracts terminated, while Nikanor, Katanga Mining, Lundin Mining and AngloGold Ashanti were included in those whose contracts needed renegotiation.

The review was prompted by a new democratically elected government, the first in decades, to come into power early in 2007. The government decided to revisit contracts struck up under other regimes and weed out those incorrectly or fraudulently drawn up.

This was an early draft and the Cabinet Commission, which is to review the report, has yet to meet to consider the report, a well-placed source said. It is this commission that will decide how to deal with companies and their contracts.

The review process had proved to be a lot more complicated and difficult than the government had first thought it would be.

“We cannot simply accept without challenge the contracts we inherited,” Kasongo said. “We have little sympathy with those who thought they would get assets cheap without the intention or capability of going into production. Mining operations feed my people, speculation does not.”

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Metorex, a diversified South African miner investing heavily in the DRC, said it did not yet have a document saying that there would be no problems with its investment in copper and cobalt production, development and exploration in the central African country.

“I trust sincerely we will not lose what we’ve been granted,” Metorex CEO Charles Needham said.

The review process was proving tricky, Kasongo said. The problems with contracts included excessive internal rates of return, an undervaluation of assets contributed by the state and the inability of the government to pass laws to affect all companies equally among others.

“What took us by surprise was the scale of the problem,” Kasongo said.

“We expected to concentrate our efforts on rectifying a few contracts, but we found not a single contract was properly constituted. What was meant to be a minor corrective process has turned out to be major surgery but we do not have enough surgeons in the DRC,” he said.

The government was keen to find ways to allow companies to appeal their classification without long delays, costs and resorting to litigation and international arbitration.

“Not all companies agreed with the situation and we are faced with a choice. Do we enforce our view or allow appeals?” Kasongo said. “In many ways, we would much prefer to bring many companies back to the negotiation table to reconstruct the contracts properly, rather than arguing about why they were classified the way the way they were.”

The government is setting up a special panel to hear companies’ motivation for reclassification.