Conflict in DRC a black cloud over mining

Helped by Rwanda, rebel leader Laurent Kabila toppled larcenous dictator Mobutu Sese Seko in 1997 and became president of the Democratic Republic of Congo (DRC), formerly Zaire. A year later, Rwanda and Uganda tried to overthrow Kabila, only to be rebuffed by Angola, Zimbabwe and Namibia, which sent troops to defend the DRC’s besieged government.

Today, Rwanda and Uganda are backing different, anti-Kabila rebel movements in resource-rich eastern DRC. Kabila is fighting back with the help of his allies, while a peace accord signed last year by the warring countries (but not by the rebel groups) collects dust. The United Nations is hesitant to send peacekeepers to the embattled region, which barely functions as a state. Against this grim backdrop, life goes on, including efforts to revive the DRC’s ailing mining industry.

America Mineral Fields (AMZ-T) was among the first to invest in what was supposed to be a mining revival in the DRC. The company’s international arm, America Mineral Fields International (AMFI), took on the Kipushi zinc project and successfully bid for the Kolwezi tailings project; both projects are in Katanga province, which covers much of the country’s rich copper belt.

At Kipushi, AMFI recently concluded an option agreement with Zinc Corp. of South Africa (Zincor), the largest producer of refined zinc in Africa. The agreement allows Zincor to conduct due diligence and investigate the possibility of restoring limited production at the dormant mine, which hosts resources of 26 million tonnes averaging 19% zinc and 2.18% copper.

Under the 120-day option agreement, signed in August, Zincor can earn up to a 50% interest in AMFI’s interest in the project by matching what has been spent to date. If the due diligence is positive, Zincor would negotiate a formal agreement with the owner, DRC and state-owned Gnrale des carrires et des mines (Gecamines), covering issues of structure, project finance, equity ownership and dividend distributions. A convention would then be sought from the government on matters of title and fiscal terms, which would provide more security than exists now for investors.

AMFI has powerful partners willing to help it advance the Kolwezi tailings project, which at last report had resources of 112.8 million tonnes grading 1.49% copper and 0.32% cobalt. Kolwezi is held 60% by a Congolese company owned equally by AMFI and Anglo American (aauk-q). Gecamines owns 40% of the project. A fourth player is Brussels-based Union Minire, which acquired a 20% interest in AMFI last year through a $22-million private placement.

A pilot plant built in Johannesburg is producing copper and cobalt cathode on a consistent basis. Nine flow-sheet options have been tested, and the partners hope to make a final choice by the end of this year.

AMFI President Tim Read says “constructive discussions” have continued with Gecamines on financial and commercial aspects of the project. “However, financing and development of this project will continue to be hampered unless the military conflict in the DRC can be peacefully resolved.”

Banro Resource‘s (YBN-V) foray into the DRC has produced more heartbreak and headaches than profits. The junior holds 93% of Sakima Sarl, a Congolese entity that once held gold-mining assets in the Kivu region in eastern DRC. In the fall of 1997, the government expropriated these assets and dissolved Sakima.

Bewildered Banro officials met with Umba Kyamitala, minister for the development of strategic zones, who told them the government’s decision was based on two “irregularities” involving the dates on which certain ministerial orders were issued. Specifically, the orders authorizing Sakima to explore the concessions preceded the degree creating Sakima. The company pointed out that the government had previously reviewed these orders and confirmed that all aspects complied with Congolese law.

“We find it more puzzling,” a Banro spokesman said at the time, “that the government is using this flawed excuse as justification to seize mining concessions and real property that have historically belonged to Sakima and its predecessor companies since the early 1900s.”

The company then launched legal action seeking restitution for the expropriation of assets. The claim was valued at up to US$1 billion.

Banro took its case to a tribunal constituted by the International Centre for the Settlement of Investment Disputes (ICSID). Unfortunately, ICSID declined to exercise jurisdiction over Banro’s claims.

The 2-1 decision, including a 69-page opinion and 12-page dissenting opinion, was provided to Banro and Sakima in early September. They are now considering options, as the decision did not adjudicate the merits of their claims.

Tenke Mining (TNK-T) hasn’t had much luck advancing the huge Tenke Fungurume copper-cobalt project, also in the DRC’s copper belt. It boasts total resources of 547 million tonnes of 3.5% copper and 0.29% cobalt (acid-soluble grade).

The junior signed an agreement for a 55% interest in Tenke Fungurume, with the remainder held by Gecamines. A preliminary study for a solvent-extraction electrowinning operation was completed, based on 85 million tonnes with an average acid-soluble grade of 3.19% copper and 0.29% cobalt. The study calls for a 15-year mine life.

In late 1998, Broken Hill Proprietary (BHP-N) agreed to finance the project in return for 45% of Tenke’s interest. However, in early 1999, Tenke advised Gecamines and the government that political unrest had “materially affected” its ability to carry out further work.

As a result, Tenke declared force majeure, thereby suspending its financial and work obligations. While the declaration did not affect the option agreement with BHP, the feasibility study was halted and work came to a standstill.

And so Tenke Fungurume sits, along with numerous other rich deposits, until peace comes to DRC. Tenke, meanwhile, has turned its attention to Argentina, where two associated companies previously met with success exploring and then selling mineral projects to majors.