The government’s secretive, and cheap, sale of lucrative mining assets is fast becoming an election issue

Mining companies stripped of valuable concessions have been sounding out the opposition before the presidential election, which is expected to take place on 28 November. President Joseph Kabila’s main challenger, Etienne Tshisekedi wa Mulumba, went to Canada in September to meet the directors of First Quantum Minerals, one of the companies most affected by the forced asset sales or seizures. First Quantum is in litigation with the Kinshasa government over the loss of its concessions while the International Monetary Fund and World Bank are taking the state-owned company Gécamines to task over secret mining contracts.

Tshisekedi, veteran leader of the Union pour la démocratie et le progrès social (UPDS), invited First Quantum and other foreign investors to ‘come back after 6 December, when Kabila will be gone’ to take advantage of a better business climate, we hear. In return, a news agency owned by an ally of Kabila has accused Tshisekedi of acting ‘against his own people’. Pro-Kabila media denounce Tshisekedi’s talks with mining companies while the opposition slates the government for selling off the country’s mineral heritage at bargain-basement prices.

One of First Quantum’s disputes, which has been referred to the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), concerns the decision of the Kipushi high court to ratify the takeover of the Frontier and Lonshi copper and cobalt concessions by a Hong Kong company, Fortune Ahead Limited, in partnership with the state-owned Société de développement industriel et minier du Congo (Sodimico) in 2010. First Quantum’s other dispute, which has been referred to the arbitration tribunal of the International Chamber of Commerce in Paris, concerns the transfer in September 2009 of its Kingamyambo Musonoi Tailings (KMT) concession to the mysterious Highwind company, registered in the British Virgin Islands (BVI, AC Vol 51 No 19, The bonus culture). Highwind is believed to be associated with the controversial Israeli businessman Dan Gertler, who is one of Kabila’s staunchest and richest supporters. Highwind recently sold the KMT concession to Eurasian Natural Resources Corporation (ENRC) of Kazakhstan in unclear circumstances. The concession may contain 326,000 tonnes of copper and 69,000 tn. of cobalt, worth about US$5 billion.

IMF/World Bank not amused
Etienne Tshiskedi’s trip to Canada irked Kabila since it follows pressure from the World Bank over the government’s handling of mining contracts. The Bank’s private sector investment arm, the International Finance Corporation, is a partner in KMT with First Quantum. The IMF is also displeased and may withhold some payments under its $240 million Extended Credit Facility as a result.

The IMF has asked the government to clarify several obscure contracts signed by Gécamines, which suggests that state assets have been sold for absurdly low prices, notably Sodimico’s sale to Fortune Ahead of 30% of its shares in the Lonshi and Frontier deposits. Opposition member of parliament Modeste Bahati Lukwebo, of the National Assembly’s Economic and Financial (Ecofin) Commission and who leads the Alliance des forces démocratiques du Congo, claims that Fortune Ahead paid Sodimico only one-thirtieth of the stake’s true value. This would put the loss to the state at $870 mn. An exchange of letters between Sodimico and Mines Minister Martin Kabwelulu Labilo shows that the partnership agreement between Sodimico and Fortune Ahead covers assets that used to belong to First Quantum.

Early this year, Gécamines secretly sold its 20% share (along with its joint venture partnership) in Mutanda Mining, operated by Samref Congo and 50% owned by Glencore, to Rowny Assets, another BVI company associated with Gertler (AC Vol 52 No 16, Mutatis mutandis). Gécamines also quietly disposed of 25% of a mining firm called Kansuki Investments to the Biko Invest Corporation, also linked to Gertler. Based on calculations by consultants Golder Associates that the Mumi deposit alone was worth $3 bn., a human rights group, Action contre l’impunité pour les droits humains (ACIDH), has calculated that the sale involved handing over assets worth about $600 mn., plus $200 mn. in royalties. Much the same applied to Kansuki. Glencore, its leading shareholder with 37.5% ownership, assessed its production capacity at around 17,000 tn. of cobalt and 90,000 tn. of copper.

Gécamines, a private affair
The Chief Executive of Gécamines, Albert Yuma Mulimbi, has refused all requests, from the Mines Ministry to the IMF and others, to publish the controversial contracts, claiming that as a private company it is not obliged to, even though the state owns all its shares. The government has instructed Yuma, we understand, not to provide the information.

Mining companies, and the Minister in charge of State Assets, Jeannine Mabunda Lioko, will be watching with interest an MP from the Mouvement de libération du Congo (MLC), Fidèle Babala. In April 2010, he revealed that the state-owned Office des Mines de Kilo-Moto Okimo) had sold 20% of its shares in the Kibali Gold Mines joint venture for $113 mn. to its partners AngloGold Ashanti and Randgold. He estimated that would cover reserves – certified, measured or probable – of 28 mn. ounces of gold, with a value of $30 bn. He reckoned that this deal had cost the state several billion dollars.

Senator David Mutamba Dibwe, who chaired a commission of inquiry into the mining sector in 2009, has revealed that, in the two Kivu provinces, Manyema and Orientale Province, 80% of gold exports were outside state control and marked by ‘grand-scale fraud’. Official gold exports were 121.58 kilogrammes in 2007, and about 71 kg. in 2008.

Back in 1983, exports of 6 tn. were recorded, while the official Centre d’évaluation, d’expertise et de certification des matières précieuses (CEEC) has estimated real exports at 40 tn. a year – meaning the state could have lost $1.23 bn. Mutamba’s commission also found that in Kasai-Oriental, the decline of the province’s pride and fortune, Minière de Bakwanga (Miba), was universally blamed on Kinshasa. The report spoke of ‘government neglect and carelessness, appointments in exchange for favours instead of skills, and repeated raids on funds owned by the enterprise’. On 25 October, a conference organised byKatangan civil society declared, with Mutamba present, that little had changed and the mining sector was characterised by ‘generalised fraud’.
Source: AFRICA CONFIDENTIAL