Strong Arm Tactics in the DRC Threatens Copper and Cobalt Projects

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The Democratic Republic of Congo, is anything but the law abiding democratic country its name suggests. The DRC has often slipped into chaos since independence nearly 50 years ago and even when it has managed to elect a democratic regime it has all too rapidly slipped into blatant corruption and administrative incompetence. (Not that the US and Europe didn’t play a role in manipulating the choice of regimes too but that’s another story) So it should be no surprise that the DRC state mining company Gecamines is true to form reported as applying strong arm tactics to those miners that have invested most (and hence have most to lose) in developing the copper, cobalt and other mineral deposits of the south and east of the country.

To be fair the DRC is, in terms of road, rail, education, medical and just about every other form of infrastructure, a basket case. Fifty years of incompetence, tribal strife and corruption have left the country on its knees. Without UN aid the population would be in dire straits and the country in default even though (or may be because) it is sitting on some of the wealthiest mineral deposits in the world. The government has been seduced by Chinese offers to build roads and railways, investments they have to some extent already started in return for handing over the rights to mine rich mineral reserves. Reserves that were already the legal property of western registered mining companies such as Katanga Mining. Legal still doesn’t stand for much in the DRC even when dealing with the government (supposedly Katanga will be allocated alternative mining rights of equal worth between now and 2015, yeah right).

At the same time, the government is leaning on majors like Freeport-McMoRan, holders of 58.8% of Tenke Fungurume a copper and cobalt mine, threatening them with closure inside six months after the firm has just completed the first phase to produce 115,000tpa copper (cathodes) and 8,000tpa cobalt (metal contained as a mixed hydroxide) at a cost of $ 1.8bn. Eventually the project is to ramp up to over 400,000tpa of copper and 15-17,000tpa of cobalt. Other miners like First Quantum who have recently invested $553m in the Kolwezi tailings operation have also been threatened with a reappraisal of their mining agreement ” for which read appropriation of their rights and/or an increase in the government’s take.

These issues should be of concern to the wider metals consuming community. The DRC is rich in minerals, indeed one of the richest regions of mineral deposits anywhere in the world. The successful and long-term development of these resources would be of immense benefit to the people of the DRC but also to the stability of metal prices around the world. Tenke Fungurume alone could contribute up to 17,000tpa of cobalt into a market that produced around 60,000 tons last year according to the Cobalt Development Institute. In a market that has grown at something like 8% per annum over the last ten years, a major new low cost source like this offers stability and continuity to pricing, but only if it is allowed to continue to operate and invest in a secure environment.

–Stuart Burns

Comments (3)

  1. Arsene says:

    Dear editor,
    we ought to note that these types of writting are just there to give a bad side to the DRC without actually trying to find out where the problem really lies. Your writings suggest that DRC decision makers are wrong.. but it is not mentioned here that the very same investors are the ones promoting corruption in that country! Instead of companies tryiing to flatter their shareholders while accusing the DRC and its people, those companies should be more responsible in where they intend to invest. In DRC, all we can see is the mineral wealth leaving the country and the people being poorer…
    I believe that these companies should have an honnest relationship with the country by properly guiding it and making it their own instead of bringing corruption and misbehave in the country…
    Stop blaming the DRC and take your responsabilities as writters and investors..

    Arsene Kipayko
    Mining Engineering Student.

  2. stuart says:

    Dear Arsene,
    Thank you for your comments, you make a fair point that historically some countries where the mines are located did not always benefit in the distribution of wealth as much as they should have done. But the world has (largely) moved on from the days of corporate or colonial exploitation and companies like Freeport McMoRan and First Quantum, who have invested hundreds of millions of dollars into the DRC and are (or will) be paying tens of millions of dollars a year back in taxes, are behaving ethically and to the letter of the contracts they agreed with the authorities. It is not the part of foreign mining companies to manage the affairs of the country, that is the role of the democractically elected government. If the taxes and roylaties they pay to that government are not spent prudently for the benefit of the people I dont think you can blame the mining company. The governments of Chile, Australia, Brazil and other prominent sources of minerals manage their revenues wisely, why would the same companies be at fault in the DRC but not anywhere else? Are you seriously suggesting the DRC’s problems are the result of companies like those mentioned above forcing corruption onto individuals in power? I think mismanagement is a more realistic explanation, I don’t doubt Gecamines think they are doing the right thing for the DRC in threatening to renege on their contracts – they are just misguided.
    Ed

  3. Arsene says:

    Sir,
    i do find your comment fair enough. However, let me give you an example. A Chinese or Korean telecommunication company wanted to in the DRC in the telecommunication sector of course. This company was asked to pay some funny amount of money which were meaningless to the nature of the agreement and they decided to leave. Another instance is with the Chinese Government which has agreed to invest about 9 billions USD in infrastructure in exchange of minerals in order to avoid the mismanagement of funds. I have no idea of what you think of that, but we would agree that if a person has been striving chronically he might be able of all sort of misbehaving actions. My call, is for investors to be aware of all the suffering that the Congolese people have been through and to help that country get up from his knees. I agree with you on the irresponsibility of the leaders of the DRC but in order for that to change a dynamic involvement of everybody including foreigners (investors, etc) would bring a great change in that country. Thank you again for conveying the good message to the world.

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