March 22, 2010 -
PRLog -- The big news from the Democratic Republic of Congo's (DRC) mining industry in early 2009 was the news in March that the country plans to accept US$9bn in investments from China, to be spent on mining and infrastructure, despite the opposition of the IMF. The IMF has expressed concern that this deal - which was originally agreed at the end of 2007 - will only add to DR Congo's current debt burden. According to a recent report in Bloomberg, the deal will see China build roads, railways, hospitals, and schools in return for metals worth some US$50bn at current prices. Reuters also reported that negotiations on an initial US$6bn-worth of public works and mining infrastructure projects have already been finalised, with both sides still discussing the terms of the remaining US$3bn in funding. It is reported that this US$3bn will be used to fund Sicomines Sarl, a mining joint venture between state-owned metals producer La Générale des Carrières et des Mines (Gécamines)
, and various Chinese miners. This new joint-venture (JV) - to become operational in 2011 - is reportedly set to produce up to 400,000 tons of copper and 19,000 tons of cobalt per annum. China's ambassador to DR Congo, Wu Zexian, has denied that the country will be burdened with debt as a result of the deal, saying that the work is being carried out by China Railway Engineering Corporation and Sinohydro Corporation, who have in turn received funding from China Exim Bank and China Railway. DRC is home to vast reserves of a wide variety of natural resources - primary among them being metals such as cobalt, copper, gold, and precious stones, including diamonds. DRC is believed to contain around 4% of the world's copper reserves and one-third of its cobalt reserves. The mining industry, like the rest of the economy in the central African nation, has suffered due to an unstable political environment, coupled with widespread strife caused by the six-year civil war that ended in 2003. However, for some time it appeared that, given high prices of minerals on global markets, investors would be willing to discount the political risk premium of investing in the DRC. But recent plummeting mineral prices and escalating costs have already seen - according to the government, quoted by Reuters - some 40 of the mining companies working in Congo suspending exploration, development and production operations. All mineral deposits in the DRC are state-owned and the holder of mining rights also gains ownership of the mineral products for sale. Governed by the National Mining Code, the Ministry of Mines regulates the Mining Registry, Directorate of Mines, and the Geological Directorate in the DRC. A peculiar feature of the mining industry in the DRC is that artisanal mining (i.e. non-mechanised small-scale mining) accounts for 70% of the national diamond production. Thus, in spite of being the world's third largest diamond producer in terms of output, the country is ranked only seventh in terms of value. Furthermore, use of archaic mining techniques has restricted possible growth in the diamond mining segment. Outbreaks of violence and civil unrest, and the looting of minerals and precious stones by armed militia continue to drain the country's rich natural resources. Though things looked up after the formation of a new government following the 2006 elections, analysts do not expect the macroeconomic and political environment to stabilise any time soon. Indeed a fresh wave of fighting between a rebel group led by renegade general Laurent Nkunda and government forces swept through North Kivu province, eastern Congo from late August 2008. In addition, although multinational miners have started investing in the country's mineral and metals sector, the physical infrastructure remains extremely poor or even nonexistent at times. Speaking to Reuters, Deputy Mines Minister Victor Kasongo announced in December 2008 that the government review of 61 mining contracts had been completed. State-controlled miner Gécamines - which is seeking greater ownership of the mining sector - had asked for more time to complete contract review talks, aimed at overhauling deals signed in the chaos for the 1998-2003 war. Of the current 61 mining contracts under review, Reuters cites 14 as being 'green' (or acceptable), 26 as 'orange' (needing further agreement), and 21 as 'red' (facing cancellation)
. However, Reuters also reported that six major companies had walked away from the talks, including USbased Freeport McMoran which is developing the Tenke Fungurume project, due to come on line in late 2009. Several firms denied this, stating that they were waiting to be invited back to the talks. Kasongo announced that the talks would be extended by 45 days to allow the remaining six contracts to be addressed. In December 2008, Congo's central bank governor cited the dragging process as a contributory factor to the acute downturn of the mining sector. During the review, Kasongo had announced that the government would seek to privatise some of the state-owned mining companies. He indicated that the first flotation would take place within 12 months. At the time of going to press, it is unclear whether these plans have been affected by economic developments. BMI launched coverage of DR Congo's tin mining sector in Q408. Congo is Africa's largest producer of tin and the east of the country is host to extensive cassiterite reserves. Over the long term, tin could play an increasingly crucial role in DR Congo's wider mining industry. However, the near-term outlook for the sector remains clouded. Armed groups continue to dominate illegal tin mining in the still war-ravaged east of DR Congo. This is preventing legitimate mining concerns from exploiting this resource successfully. In the most recent example, Kivu Resources announced in early October 2008 that it was declaring force majeure at its Mpama Bisiye mine in Kivu province, having failed to reach an accommodation with the Congolese soldiers who have occupied the site since December 2004.
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