Mining: Copper’s reputation tarnished
The year 2013 was a record breaker for the Democratic Republic of Congo (DRC), which produced an estimated 913,000tn of copper, a third more than in 2012 and its highest level for many years.
The government had predicted that copper output would be even higher in 2014, topping 1m tonnes, but a chronic and debilitating shortage of electricity has put paid to that.
Annual copper output for 2014 looks like it may be less than 900,000tn.
Investors are also worried about long-delayed changes to the mining code and militia activity in Katanga Province.
The electricity crisis is immensely frustrating to international mining companies operating in Katanga, all of whom were promised adequate power by the Société Nationale d’Electricité (SNEL) when they invested.
Tired of endless arguments with SNEL, the big companies went to prime minister Augustin Matata Ponyo to voice their concerns.
In January 2014, he told companies that SNEL would ration power and that companies would have to restrain their expansion programmes.
He wants a much higher contribution from mining to the national fiscus and has identified the ongoing power shortage as a major obstacle to achieving this.
Goodwill, no action
After their meetings with Matata Ponyo, some senior mining company executives reported that SNEL suddenly became more responsive but conceded that it has not made any discernible difference yet to the electricity supply.
“The fact remains,” one executive who requested anonymity tells The Africa Report, “that SNEL oversold its capacity and ability to deliver”.
A senior adviser on electricity in Matata Ponyo’s office agreed that “there is goodwill now, but still no action”.
The government has been trying to get more out of the sector in different ways.
This year, it pressured all of the big mining companies to contribute to a new fund that President Joseph Kabila established to fund economic and social development in Katanga.
Reluctantly, the companies paid up several million dollars, though their executives say privately that they have no idea what will happen to the money.
The big mining companies have also stepped up their efforts to bail out SNEL in the hope of improving their power supply, including the repair and rehabilitation of some Katangan power stations.
Kamoto Copper Company (KCC), which is majority-owned by Swiss commodities trading giant Glencore, has been donating large volumes of lubricant to SNEL to assist in the maintenance of power stations and was recently asked by SNEL officials for more.
When KCC investigated, it discovered that the same officials had sold the donated lubricants.
Ivanhoe Mines, which holds a 95% stake in the Kamoa deposit located 25km from Kolwezi, is working with SNEL to rehabilitate dams in the region.
The company claims Kamoa is Africa’s largest highest-grade copper deposit and plans to pro- duce 300,000tn per year when the project takes off.
That will only happen once the electricity supply is in place.
In March 2014, Ivanhoe and SNEL signed a financing deal for the rehabilitation of the Mwadingusha and Koni dams.
They should produce 113MW, 100MW of which will go to Ivanhoe.
The partners will have to work on another dam to get the remaining 100MW that the company requires for the mine’s second phase.
A core element of Prime Minister Matata Ponyo’s strategy for boosting revenue from mining is a steep increase in royalties as part of a proposed revision to the 12-year-old mining code.
Mining companies are strongly opposed to the royalty increase, proposals to increase the compulsory stake for state-owned companies in new mining ventures, and plans to reduce the amount of time before mining contracts can be reviewed.
Negotiations between the government and mining companies on these issues have dragged on fruitlessly for more than a year, and the two sides appear no closer to an agreement.
A major part of the problem is an as-yet-unfulfilled promise made by Kabila in October 2013 to announce a new government.
The failure of the new government to materialise has increasingly paralysed the existing administration, with ministers – including mines minister Martin Kabwelulu – refusing to take major decisions until the matter is settled.
The troubled state-owned
Générale des Carrières et des Mines (Gécamines), which once operated all the major copper and cobalt mines in Katanga, is without a permanent chief executive after President Kabila sacked Ahmed Kalej Nkand in late July for “gross negligence”.
An audit found that Kalej was importing faulty mining equipment from South Africa for an inflated price and failing to inform the Gécamines board.
Amid rumours that Albert Yuma Mulimbi, the chairman of the Gécamines board and a close Kabila confidant, is running the show at Gécamines, acting chief executive Jacques Kamenga Tshimwanga is putting on a brave face.
In August, Tshimwanga announced a new turnaround strategy, which is scheduled to run until December 2015 and is intended to boost the company’s copper production to around 1,600tn a month or 19,200tn per year.
Tshimwanga said that cop- per production at Gécamines had fallen to 500tn per month during the first half of 2014 but risen to 1,200tn by September.
Gécamines had earlier claimed that its production in 2013 was around 38,000tn, so either Tshimwanga is underestimating the company’s output or its official figures for 2013 are inflated.
Many Gécamines workers, meanwhile, have reported that their salaries are up to four months in arrears and say that SNEL has begun cutting the company’s power supply because of unpaid bills.
In a bid to raise funds, Gécamines sold its remaining 40% in the Kipoi copper and cobalt mine to Tiger Resources for $111m in late October. Kipoi, situated 75km north-west of the Katangan provincial capital Lubumbashi, produces just more than 2,000tn of copper cathode a month.
Gertler’s secret loan
In January 2014, Gécamines bought out minority shareholders in the Deziwa and Ecaille C cobalt and copper mines, giving it 100% control.
Gécamines’ shortage of funds, however, has meant that it has been unable to invest significantly in either mine.
Production there is languishing. At the time that Gécamines acquired full control of the two mines, Yuma claimed the funds had been supplied by international banks, but it subsequently emerged that controversial Israeli mining mogul Dan Gertler lent the company the money – $196m.
Gertler’s loan did not appear on Gecamines’ balance sheet, prompting investor concern that the company might have other off-the-books debts.
The uncertainty appears to have dented Gécamines’ ability to raise funds from capital markets.
Before he was sacked, Kalej had also talked about a deal between Gécamines and Netherlands-based commodity trader Trafigura.
The two were to process copper tailings from the Gécamines mine at Lupoto to produce 3,000tn of copper concentrate per month, but nothing has been mentioned about plans for the project since his sacking.
International copper prices edged lower during the second half of 2014, partly on concerns about Chinese demand but also in anticipation of rising global production in 2015.
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Most of the increased copper production is expected to come from Chile and Peru, but higher mine output is also anticipated from Toronto-listed First Quantum Minerals at its Sentinel mine in Zambia, and Glencore’s Mutanda mine and KCC in the DRC.
Amid the gloom, a more encouraging development for Katangan copper mines is that the threat to their operations from secessionist rebels appears to be receding.
During the first half of 2014, several attacks by the Bakata Katanga militia, which wants independence for Katanga, were recorded near Lubumbashi, Likasi and Kolwezi.
During the second half of 2014, however, Bakata Katanga raids were concentrated – as previously – in northern Katanga, and particularly around Pweto, Manono and Mitwaba, a reassuringly long way from the province’s copper mines.
The impact of these raids has been devastating, with hundreds of thousands of people fleeing their homes and fields.
It has created a humanitarian crisis that has received weak news coverage.
The insecurity, which is caused not only by Bakata Katanga but also by heavy-handed counter-insurgency operations conducted by the DRC’s armed forces, also hit tin and tantalum mining operations in the north of the province.
These mines have also been badly affected by a drop in the international tin price.
Tin hit $24,000 per tonne on the London Metal Exchange (LME) in April and then slumped to around $20,000 per tonne by late October.
The fall in the LME price has forced mining companies buying from artisanal diggers in northern Katanga to reduce the amount they pay them for tin ore.
Unsurprisingly, the news has been poorly received by diggers and has prompted concerns of renewed unrest at the mines. ●