More Ups And Downs For DRC Miners

Miners with operations in the Democratic Republic of the Congo (DRC) continue to be at the mercy of a market that has proven incredibly reactive to any rumblings from the mineral-rich but economically challenged country.

The latest stock market volatility came as deputy mines minister Victor Kasongo told Reuters in April that the six Western mining companies going through the mines review process were still far off the mark in their proposals and that if things didn’t improve within six months, their operations would be shut down.

Predictably, the news put immediate downward pressure on the shares of the six companies: AngloGold Ashanti (AU-N, AGD-L), Banro (BAA-T, BAA-X), First Quantum Minerals (FM-T, FQM-L), Gold Fields (GFI-N, GFI-J), Freeport-McMoRan Copper & Gold (FCXN) and Mwana Africa (MWNAF-O, MWA-L).

Negotiations with the companies are part of larger review that began in late 2007. The process called for the review of 61 contracts — of which only these final six remain unresolved — aimed at getting the government a bigger share of the country’s deposits.

While the deputy mines minister’s words might carry the semblance of final authority, as with most things in the DRC, authority over the mining review process is more complex.

That fact was underlined by deputy prime minister Emile Bongeli’s more investor-friendly words days later that a decision on the mining contracts under review would be announced shortly — likely in May. Bongeli also told Reuters that while “little problems” with the contracts still exist, positive advances have been made.

Bongeli’s comments, issued so closely after Kasongo’s, point to the bifurcated nature of the review process, with Bongeli representing the pragmatists who want to get the contracts done, pitted against the likes of Kasongo, who is pushing to get the government the best possible deal.

Given the global economic downturn, and the massive cutbacks to the mining industry in the country, Kasongo may find his position untenable.

Many miners, such as Londonbased Katanga Mining (KAT-T, KATFF-O), have already had to scale back or shut down projects in the once booming copper district of the southeast. That has begun to paint a bleak picture in the region for a country that was pinning much of its hope for economic revival on mining.

Reuters reports that local authorities say some 300,000 mining jobs have been lost since the financial crisis struck, and economic growth for 2009 is expected to drop to 2.7% from 8% last year.

As for copper production, the country’s overall forecast for copper exports for 2009 dropped to 365,000 tonnes, down from a previous projection of 410,000 tonnes. Cobalt exports are expected to be cut in half.

Some of the contracts being reviewed were negotiated while the country was still in a state of upheaval owing to a brutal civil war — casting doubt on their fairness.

Despite the mostly negative news associated with the review process, there have been some positive signs.

In February, Toronto-based Banro announced that after its negotiations with the government, it was told that its contracts were compliant with Congolese law.

The company is choosing to put more confidence in the outcome of those meetings than it is in Kasongo’s words.

“We have been assured by the government, in particular the deputy prime minister, that the agreements we came to with the government in mid-February are completely satisfactory,” says Banro spokesman Martin Jones.