Nikanor’s DRC mining contract quandary
Meet Dan the man, King of the Congo.
Posted: Tuesday , 03 Apr 2007
Nikanor, listed on AIM in London, has come under renewed pressure on news that mining contracts in the Democratic Republic of the Congo (DRC) are to be reviewed. Nikanor's quandary sits principally upon the past and present activities of Dan Gertler, a diamond dealer, and one of only two white men to have been invited to the wedding of DRC president Joseph Kabila.
Nikanor's considerable current market capitalisation of £517m may be nearly 40% lower than levels reached last year, when the stock was listed, but remains based on its interests in the massive open cast copper-cobalt project known as KOV (Komoto Oliveira Virgule), comprising the Tilwezembe and Kananga deposits and the Kolwesi concentrator. These world-class assets are found in the DRC's Katanga province.
According to a Nikanor notification last week, current capital expenditure in and around KOV, in stage one, is estimated at $1.6bn, with a total funding requirement of $1.8bn. Nikanor executive chairman Jonathan Leslie said that the project to rehabilitate KOV and build a world-class refinery "is on track".
In March 2005 Gertler's DGI (Dan Gertler International) formed a new firm, Global Enterprises Corporate (GEC), in partnership with Beny Steinmetz Global
Resources (BSGR), with former DRC mines minister, Simon Tuma-Waku named as "special adviser". Steinmetz is, of course, one of the biggest, if not the biggest, De Beers "sightholder".
Following a preliminary agreement dated May 5 2004, a joint-venture (JV) agreement was signed with DRC copper-cobalt parastatal La Generale Des Carriers et Des Mines (Gécamines) in September 2004. The final JV structure was held 75% by GEC and 25% by Gécamines, with GEC undertaking to invest $300-$400m in a new leaching plant, with projected output to reach 200,000 tons of copper a year.
It was understood that the total investment required for the project was in the order of $600-700m. News of the deal started something of a battle, naturally, with long-established Katanga copper-cobalt producer George Forrest's Kinross-Forrest, for access to the only electro-refining unit in the region, Luilu. Gécamines had granted management of that some months previously to Kinross-Forrest.
In September 2005 GEC and Kinross-Forrest agreed to share the refinery, amid rumours, natural in this part of the world, that Gertler had called upon the influence of Kabila and Kabila's closest aide, Augustine Katumba Mwanke.
An October 2005 presidential decree ratified the KOV agreement between Gécamines and GEC. Separately, it was in April 2006 that Gertler took a major stake in Katanga-based cobalt-copper mining and services company DEM Mining, via DGI. In June 2006 Gertler, again via DGI, splashed an alleged $60m on half of the Mukondo mine, owned by controversial Zimbabwe-based businessman John Bredenkamp.
Even more controversial Zimbabwe businessman Billy Rautenbach controlled the other half of Mukondo. In February 2006 Rautenbach entered an agreement with AIM-listed Central African Mining & Exploration Company (Camec) chairman Phil Edmonds, for the sale of most of his interests in the Congo Cobalt Company (CoCoCo) to Camec. Rautenbach had previously rented and operated Bredenkamp's half of Mukondo, an arrangement terminated by Gertler.
Both Bredenkamp and Rautenbach had been accused by the 2002 UN Panel of Experts report (filed with the UN Security Council) of acting as conduits for payments to president Robert Mugabe, and other senior figures in Zimbabwe's political and military elite from what the Panel referred to as the "illegal exploitation" of the natural resources of the DRC. In this specific context, that was the extensive and illegal "stripping" of Gécamines' copper-cobalt assets.
In July 2006 it emerged that Gertler and Steinmetz had placed GEC'S 75% share in KOV into a new Isle of Man (UK) corporate vehicle, Nikanor Plc. With JP Morgan Cazenove acting as advisors and brokers, Nikanor's directors, headed by Leslie (Rio Tinto's former head of copper operations) hit the City of London with a road show in mid-July 2006.
The IPO raised $400m, based on a prospectus promoting Nikanor's 75% interest in the KOV assets contributed by Gécamines. Nikanor achieved a market capitalization of $1.5bn, and was hailed as the most valuable yet listing on AIM. At that stage, the three key stakeholders were cited as Beny Steinmetz (37%), the Gertner Family Trust (22%), and Dan Gertler (14.7%).
Now Nikanor is set to be haunted by lingering controversies also shadowing a number of other listed stocks, not least Camec. This ghost's heart is made of allegations that the origin of a good number of DRC copper-cobalt assets are riddled with suspicions, and worse.
In common with a number of other DRC copper-cobalt assets, Nikanor's KOV suite was intimately mixed in with the controversy that surrounded Zimbabwe's infamous Operation Sovereign Legitimacy (Osleg) during the period 1998-2003, a period when up to 4m Congolese died of war-related causes.
There are also serious allegations over lack of transparency, of which perhaps the key one is that valuable State assets have been looted to enable get-rich-quick schemes that benefit a small, crooked political and business elite at the expense of State revenues, wider social development and stability in the DRC.
A number of multi lateral agencies have long been desperate to at least stabilise the DRC. Among specific activities, the World Bank funded "Project for Restructuring Gécamines" and commissioned a broad investigation by UK-based International Mining Consultants (IMC). The report was circulated in World Bank, diplomatic and senior DRC government circles at the end of 2003. The key criticisms in the report formed a prelude to the conclusions of the Lutundula Commission.
Following the signing of the Gécamines-GEC JV in September 2004, the anti-corruption Lutundula Commission recommended, when filing its report in June 2005, that ongoing negotiations on the KOV basket of assets, among others, be halted. On October 13 2005, as noted, a presidential decree ratified the KOV deal.
In that report, Katumba was described as "a key negotiator of mining deals on behalf of the government". The report noted that Katumba is a former employee of Bateman, controlled by Steinmetz; also, that Tamu-Waku served as an advisor to the GEC project from the outset (and) was named president of the GEC-Gécamines JV.
In a February 2006 report various NGO's (including Oxford-based Rights and Accountability in Development, RAID) commissioned a Canadian law firm to examine the September 9 2004 JV between GEC and Gécamines. Among the conclusions: "Gécamines is . . more heavily indebted for having signed this JV Agreement compared to the situation if it had not entered into the JV".
NIZA, an NGO, argued that the interaction between the Congolese government and the World Bank had resulted in an "anarchistic and opaque privatisation process that has stripped Gécamines of all its assets. The parastatal company is now bound by countless contracts with, often dubious, private partners that contribute little or nothing to Gécamines or to the national treasury".
There is no question that political responsibility for this situation lies primarily with Kabila's Katanga clan and power brokers, who have upheld their near-hegemonic position in the province for almost a decade. Hard evidence of corruption is difficult to find, but there is documented proof that Kabila's Parti Pour la Reconstruction et le Développement (PPRD) uses Gécamines as a vehicle for party financing.
Sources in Kinshasa note how Gertler remains embedded in the clique that surrounds Kabila, and his political clan, headed by Katumba. Gertler, always one for introducing new, largely Israeli-origin proposals, is probably now more powerful than ever after the conclusion of DRC elections in December.
Nikanor is relaxed enough, pointing out that it received legal advice at the time it negotiated the KOV JV, in order to ensure compliance with the DRC Mining Code "in all material respects". Nikanor also commissioned a report from Behre Dolbear, an independent minerals industry expert, in relation to the criticisms made by NGOs.
Behre Dolbear concluded that it had seen "no evidence of the use of inappropriate political or financial influence" by Nikanor in obtaining its rights under the JV; that the JV was freely negotiated and appeared fair; that the financial returns to the DRC from the planned development of the KOV assets (formally known as the DRC Copper and Cobalt Project SARL) would be "appropriate", and that substantial benefits were "likely to flow to the community from the project".
The other white man to have been invited to Kabila's wedding was Philippe de Moerloose, CEO and apparent owner of Brussels- Kinshasa- and Lubumbashi-based Demimpex, which holds, among other businesses, sole Nissan distributorship in the DRC. As a member of the Kinshasa elite, De Moerloose supplies jets and other presidential toys to Kabila.
As for the "kickback" that smoothed the way for the September 9 2004 GEC-Gécamines JV, insert $3m. It just seems a little monstrous.