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Mining companies face crackdown in Congo

Section: Daily Dispatches

By Ben Laurence
The Times, London
Sunday, October 21, 2007

In the eyes of the 19th-century adventurer and journalist Henry Morton Stanley, the Congo offered unparalleled riches. "We are banqueting on such sights and odours that few would believe could exist," he wrote after a trip up the River Congo to assess the area’s potential.

King Leopold II of Belgium described the vast tracts of land that were to become his Congo Free State as "this magnificent African cake."

As the European powers pursued their scramble for Africa, it was the Congo's ivory, timber, palm oil, and rubber that so excited Stanley and Leopold. But the country would later reveal its other riches -- enormous reserves of diamonds, copper, cobalt, uranium, and a host of other metals.

And now, almost a century after Leopold handed over his "cake" to the Belgian state, a new scramble is under way. The prize is no longer ivory or even rubber. It is the Congo's mineral wealth.

But the Congo -- or the Democratic Republic of Congo (DRC) as it has been for the past 10 years -- has been left in a desperate state. For more than three decades it was ruled by a corrupt despot, president Mobutu Sese Seko. A collapse in the price of copper in 1974 had a devastating effect on the economy. So did Mobutu's clumsy attempts to transfer control of key industries into the hands of his cronies. A succession of conflicts between 1998 and 2003 left the economy crippled. A single statistic gives a glimpse of the scale of the Congo's economic collapse: in the mid-1980s, the state mining company Gecamines produced as much as 470,000 tonnes of copper a year; in 2005, the figure was 14,000 tonnes.

International mining giants are now signalling their interest in making investments in the country. And last month, China signed a deal of extraordinary scale and ambition. It said it would invest $8.5 billion (L4.1 billion) to help restore the Congo’s shattered infrastructure. China undertook to pay for a 2,000-mile road between the northeast region and the southern border, and a railway link of similar length to join the southern mining heartland and the DRC's sliver of coast on the Atlantic. Further money would go into schools and clinics and into rebuilding decrepit state-owned mining facilities.

In return, China obtains rights over copper and cobalt reserves that should yield an estimated $14 billion of the metals.

The Chinese deal has raised eyebrows. But it is for the future. For now, the most contentious issue is the Congo’s attempts to determine the legitimacy or otherwise of existing mining deals that were struck in the period of near-anarchy that preceded last year's elections.

A succession of United Nations reports have highlighted how the granting of mining concessions were used to finance warring factions and line the pockets of corrupt officials. Then, earlier this year, the Kinshasa government announced that it would examine 65 mining concessions. For a clutch of London-quoted mining companies this review could be crucially important. The stakes are high.

Nine companies with their shares quoted in London have Congo mining concessions that are now under scrutiny: Anglo-Gold Ashanti, Central African Mining and Exploration (Camec), Copper Resources Corp., First Quantum, Gem Diamonds, Metorex, Moto Goldmines, Mwana Africa, and Nikanor. Gold Fields, which gives up its London listing this weekend, also has a licence under review.

In essence, the government wants to find out which licences were legitimately gained and which were the product of deals stitched up with warlords and corrupt state officials during the years of upheaval.

Victor Kasongo, the deputy mines minister, told The Sunday Times: "The aim is to bring the Congo to the stage where things are clear, legal, and beneficial for all the parties." Within the next few weeks, some licenses will have been "cleared" -- where the review has shown that they were properly gained and the proper share of royalties due to the state is being paid.

And what about the rest? Kasongo said: “Some of the contracts will need serious thinking, serious negotiation to get all the parties’ agreement. And some, I am sure, will be found to be simply unlawful.”

In too many cases, mining concessions were granted in murky circumstances. A firm would announce that it had secured rights to a minerals deposit, and its shares would shoot up, according to Kasongo. But on the ground, nothing happened: nothing has actually been dug up.

Since 2002, exploration permits have been granted on more than 4,000 areas; yet on fewer than 500 of those areas have the operators applied to start extracting minerals.

The Congo has now employed international fraud investigators to try to piece together who is behind mining licences and under what circumstances they were granted.

"Nobody doubts that we have minerals," said Kasongo. "Now we need to show that we have law and order: that's what the big companies want. I'm positively happy to have my door knocked by Rio Tinto. BHP Billiton has been there for a year. They want to be involved. We are becoming attractive to the biggest of the biggest."

Clearly, the stakes for the Congo are high. Even the diminished amounts of copper and cobalt being extracted at the moment do not yield what they should for the government. By one calculation, royalties in the last financial year should have been about $160 million; in fact, the government got a pitiful $32 million.

For companies waiting to see if their licences are given official blessing, the review is crucial.

Already, Kasongo has found himself at loggerheads with Camec, the company run by the controversial former cricketer Phil Edmonds and his long-standing ally Andrew Groves. The Congo authorities dispute the legitimacy of a cobalt and copper mining concession that was controlled by Billy Rautenbach, the notorious Zimbabwe-based businessman who is wanted in South Africa on fraud charges and who has now been barred from entering the Congo. The licences, in the mineral-rich Katanga province, were later acquired by Camec.

Two months ago, the Congo's public prosecutor revoked the mining rights, citing "serious irregularities in the original issuing of the licences." Camec, for its part, is arguing in a continuing court case that the licences were sound and that their transfer was properly done.

The Camec dispute originated before the review of licences was announced. Indeed, the key mining concessions involved were originally owned by Gecamines. But it probably gives a taste of things to come as results of the Congo review are published and mining companies are forced to horse-trade over the legitimacy of their assets.

Nobody pretends that the Congo has yet cleansed itself of the corruption that has been endemic for so many decades.

But as the deal with China shows -- and with talks under way with Brazil and India over similar deals -- the potential for attracting new investment to the war-ravaged country is enormous.

"We are trying to get the Congo to be respectable," said Kasongo.

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