Print
Email ArticleCongo's lofty expansion plans for copper output risk remaining on paper as a Chinese infrastructure deal has yet to fall into place and the government struggles to secure partnerships with mining firms to revamp railways and power stations.
Kinshasa has revived mining since the end of a devastating civil war, expanding copper output fivefold, but is still operating well below its massive potential from some of the world's biggest mineral reserves.
It wants to re-launch state miner Gecamines and jolt partners into greater output from their own projects with a warning they must “use it or lose it”.
But firms in Congo's copper-rich south face transport and power woes along with a proposed audit of many copper joint ventures, which has deepened worries over contractual certainty and fiscal harassment in the face of a looming election.
“Congo is always going to be a peripheral country until they develop the infrastructure and derisk the political situation,” said Andy Davidson at Numis Securities.
“It is a frontier territory, so if the world needs x million more tonnes of copper it is going to have to come from places like the DRC, but if the demand picture changes and copper price goes down, then it will be the first place companies axe in their development priorities,” Davidson added.
The former Belgian colony has vast, largely untapped reserves of copper, cobalt and gold, but industrial mining has been crippled by decades of neglect, corruption and conflict.
Congo's copper output, decimated in the 1980s, has risen from 96,000 tonnes in 2007 to a projected 500,000 tonnes this year, mainly through a series of joint ventures. The country is hoping for another 60 percent increase by 2015.
Freeport-McMoRan Copper & Gold Inc and partner Lundin Mining are involved in the country's largest copper mine at Tenke Fungurume. Anvil Mining , Glencore and ENRC also have operations with Gecamines.
USE IT OR LOSE IT
However, just 6 percent of Katanga's 1,700 mining permits are being mined and the government has attacked firms for not doing enough to bring projects on-line quickly.
“We will not allow firms to sit on mining permits and we call on those with exploration licenses to swiftly move into the production phase,” Mines Minister Martin Kabwelulu said at a recent mining conference.
Several other nations, like South Africa and Zimbabwe, have also considered “use it or lose it” conventions.
This, coupled with a $930 million Gecamines plan to restart exploration and mining of its own, have led to industry and government officials talking about Congo hitting an 800,000 tonne per year mark by 2015, putting Congo broadly on a par with current levels from Africa's largest copper producer Zambia.
But these ambitious aims have been matched by mounting concerns over electricity and transport problems.
“(Power cuts and transport problems) are a disaster and it will not be resolved quickly. They are planning day by day and there are no long-term solutions,” said one observer, who asked not to be named.
Congo has enormous hydro-electric potential and has exported power for years, but miners in Katanga have endured rolling power cuts, clouding production expansion hopes.
Due to the current shortages, Congo has been importing 120 megawatts of electricity from Zambia.
Congo has a $6 billion infrastructure-for-minerals deal with China that was meant to revamp railways, like in Angola where Beijing has rebuilt infrastructure in return for oil.
However, delays in receiving cash from Beijing has forced Congo to turn to miners to help plug the gap.
THE WAY FORWARD
Simon Tuma-Waku, in charge of the mining sector at Congo's chamber of mines, said firms still wanted greater clarity from the state railway firm on proposed partnerships.
But independent power projects, which are part of some $600 million in electricity revamp deals signed with state power producer, SNEL, were a positive step, he added.
While the scale of Congo may be daunting, the idea has worked elsewhere. Sierra Leone and Liberia have secured railway and port developments as part of contracts giving access to iron ore concessions. Similar projects are planned in Gabon and Cameroon.
The government turning to mining firms to unlock infrastructure constraints was the way forward, said Peter von Klemperer, director of mining and metals at Standard Bank.
“Mining companies don't know how to build railways or produce power but they know they need them and they know they can pick up the phone to speak to those who do,” he said.
“There has to be a greater sense of cooperation between (mining firms and governments) because of the size of the ask and the length of development.”
Mining firms, however, are fretting about a planned audit of contracts by Gecamines, despite government efforts to ease concerns. .
Copper prices have also dropped 20 percent from February, when they hit record highs, meaning incentives for companies to take on riskier assets are likely to be reduced.
Another potential headache is Congo's upcoming election, due on Nov. 28. Incumbent President Joseph Kabila, who has overseen all the recent major deals, is favourite to win, but unrest cannot be ruled out.
