DETAILS OF A MINING licence contract review by the Democratic Republic of Congo, where South African companies are digging for metals, are starting to surface. What emerges is that the review is more than the private sector had bargained for. For example De Beers is facing an increase on turnover royalties payable from its diamond mining operations in the DRC. Its government is also challenging De Beers’ monopoly over the technical and financial affairs of an exploration joint venture it has with Société Minière de Bakwanga (MIBA), the state-owned diamond mining company. Incidentally, De Beers’ deal with MIBA was approved by the DRC’s government in 2005. MIBA is 20% owned by Sibeka, in which De Beers once had a stake, but which is now controlled by Mwana Africa, a London-listed mining group. A document emailed to Miningmx details the re-evaluation of six mining contracts between MIBA and “its foreign partners” – including De Beers. The document is among the first results of a much-publicised national effort to standardise the DRC’s 60 mining contracts. Companies failing to meet certain criteria are at risk of losing their right to mine. There are three potential outcomes or companies whose mining contracts are reviewed by the Congolese: they either have “non-viable” contracts, “viable” or “less viable” contracts. If deemed “less viable” certain conditions are attached to the contract in order to qualify it. A De Beers spokesman said that as far as it was concerned, its exploration joint ventures were deemed acceptable by the Congolese authorities. But according to the emailed document Miningmx has, De Beers’s contract is subject to emendations as if it were a “less viable” contract. De Beers referred Miningmx to its Kinshasa office. For instance, one change De Beers must meet is to increase the royalty on potential turnover to MIBA from a joint venture to 2% from the 1% levy it’s currently obliged to pay. It’s worth remembering MIBA has a strong motivation to exact a better deal from future diamonds from De Beers – and probably other diamond firms with which it deals – because it markets its diamonds at 5% below their market value. The document also suggests De Beers end its technical and financial control of the joint venture and share such duties with MIBA and that loans provided by De Beers be imposed at interest rates “applicable on international markets and not at De Beers’ own preferred interest rate”. While the year-end self-imposed deadline by the DRC’s government with regard to the mining licence review may look unrealistic, there are other wrinkles to consider. One is that the review is also proving a popular method of extracting largesse from mining companies, a source says. “The review system is being used to strike better deals with mining companies than currently exist, there’s no doubt about that,” the industry source. Nikanor, a London-listed company, is one example. It’s been asked to help reconstruct the runway at Lubumbashi airport when such work wasn’t included in the original scope of the $1.8bn Nikanor is to spend rehabilitating the KOV copper/cobalt mine. Nikanor spokesman Richard Boorman confirms that the runway rebuild, shared with other companies, wasn’t originally budgeted for but the company’s corporate social investment programme is flexible enough to accommodate such a request. In other cases, the review is proving more serious. Companies standing to lose their contracts could see them being speedily re-awarded to Chinese companies. China currently has $2bn in investment earmarked for the DRC, and the cash is being grasped instantly by provincial governments owing to severe poverty in their districts and regions. “Typically, a Chinese company will start investing (mining) immediately, leaving the DRC government to outsource issues of rehabilitation and environmental testing to another company,” says an analyst. The motivation for having Chinese companies succeed in mining licence applications is that they offer cash flow from projects much quicker than Western mining firms. In fact, Western mining firms could spend up to three years completing time-consuming project elements, such as an environmental impact studies. Much rather get the Chinese in where there’s less interest in such matters.
Metorex director Keith Spencer says there’s a level of overreaction about the mining licence review. “A lot of the original contracts with the government were conditional on certain investments,” he says. But an analyst in Britain says the licence system is proving a brutal experience for other firms. “Africo, Brinkley Mining, Exxaro Resources and Moto Goldmines have all had mining licences taken from them by government – and they won’t be getting them back in the same form before they were revoked.” Patrick Alley, who helped found Global Witness, the lobbyist that brought the conflict diamond phenomena to public awareness, has said in another report that the DRC’s licence review was originally worth supporting. Many mining agreements there were opaque, he says, but now believes the government’s timeframe has been unrealistic while its own process of reviewing mining licences has been less than transparent.