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    February 22, 2008
    Congo's Mining Review: Smoke And Mirrors Or Boom And Bust?

    By Alastair Ford
    Source: Minestite.com

    It’s interesting to see who will, and who won’t, come to the phone to talk about the current situation in the Democratic Republic of Congo. Over at the London office of Art Ditto, the chief executive of Katanga Mining, they “haven’t seen him today”, and investor relations man Gavin Wood isn’t around either. Across the globe in the offices of Moto Goldmines in Australia, Moto president Andrew Dinning is in, but he’s in meetings. Back in London again, and at Brinkley Mining there’s no one even answering the phones. Phil Edmonds isn’t even worth trying, since the phone numbers he gives always lead back to spokesmen, and even his emails are written by his PA. Mwana Africa’s chief Kaala Mpinga ought to know a thing or two about what’s going on in the Congo, being the son of a former prime minister there, but he’s been out of town for weeks, no one is sure precisely where. Oliver Baring, Mr Mpinga’s business partner at Mwana, is absent too, but at least has a legitimate excuse – he’s on holiday.

    On the other side of the coin, though, Anvil Mining and First Quantum were falling over themselves to keep investors updated. First Quantum kept the Fairfax boys back late at the office on 20th February, as the first deadline for a response to the government’s demands – sorry, “letters” – expired. That deadline has now been extended, but it’s not often that John Meyer sends out research at 6:40 in the evening. Something was definitely afoot. The answer of course was that it looks like First Quantum will be stung for quite a large cash payment, and have to jump through several hoops in order to keep its Kolwezi tailings project. Where’s Tim Read when you need him?

    Both Anvil and First Quantum put together fairly well attended conference calls to clarify their respective positions. As a measure of the seriousness with which his company takes the situation - or at least of the potential for tripping on a banana skin - Anvil’s chief Bill Turner chose to have legal counsel in the room as he spoke, legal counsel that had clearly written out in advance much of what he said. He also said he wasn’t going to negotiate through the press, so Minesite’s debut as the ACAS of international mining will have to wait.

    There’s no doubt that Anvil has been seriously knocked sideways by the license review’s conclusions. But the market’s been discounting its shares since at least November, when the contents of the review’s findings were initially leaked to the market. Now that the uncertainty has been removed, there may yet be a slight uward correction. Stranger things have happened. After all, it’s not actually clear how much real trouble this review spells, and not just for Anvil.

    Certainly this mining review has turned out to be far more wide ranging than most people anticipated. As the Congo’s own vice-minister of mines said at this year’s Indaba: “What was meant to be a minor corrective has turned out to be multiple, major surgery. We actually found that we had not a single contract that was properly constituted”. So the government and the companies will now drill down into the minutiae and thrash out new terms for government and parastatal participation, some extra cash here and there, more funding for local and worthy projects, and so forth.

    Some cynics think that it’s a bit convenient that not a single one of the 61 licenses reviewed were in order, especially as the likes of Anvil and First Quantum are being hit with one-off charges that may in the end amount to hundreds of millions of dollars. Both companies already do plenty for local communities. But a quick sweep back over recent UK history will reveal a windfall tax or two within the past decade or so, and you can’t blame the Congolese for wanting a bigger slice of the pie, especially at the current stage of the cycle, and given the huge amount of reconstruction the country needs. Furthermore, with any luck, after this process has worked its way through, title will become relatively secure, as any new challenges will have to present a case as to why they weren’t included in a review that has turned out to be as "comprehensive" as this one is. So there could be real benefits.

    Still, the doubts remain. One notes for example that the old Nikanor licenses - now safely inside Katanga and under the protective embrace of well-connected major shareholder Dan Gertler - appear to be secure, even though they were signed up under a deal that was one of the very first to be challenged – by Global Witness and the World Bank, no less. Phil Edmonds and Andrew Groves at CAMEC had a spat with Mr Gertler not so long ago, after which, as if by witchcraft, CAMEC’s licenses suddenly rocketed to the top of the list for consideration by the review panel. Since reaching an accommodation with Mr Gertler, those problems seem to have receded.

    Those with an even deeper and darker view of the world detect the hand of the Chinese behind all of this activity, the idea being that the Chinese will pick up any assets that companies are forced to relinquish, and don’t mind how they buy in. But the Chinese have walked away from projects they haven’t liked in the Congo within the last couple of years, specifically KOV, so it seems this is a part of the world in which they’re not to keen on overpaying.

    But conspiracy theories aside, most of the bad news is out in the open now, and although there’s not much guidance as to how the government will proceed in relation to the specifics of the demands – sorry, “letters” - most of the British, North American and Australian companies don’t appear too worried. Art Ditto’s not showed up at the office; Lundin, the owner of Tenke Fungurume, has simply posted a terse statement acknowledging receipt of goverment letters on its website, CAMEC’s staying quiet, and even Anvil might not be totally scuppered. One analyst’s contribution to the company’s conference call was a recognition that the current one-off windfall tax that’s proposed would be more than covered by the cash currently sitting on the company’s balance sheet. And that’s not to mention cash flow at all.

    Cailey Barker, an analyst who specialises in Africa and Russia for RBC isn’t too phased by the latest developments in the review. As they say, the British are master of the understatement, and his initial comment drips with sang-froid: “It’s all a bit tricky”. Overall, though, he says, warming to the theme. He’s just come back from a lengthy tour of the Copperbelt, and talks of the “enormous” nature of projects like Tenke Fungurume and the Katanga developments. “There’s a lot happening there”, he says. Now that the second phase has gone ahead, the companies ought slowly to be able to get back to the business of mining. And he adds, “the companies that we knew were under the spotlight are still under the spotlight”. In a way that says it all, and so perhaps it’s time to move on once again. And as an African specialist Mr Barker has more than one story. Tellingly, he says that he’s now far more worried about the government in Zambia than he is about the one in the Congo. How quickly things change. But that’s a story for another day.
 
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