The Democratic Republic of Congo (DRC) appears intent on biting the hand that feeds it in regard to its relationship with the foreign mining companies to whom it has previously awarded extraction rights. In the murky world of African mining deals it is entirely likely that fault can be found in the small print of past agreements to use as the basis for suspending operations but one only has to look at the contrast between Freeport-McMoRan’s Tenke Fungurume Mining (TFM) project and First Quantum’s Frontier, Lonshi and Kolwezi projects.
The DRC is richly endowed with copper, although mining extraction has been going on for decades proven reserves are said to be in the hundreds of millions of tons and probable reserves much more. Tenke alone is estimated to be 119 million tons according to a Reuters article and the Frontier mine is said to be even larger. Although the DRC is blessed with rich natural resources it is desperately poor, colonial rule left it with a fully functioning infrastructure but no political class or collective identity. The ensuing decades since independence have been characterized by prolonged bloodshed, poor governance, corruption and in large parts of the country lawlessness. Nevertheless enticed in by the opportunities foreign firms have invested vast sums in the country in recent years and today are by far the largest tax and royalty payers to the state. According to a Reuters report in Mineweb First Quantum paid $55m in taxes last year and Freeport’s Tenke project has paid $234m in taxes since it started in 2006 ($29m in just the first quarter of this year as production has ramped up) and $80m in royalties. Details of tax and royalty rates are not clear but if 70,000 tons of copper and 2600 tons of cobalt are worth in excess of $500m per annum then tax rates alone so far this year equate to over 20% with royalties on top.
You would think the government would be delighted but no, First Quantum’s operations have been closed down, first Kolwezi last year and now Frontier and Lonshi over allegations that the original 2000 letter giving the firm mining rights title was somehow flawed and the firm should transfer part of the rights to unspecified third parties. It sounds a lot like arm-twisting to steer rewards to local interests, either in the government or among DRC corporations in league with government officials. Now the heavy lifting of mine investment and development has been done both firms are at risk of partial or complete appropriation without compensation. Although Freeport has had their run-ins with the Ministry of Mines they are so far running to full capacity, but they are no doubt watching what is going on at First Quantum with concern.
Meanwhile in an effort to enforce fair standards on the broader market place by Senators Sam Brownback of Kansas, Richard Durbin of Illinois and Russ Feingold of Wisconsin have tagged a provision requiring mining companies to declare with the SEC if certain minerals they handle have originated in the Congo or neighboring African nations according to this report. The idea is based on an earlier Congo Conflict Minerals Act of 2009 which would require mining companies and consumers handling columbite-tantalite, cassiterite, and wolframite or presumably metals derived from them to prove that they were not benefiting armed groups that control much of the illegal mining of these ores by slave labor in the east and south of the DRC.
It would seem that while US senators are actively trying to get their domestic house in order for the benefit of the people of the DRC, politicians over there are just as actively seeking to distort their domestic market to their own advantage.