Nikanor's KOV copper/cobalt mine, DRC
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» DRC warns mining companies
» Fortin squares up to SA's Exxaro
» Metorex aims for role in Kipushi zinc
» Nikanor seeks copper consolidation
» Okimo says clock ticking on Moto

» JSE:EXXARO RESOURCES LIMITED:
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DRC starts on rocky road to recovery
David McKay
Posted: Tue, 06 Mar 2007

[miningmx.com] -- KENNETH Macleod is the vice president of a mining contracting firm that moved into the Democratic Republic of Congo (DRC) nine years ago. That was in 1999, a year into the civil war that has been dubbed Africa’s World War owing to the scale of devastation.

Now, however, Macleod’s company – MCK (Mining Company of Katanga) – is one of the largest contractors in the DRC’s southernmost Katanga province expected to attract $50bn (R354bn) in various investments over the next few years.

There’s something to be said for first mover advantage. One wonders whether Greg Hunter, CEO of Central African Gold, will have similar bravery rewarded. Speaking at the announcement of a $6.2m (R44m) investment in two Zimbabwean gold mines last week, Hunter said:

“A year ago, the DRC was not the flavour of the month for anybody. Right now anything that smells of the DRC is seen as very attractive. We saw the same thing happen in Mali and Tanzania. We’re pretty convinced that over time, as Zimbabwe comes right, it will be the same situation.”

It’s true, ‘the situation’ in the DRC is attractive, but complicated too. Politically, the country is only just simmering down. The three government-owned mining companies – Gecamines (base metals), Miba (diamonds) and Okimo (gold) welcome foreign investment, but they’re tetchy about it too. Companies that don’t show the requisite appetite for rapid investment will be penalised. And the days of picking up assets cheaply appear to be over: the DRC government knows there’s a commodity bull run underway, and wants a slice of the action.

There’s more exposure to the DRC on the JSE than perhaps most investors would at a glance expect. TEAL Exploration & Mining, Metorex, BHP Billiton, Mvelaphanda Resources, AngloGold Ashanti and Anglo American (through De Beers) all have exposure to the mining and resources potential in the DRC. And there are a host of others such as Nikanor and Uramin, which have offices in Illovo and Sandton respectively, seeking out prospects there. Bateman Holdings, another South African company listed overseas, supplies mining services into some of these projects; SRK does the due diligence studies into the estimated reserves and value of mineral resources. Exxaro Resources is hoping to be involved in the DRC if it wins its fight (with the DRC government) to develop the Kipushi zinc mine in joint venture with First Quantum Minerals.

But the challenges of investment in the DRC are simply enormous. Larry Treadgold, the chief metallurgist for Nikanor, the AIM-listed firm, says that setting foot on the Kolwezi mine, which constitutes the majority of Nikanor’s R9.4bn ($1.3bn) investment in the DRC, was a major eye-opener. “Getting to the Tilwezembe mine (an operation Nikanor has recently opened) could take more than an hour. The roads were completely impassable. Now it takes 25 minutes.”
Anything that smells of the DRC is attractive
Trying to fit a description of just how degraded the mining assets of the DRC have become is a difficult matter. Rust and dilapidation are everywhere. Nikanor’s main mine, known as KOV, is a vast, existing open pit completely flooded. Eight pumps are currently sending 12,000 cu m and hour out of the mine. Heavy rains are hampering the task.

On the nearby Kananga mine, a gigantic mobile conveyor, manufactured by Krupp, sits immobile on its tractor. It operated for a mere three months before being shut down in 2000 after funds earned by the mine were diverted into the civil war.

The DRC’s Katanga province, where Metorex is developing its Ruashi mine, produced nearly a third of the world’s copper during the Eighties. There’s hope it can do so again: the base metals market is encouraging more production, there’s investment interest, but the paucity of good infrastructure is one of the first hurdles. Some companies, such as Nikanor, think they’re making progress.

Says Treadgold: “Six months ago, I’d say infrastructure was a major problem. We don’t tend to think that now because we’ve got a memorandum of understanding with the government for power and refurbishment.”

In the Katanga province, government is represented by Moise Katumbi, the province’s somewhat dapper governor.

Speaking in one of the enormous receptions of his private residence, just a 10 minute drive from the mines in Kolwezi, Katumbi says corruption remains a problem, as does poverty. “I live in my mansion house and yet 500 metres behind me people are living in poverty,” he says, unabashed.

The Katanga province is home to 10 million people. Crime is relatively low but there’s a crying need for development which Katumbi hopes can be tackled by growing tourism and agribusiness. “We believe tourism can take off. We’ve got good soil. It’s not just the mines.” He says South African food groups, Shoprite and/or Pick ‘ Pay are being given land for development in the area, a claim later denied by the companies.

Katumbi wants the mines to provide the momentum, however – and quickly. First Quantum Minerals Minerals, which has the rights to the Kolwezi tailings project, has six to 12 months to develop the prospect, says Katumbi. It’s not quite spelled out what will happen if the Canadians fell to meet that ultimatum.

But Katumbi has already clashed with First Quantum. He labels them ‘criminal’ for failing to develop the Kipushi zinc mine timeously, despite numerous calls to action from Gecamines.

On a more conciliatory note, Katumbi is promising investors that corporate taxes and royalties will be kept stable as enshrined in the mining code. This includes a 2% royalty on base metal sales, 30% corporate tax and small surface fees. The mining code, written in 2002, provides for a 10-year stability agreement.

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Meanwhile, there are also plans to control artisanal mining and halt illegal exports of malachite and heterogenite, the ore that hosts copper and cobalt respectively. One mine employee says, however, artisanal mining continues uninterrupted. They sell the rock to Lebanese in the area and “Gecamines doesn’t give a damn,” says one. Driving to Nikanor’s KOV mine, there’s a group of 20 to 30 artisanal miners openly fishing a open pools of water for heterogenite. There are 150 on site but much less than the thousands at work on other mines.

The role of Gecamines in the recovery of the DRC’s base metals industry is obviously crucial. Again, stability is shown to be fragile as Paul Fortin, CEO of Gecamines, is first suspended and then reinstated after Gecamines staff stage a walk out. In an interview with Miningmx in February, Fortin said he hoped corruption at Gecamines was being tackled, but it was difficult to prove. Says Katumbi: “There is a mining code. Everything we give to investors we’re going to respect. The international community needs to know we will fight against corruption.”