Democratic Republic of Congo mining investors hoping for reassurance about the controversial review of mining contracts were sorely disappointed recently when the country’s deputy mining minister, Victor Kasongo, announced that an initial study showed that not a single mining contract would escape renegotiation.
“What caught us by surprise was the scale of the problem. We expected the rectification of a few contracts, but not one single contract was properly constituted,” Kasongo said.
A comprehensive mining review in the DRC was initiated in April last year. Kasongo said this week that one of its key objectives was to level the playing field for mining investors. “We need to make sure that imperfect but desirable contracts were brought up to reasonable standards,” he said.
“[I have] heard it said that the new government was settling old scores and picking on weak and helpless companies. We all need the mining contract system in the DRC to be legal … The system would not be workable if earlier entrants operated outside the law and later entrants were forced to accept the law.”
The review is also intended to increase the Congolese government’s share of mining profits. Many of the contracts were concluded during the country’s five-year war, which ended in 2003.
Kasongo said they “came across internal rates of return, which were hundreds of percentage points above what might be considered global norms”. Some contracts “were off the scale, beyond all reasonable requirements to cover understandable political and other risk concerns or to compensate for any realistic drop, however dramatic, in the market price of metals”.
The DRC has vast mineral resources. It has two-thirds of the world’s cobalt reserves and is the 10th-largest exporter of copper. It also has large diamond and gold deposits.
The review process has created much uncertainty and anxiety among mining companies which have large investments in the DRC. Stocks of several of the larger companies tumbled following Kasongo’s announcement on Wednesday, with first Quantum Minerals stock dropping 4,9%, Freeport McMoRan Copper and Gold 5,5% and Katanga Mining stocks falling 10%.
Although reluctant to be openly critical of the mining review process, several company directors indicated that it was negatively affecting the country’s standing as an investment destination.
Bill Turner, chief executive of Anvil Mining, which has been operating in DRC for close to a decade, told investors that the review process risked creating renewed scepticism about the DRC as an investment destination at a time when fund managers had begun to view it as stable.
“We have some issues with the mining review. It has created a level of anxiety and impacted financial markets.”
The sentiment was echoed by Arthur Ditto, chief executive of Katanga mining, who said: “If market reaction to [the] mining review is not positive, [it will have] adverse effects on available investment funds.”
This week Kasongo said the government was putting in place a “fast-track” process for companies to discuss the mining review with government. He announced on Wednesday that companies would be informed about the details of their contract reviews within two weeks and that the whole process should be completed in the next three months.
“Within two weeks the companies will be notified of the concerns and they will be called to Kinshasa. The process should take three months, unless they take the route of the panel of appeals.”
The mining review was conducted by a specially constituted panel of government officials, with help from Duncan Allen, Ernst & Young and the Carter Center. A number of local and international NGOs have been highly critical of it, expressing concern that it has been insufficiently transparent.
The illegal exploitation of Congolese natural resources was one of the main factors driving the 1998-2003 war in the DRC.