FCX and FQM among companies whose mining contracts still rejected by DRC government.

The DRC Government has apparently still rejected new contract proposals for six of the 61 companies whose projects were up for review - and these include some of the biggest names in global mining.

Author: Lawrence Williams
Posted: Friday , 17 Apr 2009

LONDON -

The latest statement from the Democratic Republic of Congo's deputy Mines Minister, Victor Kasongo casts further doubt on the state of mining contract negotiations with some key mining companies - notably Freeport McMoran (FCX:A), which has just brought the biggest project of all on stream at Tenke Fungurume. However there does seem to be some dissension with his latest statement among at least some of his government colleagues.

According to a Reuters report the DRC has rejected contract revisions proposed by six of the biggest mining firms there and will extend a much delayed review by six months. The firms whose contract negotiations are reportedly still pending also include First Quantum (FQM:T), Mwana Africa (MWA:L), AngloGold Ashanti (ANG:J) and Gold Fields (GFI:J). Also gold exploration company Banro (BAA:A) is noted in the statement, although this must be confusing to the junior Canadian gold explorer as it was not among the 61 companies whose contracts were up for renegotiation in the first place, and has also received official government confirmation only two months ago that its licenses were compliant with Congolese law and has not heard anything since.

The DRC's mining contract review was designed to bring contracts signed during previous administrations' tenures, many in the midst of a civil war, up to more normal standards and, at the same time, to boost state revenues. The original programme was to last six months, but has now continued for close on two years without final agreements yet being reached with some of the biggest global mining groups which are presumably finding the suggested Congolese terms unacceptable.

However, in an apparent effort to calm investors rattled by Kasongo's statement, Emile Bongeli, the DRC's Deputy Prime Minister for construction is repoted by Reuters as saying that the Congo's cabinet of ministers could meet as early as the first week in May to make a final decision on the six deals.

"Even if some little problems still exist, these are contracts that are made to last... We think that there have been positive advances," said Bongeli, reports Reuters.

"This reflects a longstanding but perhaps growing rift within the administration between those who just want to complete the review ... such as Bongeli, and those who still want to hold out for more," said Philippe de Pontet, analyst at Eurasia Group.

Again, according to Reuters, negotiations between the six companies, representatives from state mining companies and the mines ministry broke down late last year. The government accused the companies of walking out of talks, a claim the miners denied, and earlier this year extended talks an additional 45 days.

"These companies have over 60 percent of our proven reserves. We can't just leave it like this ... They can come to discuss how to improve their proposals, or, in six months time, we'll shut down everything," Kasongo is reported as saying.

That agreement has still not been reached with these major players and potential investors in the DRC's mining sector, which boasts some of the most exciting copper, cobalt and gold prospects anywhere in the world is yet another factor which will be scaring off mining investment in the country's resource sector - vital for the economy of a huge African country beset by enormous internal political problems and strife since Belgium handed over control to local government. Much of the old infrastructure has completely disappeared into the jungle and civil unrest and corruption still play an enormous part in making foreign investors wary.

Meanwhile the DRC's problems have been exacerbated by the global economic slump which has already caused the African nation to cut its copper and cobalt export forecasts in particular. In its heyday, the Congo was one of the world's largest producers of copper and the largest producer of cobalt, but this like much of the country's basic infrastructure had declined into the mire of mismanagement, corruption and war. It is only relatively recently that major interest had picked up in developing and reopening the country's huge resource potential - possibly the greatest anywhere in the world, but now with the global slump and the political uncertainties, most of the foreign operators have suspended project development leading to hugely increased unemployment seen in the country's mineral heartland of Katanga where it is estimated that 300,000 miners have lost their jobs.

What has been the real killer for would-be mine developers in the DRC is lack of availability of finance with banks refusing to lend to DRC projects because of the huge uncertainties, and the companies themselves unable to raise capital through equity issues as their stock prices were decimated during the big global meltdown last year, and have not recovered by much since - again due to specific DRC uncertainties scaring off investors.

Reuters reckons that projected direct foreign investment to Congo for 2009 has been cut by two-thirds. Economic growth this year is expected to drop to 2.7 percent from a 2008 average of 8 percent.