DRC prepares to put financial squeeze on mining sector

Regulations that will set the stage for a new Mining Code in the Democratic Republic of Congo are expected to be signed into law today (Friday June 8). This follows on the heels of news that Congolese President Joseph Kabila would sign into law a new mining code that will raise royalties on minerals across the board in March this year.

The new mining code increases royalties on copper from 2% to 3.5%, on gold from 2.5% to 3.5% and could potentially increase royalties on cobalt from 2% to 10%, if cobalt is deemed a “strategic mineral.”

Additionally, a new 50% tax on so-called super profits, defined as income realised when commodity prices rise 25% above levels in the project’s bankable feasibility study, will be introduced. Other key changes include a provision that doubles the state’s free share in mining projects to 10% and a reduction on the period during which contract stability is guaranteed down to five years, from 10 years stipulated in the current mining law.

A group of international mining companies with operations in the DRC have been collectively negotiating with the DRC government in a bid to resolve corporate concerns about anticipated impacts on their DRC operations.

The group includes Randgold Resources Ltd. [GOLD-NASDAQ, LSE], AngloGold Ashanti Ltd. [AU-NYSE, AGG-ASX, ANG-JSE], Glencore PLC, Ivanhoe Mines Ltd. [IVN-TSX; IVPAF-OTC], Gold Mountain International/Zijin Mining Group, MMG (PTY) Ltd. and China Molybdenum Co. Ltd.

Ivanhoe Mines, headed by billionaire financier Robert Friedland, is advancing two projects in the DRC, including:

• Mine development and exploration at the Tier One Kamoa-Kakula copper discovery on the Central African Copperbelt in the DRC.
• The high-grade Kipushi zinc-copper-silver-germanium mine, which is also located on the DRC’s Copperbelt.

As the DRC currently accounts for about 54% of the world’s cobalt production, any increase in the cost of doing business there may only tighten the supply of a commodity that was expected to be a top performer in the metals sector, potentially rising by a further 20% over the next two years, according to Citi Research is a division of Citigroup Global Markets Inc.

Cobalt, which is produced primarily as a byproduct of copper and nickel, has recently become a hot investment area due to its key role in the production of rechargeable batteries used in the manufacture of electric vehicles.

Meanwhile, a Congolese-American businessman Charles Brown is demanding US$1.14 billion from Glencore, claiming that he was coerced to sell his 19% interest in cobalt miner Mutanda Mining Sarl to Glencore in two transactions in 2007 and 2012, according to a report by Bloomberg news service.

In January, a commercial court in the province of Lualaba in the Democratic Republic of Congo, where the Mutanda mine is located, sanctioned Brown’s request to seize US$843 million of assets from Glencore and Mutanda Mining.