With political instability continuing to cripple foreign mining ventures in the Democratic Republic of Congo (DRC),
It has been almost a year since AMF entered into a joint-venture agreement with
The agreement created the equally owned company Congo Mineral Developments (CMD) and put an end to a US$3-billion lawsuit launched several months earlier by AMF against the South African giant. AMF’s petition had claimed, among other things, that Anglo tortiously interfered with the junior’s agreements in the DRC.
Speaking to shareholders at AMF’s annual meeting in Toronto, President Tim Reid stressed that despite past differences, the two companies now have a solid working relationship and that the agreement “has given America Mineral Fields a secure footing in the DRC.”
In January, CMD signed a convention with the government and the state-owned company Gnrale des Carrires et des Mines (Gcamines) for the transfer of Kolwezi’s ownership to a new company, named KMT Sarl, which will be held 60% by CMD and 40% by Gecamines.
In return for the transfer, CMD will make payments totalling US$130 million to Gecamines under the following schedule: an initial US$25-million payment on transfer of the project assets to KMT Sarl; three equal payments of US$10 million every second month thereafter; a US$40-million payment upon completion of a bankable feasibility study (which should take about four months) and receipt of project financing; and a US$35-million payment when the first metal is produced.
In accordance with the AMF-Anglo joint venture, Anglo will fund CMD with the first US$75 million of these payments, and AMF’s share will be repaid to Anglo from project revenues and any future equity financings.
The first US$25-million payment to Gcamines will take place once CMD has obtained both a presidential decree ratifying the convention and the blessing of the South African Reserve Bank.
“We’re absolutely convinced we will get the presidential decree,” said Reid, noting that CMD has met with Congolese President Laurent Kabila and is in constant communication with the DRC government. “We need the presidential decree to make sure the banks have total security.”
Politics aside, the Kolwezi project has robust economics. Resources are estimated at a combined 104.5 million tonnes of tailings grading 1.34% copper and 0.26% cobalt, and the partners envision building a US$350-million operation capable of processing a minimum of 50,000 tonnes of copper and 6,000 tonnes of cobalt annually over 27 years. With no mining or milling required, operating costs are expected to be, at the most, US40 cents per lb. copper and US$2 per lb. cobalt.
“We are one of the very few companies that can say we would love to go forward at current metal prices,” said Reid. “The Kolwezi project will be at the lowest end of the cost spectrum, without even taking into account the cobalt credit.”
The development of Kolwezi will require an acid plant, and the acid could potentially be obtained from AMF’s other major project in the DRC, the Kipushi zinc-copper mine.
Situated west of Lubumbashi, the Kipushi mine was once one of the world’s major zinc producers, but now it sits idle following years of neglect, plunder and civil war. Resources at Kipushi have been pegged at 22.6 million tonnes grading 13.8% zinc and 2.1% copper, with proven reserves estimated at 8.8 million tonnes grading 12.8% zinc and 2.7% copper.
AMF’s initial agreement with Gcamines at Kipushi expired in October 1998. However, AMF was informed by its partner that the agreement will “continue to remain valid for the foreseeable future.” AMF has stated that this is, in effect, an option agreement and that it will exercise this option only if the project is proved economically viable.
The company has also stated that it expects to obtain a minimum 70% interest in the Kipushi mine and that capital expenditures for a new project would be roughly US$200 million.
AMF has so far spent US$3.5 million on Kipushi and has agreed to prepare feasibility studies that would examine the resumption of production, processing options and the viability of retreating existing tailings.
In the Congo war, recent developments have given AMF shareholders at least some cause for hope. On April 18, Libyan leader Moammar Gadhafi brokered a ceasefire between Kabila, Chadian President Idriss Deby and Ugandan President Yoweri Museveni. The plan calls for the withdrawal of foreign troops fighting in the DRC and the deployment of African peacekeepers.
However two key players, the Congolese rebels and the Rwandans, were absent from the talks and later voiced their skepticism at the agreement. (Uganda and Rwanda have troops backing the Congolese rebels, who took up arms in August 1998, while Kabila has support from Chad, Zimbabwe, Angola and Namibia.)
Commenting on the deal, Reid said: “It’s premature to say peace is established, but I think we are making progress.”
At presstime, the DRC had announced that a “national debate” on its future would take place in Kenya in mid-May. This comes after the cancellation of a similar series of meetings that were to have been held in Rome.
To keep the company on its feet during this difficult period, AMF’s largest shareholder, Jean-Raymond Boulle, formerly Robert Friedland’s partner in Diamond Fields Resources, has stepped in with a US$750,000 loan and a pledge to underwrite up to US$3 million of a proposed private placement.
As of March 16, 1999, Boulle owned 10.4 million shares (or 36.4%) of AMF, with most of the shares held through his Luxembourg-based company Gondwana Investments.
There have been several changes at AMF in the past few months: in February, London-based investment banker Tim Reid became AMF’s new president and chief executive officer, and Ian Johnson was appointed chief financial officer. Bernard Vavala, who relinquished the position of CEO, remains chairman, and former AMF president Stephen Malouf has kept his directorship.
To manage its African projects more effectively, the company has also moved its head office from Dallas to London. Canada will remain the company’s registered domicile, and the company will retain its Toronto listing.
“We will be cutting back on overheads so we can tough out the political problems in Africa,” said Reid. “We have world-class assets. We don’t have to go out and look for them. We just have to make sure the company is safe during this period. Our challenge is to be self-sustaining.”
For the year ended Oct. 31, 1998, AMF reported a loss of US$4.2 million (15 cents per share), compared with a loss of US$3.8 million (14 cents per share) during the previous fiscal year. During fiscal 1998, AMF spent US$3.8 million on administration expenses, up from US$2.9 million the previous year.
For the first quarter ended Jan. 31, 1999, AMF lost US$889,128 (or 3 cents per share), compared with US$1.4 million (4 cents per share) a year earlier.
At last report, AMF had a deficit of US$12.8 million and more than US$1.3 million in cash.
While the DRC is the company’s prime concern, AMF has also been active in several other countries, both in Africa and elsewhere:
q Last May in Angola, AMF spent US$1.7 million acquiring privately held IDAS Resources, which has a 50-50 joint-venture with government-owned Endiama at a diamond concession the Cuango Valley. However, since the deal was signed, hostilities between the Angolan government and the rebel UNITA army have resurfaced, severely disrupting most mining ventures in the country.
“There’s no assurance as to when we can get in again,” said Reid of AMF’s Cuango projects. The company also admits there is some dispute over the exact boundaries of its mineral leases.
- In Zambia, AMF spent US$850,000 in fiscal 1998 exploring several licences adjacent to the DRC bor
der. Results from the work are being evaluated. - AMF’s diamond exploration activities in the Arkhangelsk province of northwestern Russia have been scaled back in order to focus on core African projects. Reid said the company is looking for a joint-venture partner.
- In Norway, AMF has retained a mineral exploration licence that is said to have structural and geological similarities to the Voisey’s Bay anorthosites of Labrador. The company plans to carry out further work in Norway this year.
- Brazil has been deemed to be no longer of interest to AMF, and the company will try to dispose of its Brazilian assets this year.
Be the first to comment on "America Mineral Fields hangs tough in DRC"