More support for re-negotiating DRC copper mining contracts

UK-based group calls for contract reviews to bring equitable project benefits for state mining company Gecamines in the DRC.

Johannesburg - 

RAID (Rights and Accountability in Development), a UK-based organisation, has stepped up its campaign for the re-negotiation of joint venture contracts between private mining companies and the state-owned mining enterprise, Gecamines, in the Democratic Republic of the Congo (DRC).

RAID has said in a report titled Key Mining Contracts in Katanga: the economic argument for re-negotiation, that it welcomed the Congolese government's recent announcement to review all mining contracts as a fair distribution of project benefits had to be established.

RAID recommended that analyses of the distribution of benefits be carried out on the various joint venture projects between private companies and state that were concluded during the period of war and transition in the DRC.

The organisation has performed a study of Katanga Mining's (KML) Kamoto project (copper) in the Katanga province and believes terms of the existing joint venture with Gecamines (25%) should be re-negotiated to more equitably reflect the state company's contribution to the project.

"A similar rigorous model should be run for the other joint venture projects in the region, including with Nikanor and with Tenke/Phelps Dodge. Nothing precludes the private companies, World Bank, Gecamines or the Ministry of Mines to carry out such an analysis," said RAID.

The price of copper and cobalt is one of the most important variables that affects the IRR of companies and the base rate should be set by an independent expert, said the organisation.

The value that Gecamines brought to each joint venture project had to be audited. Other joint venture projects, including those with Nikanor and Tenke Mining, should be reviewed to determine whether the distribution of benefits reflected the contributions of the parties.

RAID contracted an independent mining expert, Pierre Ratcliffe, to examine key economic aspects of the Kamoto project in order to assess if a balance had been struck between benefits accruing to private companies and Gecamines' stake in the assets.

He found that the joint venture underestimated the long-term copper price and the cobalt price when compared to historical data.

"Modelling the worth of the Kamoto project using realistic metals prices produces a net present value (NPV) of $716.5 million to KML and $351.2 million to Gecamines. Not only is the NPV accruing to Gecamines considerably less than the value of assets it contributed, but Gecamines also receives a low percentage of the value created."

The value of the project assets were never properly assessed and comments by KML suggest that these assets are worth in the region of $570 million.

RAID said the imbalance in the distribution of benefits from the Kamoto project could be redressed by either an upfront payment or an increased equity stake in the project.

"An improved deal will not affect any of the wider benefits of investment, including job creation, social expenditure and revenue streams from taxation and royalties."

The organisation added that the purpose of its report was to stimulate debate on the distribution of economic benefits and costs of the joint venture agreements.

RAID says on its website that it has been at the forefront in pressing the World Bank to instigate a review of all mining contracts in the DRC concluded during the war and transitional period.

"In the early 1990s, the DRC's state mining enterprise, Gecamines, was the most lucrative source of revenue.

"Today Gecamines has been stripped of virtually all its assets and ore bodies through a number of disadvantageous contracts."

SUBSCRIBE to Mineweb.com's free daily newsletter now.

Print story      Email story      Subscribe to free newsletter

Related Links ARTILCES:  Mining D-Day in the Congo  DRC mining realities bite for Nikanor  Red Metal, Yellow metal - Copper trumps gold  Camec kicks off refined copper and cobalt output in the DRC  Limited DRC to Zambia copper concentrate shipments getting through  Banro ties up more ground on rich DRC gold belt  2007 will see increased output from Congo’s Gecamines  OTHER PAGES:  BASE METALS AFRICA

Back