HOTTER ON METALS: Gécamines talks tough in DRC

Switzerland-based miner-trader Glencore has settled a dispute over its Kamoto Copper Co (KCC) operation in the Democratic Republic of Congo (DRC). Now it’s being singled out as a beacon of commitment to efforts by state-run mining company Gécamines to restructure its mining sector.

Switzerland-based miner-trader Glencore has settled a dispute over its Kamoto Copper Co (KCC) operation in the Democratic Republic of Congo (DRC). Now it’s being singled out as a beacon of commitment to efforts by state-run mining company Gécamines to restructure its mining sector. 

The settlement ending the spat cost Glencore $5.6 billion in a debt-for-equity swap but saw off an attempt by Gécamines to dissolve KCC in order to mitigate the copper-cobalt joint venture’s $9-billion debt.

Gécamines has long said that it wants to replace its model of joint ventures, arguing that they failed to provide equitable wealth for the company as well as the DRC and its people. In particular, Gécamines believes that in many of its JVs, royalties need to be recalculated and dividends to the state-run company paid out.

Last week, the KCC fight was over. Gécamines praised Glencore’s “constructive spirit” during the negotiations, citing this as a “state of mind that we now expect from all our other partners.” Glencore said it was glad the matter had been resolved and looked forward to supporting KCC’s “closer partnership” with Gécamines.

How much wiggle room Glencore had during its negotiations is anyone’s guess. At the end of the day, miners active in the DRC - and any other mineral-rich nation, for that matter - have to work with the state and other stakeholders, and vica versa.

Even with this mutually-dependent situation, other miners active in JVs in the DRC can now expect to go through the same kind of scrutiny.

JVs in question
Gécamines says it isn’t simply plucking numbers from thin air when it points to capital deficiencies; it hired consultancy firm E&Y to conduct an audit over the past three years, a process that was hastened in the last several months amid a revival in copper and cobalt prices.

With the results in hand, Gécamines is talking tough: If miners think they can pay too little and undercapitalize their projects, “then they are seriously wrong. In the end, whether they want it or not, we will take all the necessary measures to enforce our rights,” said Gécamines chairman Albert Yuma, noting that the company “will not hesitate to use all legal remedies.”

Yuma says Gécamines will be in touch with all of its other partners in the coming days and weeks to invite them to come and discuss their JVs. This means representatives from JVs such as the giant Tenke Fungurume mine, majority-owned by China Molybdenum Co Ltd (CMOC), and Kipushi, run by Ivanhoe Mines, will have to meet with the state-owned firm.

The sale of stakes held by Freeport-McMoRan and Lundin in Tenke Fungurume have already attracted Gécamines’ ire; the company argued that as a shareholder in the copper-cobalt mine, it should have been consulted on the deal and its rights hadn’t been taken into account.

The DRC has for many years been the focal point for a number of mining disputes, whether between mining firms or with various entities including Gécamines and the government.

The DRC has held a couple of mining license reviews, resulting in several being revoked, including the high-profile case of First Quantum’s Frontier mine, which ended in international arbitration.

Although it has been firm in its approach, what seems slightly different this time around is the determination of the state to hold its ground and effect change, as the recent settlement of its dispute with Glencore highlighted. It definitely feels as if Gécamines is acting with the full weight of the government behind it, as its repeated and increasingly voficerous comments on the matter suggest.

Dan Gertler
Muddying the waters slightly are a catalogue of other issues taking place in the DRC right now, including an ongoing question over the activities of Israeli businessman Dan Gertler, who was named a specially designated national in December by the United States government and had sanctions imposed against him and his businesses.

A legal battle between companies associated with Gertler and Glencore over royalty payments was resolved recently, ending with the Switzerland-based firm paying Gertler in euros in order to avoid breaching the US sanctions.

But a total of 34 entities owned or controlled by Gertler or his companies have now been sanctioned, raising questions over what happens to their activities in the DRC going forward.

According to the US government, between 2010 and 2012 alone, the DRC reportedly lost more than $1.36 billion in revenues from the underpricing of mining assets that were sold to offshore companies linked to Gertler.

Mining code
Most importantly, however, is ongoing wrangling between the government and international mining companies over the country’s new mining code.

Companies including AngloGold Ashanti, CMOC, Crystal River Global Ltd, Glencore, Gold Mountain International/Zijin Mining Group, Ivanhoe Mines, MMG (PTY) Ltd and Randgold Resources have had a team of representatives on the ground in Kinshasa since mid-March to negotiate with the government. Their concerns about the new code focus on the stability clauses embodied in the previous code, which included taxation, customs and exchange control.

The discussions - which are ongoing with no clear outcome as yet - will be a delicate balancing act for both sides.

On the one hand, international miners have said they will resort to legal action if necessary, and they are acting with one public and concerted voice for the first time in that country. Meanwhile, Gécamines’ Yuma commented recently on the code, which he said would provide more equitable terms of exchange between foreign investors and the DRC, and called on “everyone to comply and get to work.”

It’s a situation that will get increasingly political and populist as the country heads for the presidential polls at the end of the year.

Ultimately the miners and Gécamines have a vested interest in making things work, particularly as cobalt prices remain strong amid firm demand for the raw material for lithium-ion batteries used in electric vehicles. Prices hit near-decade highs last month, with Metal Bulletin’s benchmark assessment for the low-grade cobalt price settling at $40.50-41.60 per lb, in-warehouse, on Friday June 15, and the high-grade price settling at $40.60-41.75 per lb.

But if the renewed vigor to tackle miners demonstrated by Gécamines is anything to go by, the road ahead is likely to be anything but smooth.

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