Congo Mining Commission fires multiple salvos - and itself comes under fire
Published by MAC on 2007-11-15
Congo Mining Commission fires multiple salvos - and itself comes under fire
15th November 2007
For several months, there has been speculation about the activities of a Commission set up by the DR Congo government to examine contracts made between former regimes and a large number of mining companies. How transparent or independent would the commission be? To what extent would the current government seek to interfere with its process, "doctor" or suppress its evidence? And, even if the findings were accepted as they stood, what would that mean in practice - in the face of a current massive "open door" policy to foreign companies?
At the beginning of this month, at least one of these fears seemed to be confirmed when a person or persons unknown leaked the draft Commission report to the media, apparently fearful that its conclusions would indeed be altered by the government. Various representatives of the administration rushed to assure the mining industry that mineral investments in general weren't under threat (although one company had already had its contract withdrawn) - and seek out the "whistleblowers".
Shortly after the leak,an impressive raft of NGOs issued a statement calling on the government to guarantee that the work of the Commission will proceed unhindered and its recommendations published as they stand.
Among the companies named in the draft report as having been involved in contractual irregularities, or legal violations, are not only juniors such as Anvil Mining, but major companies like Freeport-McMoRan, BHP Billiton, AngloGold Ashanti and China's Western Mining.
Also on the "grey list" are Nikanor and Katanga Mining. Last week these UK-Canadian companies announced that they would merge in what could become the biggest single foreign enterprise exploiting the country's mineral resources.
International appeal for the publication of the Final Report of the Ministerial Commission on the Review of Mining Contracts in the Democratic Republic of Congo
Issued from: Berlin, Brussels, Kinshasa, London, Lubumbashi, Montreal, Ottawa, Washington
7th November 2007
A coalition of non-governmental organisations from Europe, North America, and the Democratic Republic of Congo (DRC) launched an international appeal today demanding the publication of the final report of the ministerial commission on the review of mining contracts without delay. The mandate of this commission, created by a ministerial decree on 20 April 2007, is to "examine partnership contracts and their impact on the recovery of these companies and national development, to propose, if necessary, modalities for their revision with a view to correcting any imbalances and related faults."[1]
The commission began its work in mid-June and was given a period of three months, which was extended until the end of October. According to documents and information available in Kinshasa and widely reported in the international press, it would appear that the members of the commission have finished the technical and legal study of over 60 mining contracts and have finalised their observations and recommendations.
According to the Congolese press, this leak, motivated by various pressures on the commissioners to change certain elements of the report, has had immediate effects: a drop in the share value of some companies, and a police investigation into the source of the leak. The current uncertainty and the pointless search for the guilty parties would doubtlessly have been avoided with clearer and more diligent management of the process.
It is, therefore, imperative that the government make the full report public now in order to put an end to the uncertainty and suspicion which are tarnishing the mining sector and to enable all concerned to respond publicly. Furthermore, the authorities should announce the measures that will be taken to follow up the commission's recommendations as well as the rules which will govern the pending renegotiation of mining contracts. If conducted properly, this initiative could herald a new era of transparency and equity in negotiations around both present and future contracts.
Finally, we call on Congo's friends as well as international financial institutions, some of whom have themselves documented the unfairness and impropriety of certain mining contracts, to provide all the support necessary to ensure that the process launched by the governmental commission proceeds properly. If, in the course of its investigations, the Commission has uncovered gross illegalities and the DRC Government lacks the will or the capacity to take the recommended action, then it is the responsibility of the home governments to hold their companies to account. For the Congolese population, this would be a clear sign of international support for the establishment of transparent practices of good governance and the fight against corruption. Ensuring a lasting peace, reconstructing the country, and alleviating poverty all depend to a large extent on the success of this process.
"If conducted properly, the process of reviewing the mining contracts has the potential to contribute to restarting the Congolese economy, enhancing national development and laying the ground for good governance and the fight against corruption in the management of natural resources for the well-being of the whole population." [2]
For further information:
French:
DRC
Prince Kumwamba 243 9970 25 331
Joseph Bobia 243 81 8148539
Europe
Carina Tertsakian 44 (0) 207 561-6372
Patricia Feeney 44 (0) 1865 515982 or 44 (0) 7796 178 447
North America:
Denis Tougas (514) 270-6089
English:
Europe
Carina Tertsakian 44 (0) 207 561-6372
Patricia Feeney 44 (0) 1865 515982 or 44 (0) 7796 178 447
North America
Jamie Kneen (613) 569-3439
Peter Rosenblum (617) 233-6198
Dutch:
Ruth Beeckmans 32 (0) 486-799-626
German:
Knud Vöcking 49-171-283-2408
Background
The DRC's natural resources have fuelled the conflicts which have devastated the country and the region since 1996, and continue to do so. Mining contracts signed during the wars and the period of political transition were negotiated in conditions which were unfavourable to national interests, as documented in numerous reports by national and international experts. The majority of mining contracts are not designed to contribute to the country's reconstruction, nor have they benefited the Congolese population as a whole. As noted by the Conférence épiscopale nationale du Congo (CENCO, National Bishops' Conference of Congo), "Instead of contributing to the development of our country and providing benefits to our people, minerals, oil and forests have become the causes of our misfortune."[3]
For further reference:
§ Reports of the UN Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth in the DRC (2001 to 2003).
§ Restructure of Gécamines, Draft Phase 2, IMC Group Consulting, November 2003, executive summary.
§ Commission spéciale chargée de l'examen de la validité des conventions à caractère économique et financier conclues pendant les guerres de 1996-1997 et de 1998 (Lutundula Commission), June 2005.
§ Projet d'évaluation juridique des accords de partenariat de la Gécamines (contrat N31/COPIRED/SE/02/2005), Duncan & Allen, 6 April 2006.
§ Révision des contrats miniers, cinq cas d'études (rapport Kalala), September 2006; Groupe d'experts du Forum de la société civile sur 12 contrats miniers, August 2007.
§ Toute la vérité sur les contrats miniers, Kenge Mukengeshayi, Le Phare, 2 November 2007, reproduced on the website: http://www.africatime.com/rdc/index.asp .
§ The economic aspects of key Mining Contracts: The economic argument for renegotiation, Rights and Accountability in Development (RAID), April 2007.
§ The Congolese mining sector in the balance: lack of transparency risks undermining review of mining contracts, Global Witness, 1 October 2007.
Communiqué signed by:
Canada:
Alternatives, the Halifax Initiative Coalition, Development and Peace, L'Entraide missionnaire, Justice and Liberation/Canada, MiningWatch Canada, Terre sans frontières
Democratic Republic of Congo:
ACIDH, ASADHO, Avocats Verts, CDF, CENADEP, CEPAS, CEPECO Bas-Congo, CIDB Equateur, CODHOD, CNONGD, CRONGD Bandundu, CRONGD Equateur, DIPY Sud et Nord Kivu, GAERN/CRONGD Kasai Oriental, GASHE Equateur, Groupe Jérémie, Héritiers de la Justice, IPROFAV, Maniema Liberté, OCEAN Kinshasa, OCEAN Province Orientale, ODECOLA Kasai Occidental, OSAPY Province Orientale, OSISA, Premicongo Katanga, Publiez ce que vous payez Kinshasa, Réseau CREF, Réseau Ressources Naturelles, RODHECIC.
Europe:
Broederlijk Delen (Belgium), 11.11.11 (Belgium), NIZA (Holland), Fatal Transactions (Holland), Global Witness (GB), RAID (GB), Urgewald (Germany)
United States:
Carter Center, Human Rights Clinic of the University of Columbia, Bank Information Center
[1] Arrêté ministériel no 2745/cab.min/Mines/01, 20 April 2007.
[2] Consolidation du rapport du groupe des experts du Forum de la société civile sur un examen indépendant de 12 contrats miniers. Rapport de l'atelier du 16 et 17 octobre 2007. p. 2. (Consolidation of the report of the group of experts of the Civil Society Forum on an independent study of 12 mining contracts. Report of the workshop of 16-17 October 2007, page 2.)
[3] "A vin nouveau, outres neuves » (Mc2,22) Ne pas décevoir les attentes de la nation : message de la CENCO", 7 July 2007.
Congo-Kinshasa: NGOs Campaign for Publication of Mining Contracts Report
Catholic Information Service for Africa (Nairobi)
Kinshasha
9th November 2007
A worldwide coalition of non-governmental organizations this week launched an international appeal demanding publication of a government report on mining contracts in Congo.
The appeal was issued Wednesday by organisations from Europe, North America and the Democratic Republic of Congo, and is aimed to examine partnership contracts and their impact on national development in DRC.
A commission to review mining contracts was created by the government on April 20, 2007. It began work in mid-June and was given a period of three months, which was extended until the end of October.
Reports say the commission has finished the technical and legal study of over 60 mining contracts and has finalized its observations and recommendations.
"It is imperative that the government make the full report public now in order to put an end to the uncertainty and suspicion which are tarnishing the mining sector and to enable all concerned to respond publicly," the coalition of NGOs said.
"Furthermore, the authorities should announce the measures that will be taken to follow up the commission's recommendations as well as the rules which will govern the pending renegotiation of mining contracts."
Reports from Congolese press say the commissioners are under pressure to make changes on the report and this has had a negative effect on some companies and led to police investigations.
The coalition said the current uncertainty and the pointless search for the guilty parties would doubtlessly have been avoided with clearer and more diligent management of the process.
It asked international financial institutions to provide support necessary to ensure that the process launched by the governmental commission proceeded properly.
The coalition said if the commission revealed any gross illegalities, the DRC government should take action against those companies involved.
The DRC's natural resources have fuelled the conflicts in country since 1996 and continue to do so. The national Catholic bishops' conference of Congo has said that "instead of contributing to the development of our country and providing benefits to our people, minerals, oil and forests have become the causes of our misfortune."
Mining contracts signed during the wars and the period of political transition were negotiated in conditions which were unfavorable to national interests and majority are not designed to contribute to the country's reconstruction, nor have they benefited the Congolese population.
Agencies Pressure DRC Commission to Publish Mining Review
By Selah Hennessy, Voice of America, Dakar
8th November 2007
The Democratic Republic of Congo government commission in charge of reviewing mining contracts in the mineral-rich country has been called on to publish its final report. A group of non-governmental organizations says the final report should be made public in order to bring transparency and clarity to the review which, they say, has been marred by confusion and speculation. Selah Hennessy reports from the VOA West and Central Africa bureau in Dakar.
A draft of the mining report was leaked to the media last week. The draft says the majority of the 60 contracts under review will be altered or canceled, news that caused the share prices of many of the world's biggest mining companies to drop.
Congo's Ministry of Mines has called the leaked report "grossly misleading" and says the majority of companies currently in the DRC will remain for the long-term.
Carina Tertsakian, from the London-based watchdog group Global Witness, says transparency is vital.
"It is important because there has been a lot of confusion and speculation and suspicion really around this whole issue," said Tertsakian. "The commission that was set up by the government to review the contracts has been working for several months and we understand it has just finished its report and we believe that in the interest of transparency the government should be publishing this report."
She says the leak has caused unnecessary confusion in the financial world and in Congo, where she says the government in Kinshasa has reacted to the leak with a police crack-down.
Tertsakian says donor governments and international financial institutions need to put pressure on the Congolese government.
"Up until now, donor governments - Western governments - have been quite silent on this issue and we believe that if they express publicly their support for a fair and transparent process, this could be a very positive signal to the Congolese population in terms of their commitment to good governance and the fight against corruption in the DRC," she added.
Jason Stearns, an independent Africa analyst based in Kinshasa, says a review of mining contracts in Congo is vital.
"There were mining contracts signed during the war with very little scrutiny on behalf of the Congolese authorities," he said. "It was not a government with the adequate checks and balances to be able to ensure that there were transparent mining contracts that lived up to the mining codes."
He says most contracts are heavily imbalanced, with most profit going to large multi-national companies.
"It is like you are buying a car, but nobody ever looked at how much the car is worth that is the sort of thing - no geological studies were done to be able to evaluate the value of the concessions," added Stearns.
He says, at this point, the government is making very little profit out of the contracts.
"Most of these contracts are joint-ventures with the Congolese state so in theory the Congolese state should be making a profit out of these contracts as well," said Stearns. "Sometimes it is structured in such a way that actually most of the profits that should be going to the Congolese state are consumed by management fees so at the end of the day the Congolese state has very little benefit in terms of how much money they make out of these contracts."
There are few details now available about how much companies paid for the contracts and to whom.
Congo has a vast supply of natural resources, including copper, tin, gold, diamonds, and one-third of the world's cobalt.
Mining stock in a hole on word of lost work
Anvil Ltd. share price sinks by 11 per cent
LYNN MOORE, The Montreal Gazette
6th November 2007
Reports that Anvil Mining Ltd. may see its contracts in Democratic Republic of the Congo cancelled or renegotiated caused its stock price to sink by 11 per cent in trading in Toronto yesterday.
Anvil's flagship operation is its Dikulushi copper and silver mine which, according to a Reuters story from Kinshasha, will be among those tagged for cancellation by a state-appointed mining commission.
The Australian-based miner, whose Canadian offices are in Montreal, said yesterday that it cannot comment on its DRC contracts because it has had no written communication from the country's mining minister or the commission examining mining contracts. The commission is to assess the country's mining contracts, most of which were issued during the country's horrific 1998-2003 civil war and the transitional regime.
Anvil's Dikulushi mine - which produced 22,618 tonnes of copper and about 2.17 million ounces of silver in 2006 - opened in 2002. The miner, which bills itself as the leading copper producer in the DRC, has another two mines in the country.
According to the Reuters report, the commission has determined that none of the 61 contracts under review are "viable" in their current form.
Anvil is among the mining companies whose stock price dropped on the news.
The DRC has one-10th of the world's copper reserves and one-third of its cobalt.
In a statement issued yesterday, Anvil said that it ''can offer no comment" on the situation.
"Anvil understands that the commission is to report to the minister of mines and that the commission ... does not appear to have the power itself to renegotiate or terminate any contract."
This year, a Congolese military court cleared Anvil and three employees of involvement in a bloody 2004 army crackdown against rebels.
In August, Anvil reported record earnings of $35.4 million, up 57 per cent over 2006 second-quarter earnings of $22.5 million.
Shares of Anvil lost $1.89 to close at $15.54 in Toronto.
Congo Contract Shake-Up Rocks the Mining Sector
By Jane Louis, Resource Investor
5th November 2007
St. LOUIS (ResourceInvestor.com) -- The long-awaited shake-up in the Democratic Republic of Congo's mining sector may finally be happening.
A government-appointed panel is due to release its report tomorrow on which mining contracts in the country remain "viable" following the government's transition after the DRC's 1998-2003 civil war - but a preliminary report was leaked this weekend, advising that 24 of the 61 mining contracts under review should be cancelled.
The panel began its review of the legality of the contracts in June. The contracts were classified into three categories: those that should be renegotiated, cancelled or remain untouched. The leaked report did not classify any companies as remaining untouched, according to sources.
Permits held by Freeport-McMoRan [NYSE:FCX], BHP Billiton [NYSE:BHP; LSE:BLT], AngloGold Ashanti [NYSE:AU], Nikanor [LSE:NKR] and Katanga Mining Ltd. [TSX:KAT] are included in the 37 contracts classified for renegotiation in the leaked report. Some companies listed were criticized for "irregularities" in licence negotiation and disrespect of the Congo's mining code.
Several companies said that they had not heard anything officially from the DRC government and pointed out that it is the government - not the panel - that will make a final decision.
Anvil Mining [TSX:AVM; ASX:AVM] lost almost 19% today on the Toronto Stock Exchange on the report's news that the firm's rights to the Dikulushi copper-silver mine will be recommended for termination and its contracts with the Mutoshi and Kinsevere-Nambulwa properties will be recommended for renegotiation. The company issued a statement saying that it has heard nothing from the DRC government in regards to the preliminary report.
"Anvil confirmed that it has received no written communication from the Minister of Mines or the commission (or any other government body in the DRC) in respect of renegotiation or termination of any agreement to which Anvil or any of its subsidiaries is a party," the press release stated.
"Anvil understands that the commission is to report to the Minister of Mines and that the commission is mandated to issue recommendations only and does not appear to have the power itself to renegotiate or terminate any contract. Accordingly, Anvil can offer no comment on whether any of its contractual arrangements in the DRC will actually be terminated or renegotiated."
Not the First Time
The DRC is estimated to hold one-tenth of the world's copper reserves and about one-third of the world's cobalt. The country has produced as much as 475,000 tonnes of copper a year in the past, although output has decreased in the past 30 years.
Under President Joseph Kabila, the government launched its review of mining contracts earlier this year to make sure all were legal and fair to the state.
In late August, the DRC revoked Central African Mining & Exploration Co.'s copper and cobalt mining licences - essentially knocking out CAMEC's pending [AIM:CFM] $1.4 billion takeover bid for Katanga.
The DRC stripped London-based CAMEC of its rights to the C19 concession due to "serious irregularities in the original issuing of the licences," according to a Congolese Justice Ministry press release.
"The judicial decision has been taken to revoke and cancel the licences held for the area known as C19," the press release read. "The rights to mine the C19 area revert to Gecamines, the state-owned mining company."
CAMEC maintained that there was "no legal basis" for the revocation and argued that the DRC did not take the proper steps as requires by law to revoke the permits.
An Agreement With the Chinese?
In September, China agreed to loan the DRC government $5 billion for mining and infrastructure projects, including a new Chinese-Congolese joint venture mining company - leading some to speculate that revoked licences will be awarded to Chinese companies.
But Philippe de Pontet, an analyst with the Eurasia Group, told Resource Investor he does not believe a majority of terminated contracts would be handed over to the Chinese.
"I doubt that the Chinese will get a majority of revoked licences," de Pontet said. "ŠI doubt it would be more than a handful. I don't think the Congo wants to alienate Western companies."
Octagon Capital analyst Hendrik Visagie does not even think any of the major companies will lose their licences. He told RI that he thinks the Congo is using its Chinese connections as a leverage point in negotiations.
"With the Chinese involved in the background, (the DRC) has a much stronger hand," he said.
Visagie, who noted that he is not an expert on the Congo but an observer, said that he thinks it is likely that the companies ordered to renegotiate will choose to do so and not walk away.
"Ultimately, that's the only choice they have, right?" he said. "ŠI think that they'll have to negotiate."
Effects on the Copper Market
Copper futures fell to a seven-week low today on the London Metal Exchange, dropping to $7,350 per tonne during midday trading. But the DRC's decision regarding contracts could turn out to be good news for copper prices, according to Visagie.
"This will just delay the development of copper projects," he said, which will drive traders to be bullish on both copper and cobalt.
"The world is depending on the Congo production to bring the copper supply and demand into balance," Visagie told clients in a note.
Many of the miners in the preliminary report saw their share prices drop on today's news. Anvil led the way, trading 15.38% lower at C$14.75 on TSE this afternoon, while Katanga lost 13.42% to C$11.68. Nikanor closed 4.77% lower at 588.50 pence on the London Stock Exchange. BHP lost 5.25% to $79.33 on the New York Stock Exchange, and AngloGold declined 0.54% to $42.71.
But de Pontet pointed out that the preliminary report will not be the DRC government's ultimate decision. "This is not the final word," he said. "The recommendations will not be accepted in total."