DRC riches ripe for plucking

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Tony Trahar, CEO, Anglo American

� Africa�s inexorable rise
� AngloGold settles DRC �key concerns�
� Metorex shifts focus to copper
� DRC�s Moto to lift gold resource 33%
� First copper/cobalt output at year-end, Nikanor's chairman Jonathan Leslie
� Phelps, Tenke may upgrade DRC venture

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DRC riches ripe for plucking
Allan Seccombe
Posted: Wed, 09 Aug 2006

[miningmx.com] -- NEW mining investment will pour into the Democratic Republic of the Congo post elections, but a re-rating of companies already there is still some way off.

�We all will be re-rated after the elections and the big discount rates we have will disappear because the projects are truly world class,� Banro president and CEO Peter Cowley told Miningmx.

Banro has six rigs exploring three of its four properties on Twangiza-Namoya, one of the two big greenstone belts in the DRC, which Cowley reckoned was one of the last big undeveloped gold prospects in Africa.

The DRC had its first round of voting at the end of July when 25 million eligible voters were able to decide who out of 33 presidential and 9,000 parliamentary candidates they would like to lead the country.

The results are still some way off, however, with the BBC reporting at the weekend on independent observers� concerns about the counting process. There appears to be a �logistical mess�, Colin Stewart of the Carter Centre told the broadcaster.

A runoff election will be held at the end of October if there is no clear winner in this round. A new government could be formed in November.

A new political regime and stability is helpful

The largely peaceful election, which has won a cautious nod from international observers, is just the first step in changing the investment climate in one of the world�s most prospective and largely untapped mineral treasure chests that global mining companies have been itching to get their hands on.

Anglo American has two subsidiaries operating in the DRC, which is sees as highly prospective. AngloGold Ashanti and De Beers are both in the DRC.

�We�re looking actively at the DRC� I think the ongoing emergence of a new political regime and stability is helpful and a lot of other mining companies are doing the same thing,� Anglo CEO Tony Trahar said.

Others are excited about prospects in the DRC, but have found the going extremely tough.

�We�ve been active in the Congo for 14 years now and we haven�t got a lot to show for it. I�m hoping that things will start developing,� said Con Fauconnier, CEO of Kumba Resources, South Africa�s largest iron ore producer, which has a zinc mining and refining business.

�It�s a country with enormous potential from a mining point of view. If it did come right I�d like to be one of the first in there to start mining Kipushi,� he said of the defunct zinc and copper mine that Kumba is talking to First Quantum and state minerals company Gecamines about reviving.

The political changes sweeping across Africa�s second largest country after the Sudan will also change the perspective of investors in companies operating in the DRC, but this change will be measured until a new government is peacefully ensconced in the capital Kinshasa.

�At the moment the market is pricing 50% to 100% discount on these company valuations compared to what international peer groups are trading at,� said Mark Smith, the Africa mining analyst with RBC Capital Markets in London.

�We�d look to see some of the discount close up, but not evaporate after the elections. It�s a timetable of a year or two for stability in the DRC,� he told Miningmx.

Junior mining and exploration companies, the traditional risk takers of the sector, are expected to pour into the DRC, despite the immediate lack of clarity about the political future there.

A second wave of investment will be when the major mining companies enter the country en masse, leading a flurry of investment, acquisitions, joint ventures and consolidation.

�Until the majors move in aggressively we won�t see significant re-ratings in these stocks. By the end of December, we should see some re-rating coming through on these stocks,� Smith said.

ACID TEST

An acid test for the junior companies will come when they approach the market to raise capital to advance their projects, a lot of which are in the pre-feasibility and feasibility stages.

If recent events are anything to judge by there is keen investor appetite for DRC projects.

Copper and silver miner Anvil Mining has raised $20m and gold explorer Banro Corp some $50m. New AIM-listing Nikanor, with copper and cobalt assets in Kolwezi, raised $400m on its listing in July.

Some major mining firms are already in the DRC. BHP Billiton, Rio Tinto are there and AngloGold Ashanti has established a representative office in the country and installed a country manager, a sure fire sign of keen interest.

�More and more people are not so much looking at risk, because it exists everywhere, but whether it has been identified and if the management team is capable of managing that risk. I think risk is a diminishing concern amongst our shareholders,� said AngloGold Ashanti CEO Bobby Godsell.

Phelps Dodge, widely seen as a conservative company with a healthy aversion to risk, has taken a majority stake in a 40bln pound copper and cobalt prospect, the Tenke Fungurume Project, in the southern DRC, at which a feasibility study should be completed this year.

The DRC holds some of the world�s greatest potential when it comes to metals and minerals. It is estimated to have 10% of the world�s copper, with grades higher than that of Latin America. It used to be the largest cobalt producer. Its diamond production hit 500m carats in the three decades to 2001, Smith said.

It�s gold potential has yet to be realised.

�If you look at the natural resource base in the Congo to what it can potentially produce, it is the largest you�ll see in any province or region in the world. The ability to produce more commodities out of the DRC is the greatest in the world today,� Smith said.

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just three companies, AngloGold Ashanti, Banro and Moto Gold, have pegged out 25m oz of resource in just 18 months of exploration of roughly a fifth of their lease areas, he said.

Companies that took a calculated gamble on the country�s peace process have plucked the most of the obvious mineral deposits, said Metorex CEO Charles Needham.

�The mineral deposits in the Congo are in the upper percentile of world deposits. I think one needs to get in early, which we have been fortunate enough to do. We are seeing the rest of the world focussing on the DRC,� he said.

The DRC, then Zaire, was plunged into civil war in 1997, ending three decades of corrupt governance by Mobuto Sese Seko. Fighting ended in 2002, with Joseph Kabila heading an interim government. Four million people were killed in the fighting.

Under Kabila�s rule and with help from the World Bank, the transitional government drew up a mining code based on those of Francophone countries in West Africa. It went a long way to allaying investors� fears and luring investment.

The mining laws are seen passing intact into the new government, but some deals might not.

�My concern is that some of the deals recently struck with the interim government. If the government changes significantly you could see some changes in title when the new government is put in place. There could be some disappointments down the line, but fundamentally I don�t see the mining code changing,� Smith said.

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