--Review focused on bringing Congo's mining code into line with
those from other nations
--Adjustments to royalties and state interests in mines may
result
--State's interest in some mining projects could rise to 10%
from the current 5% and royalties may increase from the current 2%
rate, executive says
By Alex MacDonald
CAPE TOWN--A Democratic Republic of Congo review of the
country's mining code has raised concerns that the government may
seek to increase royalties and stakes in some projects, though not
every project, mining company executives said this week.
The details of the review are unclear but several executives
expressed concern that the government may raise royalties and state
ownership for some projects as a result of the review. This could
jeopardize the Congolese mining sector's growth by scaring away
foreign investment, they added.
The Congolese government initiated its latest mining review at
the behest of the World Bank to ensure it has the proper codes to
attract and sustain long-term investment, three senior mining
executives said at the GMP Securities Mining Jamboree Conference
and Indaba mining conference in South Africa over the past three
days.
The government's review is focused on bringing Congo's mining
code into line with those from other nations and could also
potentially result in adjustments to royalties and state interests,
although this isn't the reason for the review, Baudouin Iheta
Musomobo, the Congolese Mining Ministry's general coordinator for
small-scale mining, told Dow Jones Newswires at the South Africa's
Indaba mining conference. The government is consulting with mining
companies, Mr. Musomobo said, but added he wasn't aware of any
specific changes the ministry wants to implement.
The state's interest in some mining projects could rise to 10%
from the current 5% and royalties may increase from the current 2%
rate, but larger increases would be detrimental, said Brad Marwood,
managing director of copper producer Tiger Resources Ltd
(TGS.T).
The Congolese government isn't likely to alter the terms of the
Tiger Resources Kipoi project, in which the state-owned mining
company La Generale des Carrieres et des Mines, or Gecamines,
already owns a 40% stake, Mr. Marwood said. The project currently
pays a 2% royalty.
The mining review is looking at what type of state-ownership
requirements should apply to mining companies that are
transitioning from exploration to mining licenses, said Simon
Village, chief executive of Congolese gold mining company Banro
Corp. He noted that his company wouldn't be affected by the review
since he already has a mining license for the four projects that
are 100% owned by the company.
"I am confident that we will be able to keep our fiscal regime,"
he added.
Lundin Mining Ltd. (LUN.T) also doesn't expect to be affected by
the review because the company's investment in the Tenke Fungurume
joint venture was established a long time ago and would be hard to
change, CEO Paul Conibear said.
In October 2010, Lundin Mining and Freeport McMoran Cooper &
Gold Corp (FCX). the majority owner of the project, agreed to
reduce their stakes in the Congo's largest copper producing mine to
56% and 24%, respectively, and increase Gecamines' stake in the
project to 20% from 17.5% in the process. This followed the
completion of a mining license review earlier in that year.
Africa-focused Ivanplats Ltd (IVP.T), which listed its shares in
Canada last year, is also not involved in the review process, the
company's executive chairman and major shareholder, Robert
Friedland, said at the conference.
The government has a 5% stake in its Kamoa copper project,
Africa's largest and highest-grade copper project, Mr. Friedland
said, while Gecamines owns a 32% stake in the Kipushi zinc and
copper mine. "It was the World Bank that went to Gecamines to
review the tenants," he said, noting that several of them were
procured during the 1990s when the country didn't have a mining
industry.
Mr. Friedland said Ivanplats has given the government an option
to buy an additional 15% stake in Kamoa at fair value and has been
notified by President Joseph Kabila that it would most likely be
the Katangan province that would come to own the additional
stake.
The CEO of Randgold Resources Ltd (GOLD), Mark Bristow, also
said he doesn't expect the review to impact its $1.66 billion
Kibali gold project since the agreement includes stability clauses.
He noted, however, that mining companies need to engage with the
government and local communities to make sure that mining projects
continue to generate employment and revenue for the state.
"We should be careful not to play holier than though," he said,
adding that a 10% government ownership in a project was "very
equitable" and ensures that the government "knows what's going on"
at a project. The Congolese government owns a 10% stake in Kibali
through state-owned company Sokimo.
Write to Alex MacDonald at alex.macdonald@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires