Most people have heard of the DRC, but might not know exactly where to find it on the map of Africa, even if the DRC is the second-largest country on the continent at 2 344 858km². Algeria is the largest country in Africa, covering close to 2 381 741km² of North Africa. In stark contrast to Algeria, of which almost 90% is desert, the DRC straddles the equator, and more than 60% of its surface area is covered in lush rainforest.
In all likelihood, those who are able to pinpoint the DRC on the map will know about the rainforest. But a map does not represent the real vastness of this land. It also does not reveal the incredible geology, rich mineral endowment, fascinating politics, and brutal history that shaped the DRC.
On the heels of the rainforest, brutality and war are what most people think of when you mention the DRC. One of the most brutal men in Africa’s history, King Leopold II of Belgium, is also the man who determined the borders of the DRC. In his feverish haste to exploit the Congo’s natural resources, Leopold II left a path of murder, destruction, and devastation in the late 1800s and early 1900s.
The pillage was taken to new levels when Mobutu Sese Seko came to power in 1965 after ousting Patrice Lumumba, who was the first president after the Congo gained independence from Belgium in 1960. Sadly, the rent-seeking, patronage, and corruption continued when Laurent Kabila overthrew Mobutu. His son, Joseph Kabila, continued the plunder when he became president after his dad died a violent death at the hands of an assassin towards the end of 2001.
Joseph Kabila continues to rule, although his term of office officially ended in December 2016. According to the DRC electoral commission, elections will now take in December 2018; meanwhile, Kabila has given the assurance that he will step down in 2019, but nobody really knows. That is the problem with the DRC — it is all a guessing game. And, unfortunately, most investors do not like to guess — they want predictability. Therefore, the DRC is high on the list of riskiest countries to invest in globally. “But that doesn’t mean one shouldn’t invest in the DRC. It means you should do your homework properly before you invest,” says Claude Baissac, managing director at Eunomix. Baissac is a specialist in strategy, risk management, and economic policy.
“The DRC has made an extraordinary turnaround in terms of being an attractive mining jurisdiction. The question is: how sustainable is that?” asks Baissac. Despite the DRC’s incredible mineral wealth, to sink a shaft that will take between five and 15 years to start showing a profit, is a risky strategy to follow in such an unpredictable environment. When the stakes are high, politics could become your worst enemy. Add to this a mixture of diverse cultures, ethnicities, conflict minerals, and unscrupulous business practices, and you end up with a toxic brew that has been poisoning the DRC’s economy and hampering growth ever since the Belgian departure. And the situation is not likely to change overnight, despite a number of highly successful mining projects over the past few years.
“Of course, the DRC has tremendous potential, but I think the country remains inherently problematic given the fact that it is not governed in any normal sense of the word,” says Jakkie Cilliers, chairperson of the Board of Trustees and head of African Futures and Innovation at the Institute of Security Studies (ISS).
According to Richard Robinson, managing director of Canadian-listed Alphamin Bisie Mining, politics is one of the company’s most significant non-technical risks, the other being infrastructure, community, and artisanal mining. Alphamin is developing the Bisie tin mine in the Walikale territory, in the south-east of the North Kivu Province, which has been the most volatile part of the DRC for many years. Bisie’s tin sponsored various rebel groups and insurgencies. Furthermore, it was once home to more than 15 000 artisanal miners. Today, only 400 artisanal miners remain.
Politics affect livelihoods
Politics, says Robinson, is crucial, not only for business in the DRC, but also for communities and individuals. “People benefit under a certain regime and system, and when that changes, there is a possibility that it will affect their livelihoods, and that causes anxiety,” says Robinson.
With scheduled elections delayed, the DRC is in deadlock. “There is no clarity about where the country is going, and that means people stall; they don’t make decisions. It is hard to count on much from Kinshasa (the capital of the DRC). But it doesn’t mean we cross our arms and give up. We get a lot of support from the local and provincial authorities, and that means we can move ahead,” adds Robinson.
A source in Goma, the capital city of North Kivu, told African Mining while we were on a visit to the DRC in October last year, that Joseph Kabila has created an environment in which it will be very difficult to hold elections, despite his undertakings to do so. “By fomenting violence and creating instability, Kabila can say that there is too much chaos and that elections are not possible,” said the source that did not want to be named.
There is a lot of suspicion in the eastern parts of the DRC. Rumours are that recent outbreaks of violence in the northern parts of Kivu, involving what is thought to be Islamist-linked rebels from Uganda, have direct links with Kabila. This is all hearsay of course, but it is what the populace in the eastern provinces of the DRC believe.
According to reports, which was confirmed by North Kivu Minister of Mines, Electricity, Small and Medium Enterprises, Industry, and Hydrocarbons, Professor Anselme Paluku Kitakya, the government has now registered all eligible voters and they could technically have elections within six to nine months. Kitakya was adamant that elections would definitely take place.
Weakening the opposition
The continuous postponement of the election date, now to December 2018, is a stalling tactic deployed to weaken the opposition. After the death of the stalwart DRC politician and leader of the Union for Democracy and Social Progress (the main opposing political party in the DRC), 85-year-old Etienne Tshisekedi in February 2017, the main opposition lost some of its momentum. Moreover, the man most people believe should take the reins in the DRC, 52-year-old Moise Katumbi, has been forced to leave the country and is currently in exile. Katumbi, the former governor of the Katanga Province in the south of the DRC, is a successful businessman in his own right, and his appointment as president would be the ideal injection for a faltering economy. Whether the opposition can grind it out and motivate a war-weary nation to take to the streets and put their life on the line for another politician who might forsake them, is, once again, a guessing game.
Robinson says none of these possible scenarios will stop Alphamin from building the mine at Bisie. Kinshasa is almost 2 600km from Goma, and the direct influence that the national government has in the far-flung eastern parts of the DRC, is negligible. Alphamin has worked closely with the local and provincial authorities in the area and that, says their management team, has made a significant difference. The Congolese government owns 5% of Bisie, which is an automatic carry-over from the mining code when a mining company converts its exploration permit to a production license.
Most of the meddling in business and political affairs in these parts seems to stem from the more proximate Rwandan and Ugandan governments. In the past, this interference caused much of the strife in the greater Lake Kivu area, and, according to Robinson, both Paul Kagame, the president of Rwanda, and Yoweri Museveni, president of Uganda, still have a substantial influence in the east. It is doubtful, however, that the situation will deteriorate to the same level of a few years ago, when these countries deployed troops in the Kivu, or propped up rebel groups, which caused endless problems for the local communities. The biggest headache for the government today, though, is in the central province of Kasai, where it is claimed that more than four million people have been displaced. Many of these refugees have made their way down into Angola and that might cause instability. The risk is that Angola might send troops into the DRC, as they have done before, during the second Congolese war from 1998 to 2002.
The power of Rwanda
Nevertheless, there is no doubt that Rwanda has a considerable influence in and around the massive Lake Kivu, which straddles the border of Rwanda and the DRC. Kivu contains about 60 billion cubic meters of methane and 300 billion cubic meters of carbon dioxide. The gases, which originate from nearby volcanic activity and bacteria decomposing organic material in the lake, represent both danger and economic potential. Kivu’s methane could add up to 960MW of electricity-generating capacity to Rwanda and the DRC.
When the rickety plane takes off from Goma International Airport and swings around to Walikale region (where the Bisie Tin Project is located), the gas extraction platform, initiated by Rwanda (even though it seems to be located on the DRC side of the lake), is one of the most noticeable landmarks. Up to now, the DRC government has not invested in any large endeavour to extract the natural gas, although they have been talking about it.
After speaking to many people, it does appear that Rwandan business people’s reach stretches deep into the Congolese rainforest. There have been numerous reports of the illegal smuggling of minerals — and especially those declared as conflict minerals, such as cassiterite (tin), tantalum, and tungsten, which is of course found in abundance in the east of the DRC — across the lake or the border at Goma to Rwanda.
Conversely, gold, found in significant alluvial deposits in the murky rivers of the Congo basin, finds its way through the borders of neigbouring Burundi and Uganda. Thus, despite the implementation of the Dodd Franks Act, the flow of illegal minerals into international markets continue. Dodd Franks is a US law that requires companies that use gold, tin, tungsten, and tantalum to determine if those materials came from the DRC or an adjoining country and, if so, to carry out a due diligence review of their supply. Legal mining companies ‘bag and tag’ their product to indicate that it is conflict free. The problem, however, is that a number of artisanal miners in Kivu still unearth the minerals and sell it to illegal co-operatives, who then take it into Rwanda, tag it there and sell it as legal, conflict-free Rwandan products.
Despite all its challenges, the DRC is an unlimited treasure chest. Its rich mineral endowment includes large deposits of copper, cobalt, tungsten, tin, and gold. According to Dr Nicolaas Steenkamp, geologist and independent consultant, the copper grade is as high as 3% in some deposits. Alphamin’s Bisie Mine contains, according to Boris Kamstra, CEO of the company, up to 4% tin. Moreover, the DRC is the largest producer of cobalt and the second-largest producer of industrial diamonds in the world.
Steenkamp says that in some parts of the DRC, the low cost of mining makes it a major attraction for foreign investors and developers. Other sectors in the mining industry that are performing well include mining equipment leasing and financing. In addition, the hydroelectrical schemes in the country also aid in power generation and transmission in many areas. “The DRC offers opportunities for companies with a high-risk tolerance and familiarity with operating in complex or fragile environments,” says Steenkamp.
For Trevor Faber, chief operating officer at Alphamin’s Bisie, it is almost non-negotiable for contractors to have at least some experience of working in the DRC. It is an added advantage if they have done work in the eastern parts of the country as well. “It is difficult for contractors to do their first job in these parts of the DRC. It is an extremely complex country, legally and logistically, to operate in,” says Faber. Alphamin recently appointed Group Five as the structural, mechanical, piping, and plating (SMPP) contractor, and DRC-based Kongo River, a subsidiary of South African headquartered engineering contractor Teichmann, to do the earthworks at Bisie. “Engineering consultants DRA, who has been on site in Bisie from the start, has years of experience working in the DRC, while Kongo River recently completed an extremely successful project at Randgold Resources’ Kibali gold mine as well,” says Faber. The Kibali gold mine is 560km north-east of Kisangani in the Orientale Province, which is north-east of Bisie. The mine is a joint venture between Randgold (45%), AngloGold Ashanti (45%), and the Congolese parastatal Sokimo (10%).
Jewel of the DRC
Kibali is one of the most successful mining operations in the DRC ever. Last year it achieved the production target of 610 000 ounces, while the underground operations and the integration and automation of the vertical shaft entered the final commissioning and automation stage.
According to Mark Bristow, CEO at Randgold, the only major capital project still to be done, after the completion of the underground mine late last year, is Kibali’s third new hydropower station, currently being constructed by an all-Congolese contracting team.
“To date, over USD2-billion has been spent on acquiring and developing Kibali, of which the majority had been paid out in the form of taxes, permits, infrastructure, and payments to local contractors and suppliers,” says Bristow.
“With capital expenditure tapering off, Kibali should now be preparing to pay back the loans taken to fund its development. We are concerned, however, that its ability to do so will be impeded by the increasing amount of debt — currently standing at over USD200-million — owed to the mine by the government. TVA refunds, excess taxes, and royalties in violation of the country’s mining code, make up the bulk of this amount,” says Bristow.
Bristow adds that the major challenges of operating in the DRC include the volatile political climate and a deteriorating economy. However, he emphasises that Randgold will continue to invest in the DRC. “Our exploration teams are searching for the next big discovery in the greenstone belt of the north-eastern DRC. In line with our local supply strategy, Kibali has spent about USD 40-million with Congolese contractors,” says Bristow.
Mining code under revision
A troubling development though, warns Bristow, is talk of a re-introduction to parliament of a proposed new mining code by the Ministry of Mines. “The so-called new mining code is the same as the one government withdrew in 2015 after it was demonstrated that it would seriously damage or even destroy the Congolese mining industry,” says Bristow.
Minister Kitakya told African Mining over lunch in Goma in October that the mining code is still a long way off from being approved. “The National Minister of Mines has submitted a revised mining code. The scheduling for that to be considered has not yet been fixed,” said Kitakya. He added that the revisions generated a lot of critical input from the DRC National Business Chamber as well as mining companies, and maintained that it would not be passed without some degree of consensus.
The most controversial change to the mining code is a suggestion to increase the free carry-over of an exploration permit to a production permit from 5% to 10%. In addition, there are proposals to raise the taxes on royalties and exports, which prompted the National Business Chamber to contest the proposals. According to Kitakya, the current royalty tax is 2%, while the export tax is 1%. Under the new proposals, that will change to 2% royalty and 5% export tax.
For all its riches and opportunities, investing in the DRC does have a downside. According to Steenkamp, the sheer size of the country is a constraint. Like all large countries, its vastness presents numerous security risks, and illegal mining is difficult to control. In addition, concerns have been raised about conflict minerals, especially cobalt and the use of child labour. One of the biggest challenges of operating in the DRC, though, is the lack of good infrastructure. “Roads are almost non-existent in some parts of the country, with men and materials having to be transported to site via air charter or boat. Heavy loadbearing roads would have to be built for trucks and fuel will need to be more accessible,” says Steenkamp. He adds that corruption is also viewed by many as being endemic to the country and specifically when it comes to mining deals. An example being that about USD75-million in mining revenue was paid by companies to the Congo Tax Agency and state-owned mining company GECAMINES since 2013, which remains unaccounted for. Notwithstanding these challenges, many projects have been highly successful.
Randgold’s Kibali has exceeded all expectations and has completed a successful expansion programme. Canadian company Ivanhoe Mines, under flamboyant CEO Robert Friedland, continue to spend on exploration at its Kamoa-Kakula deposit and historic Kipushi zinc-copper-silver-germanium mine. In contrast, other companies, like First Cobalt, have withdrawn from the country. The presence of Bristow’s Randgold and Friedland’s Ivanhoe in the DRC tells it all. Both these men run tight ships, but are not scared to invest in what others would perceive as risky jurisdictions. But Bristow has said on many occasions that these are calculated risks, and that he does his homework before entering a new country. Bristow’s high-risk, high-reward approach has been successful in Africa. However, for more conservative investors, the DRC remains a guessing game.
About Leon Louw:
Leon specializes in African affairs and doing business in Africa, and has been writing about mining in Africa for 8 years. He was born in Johannesburg, South Africa, and has traveled Africa extensively, especially southern Africa. He has a BA degree with a specialization in African studies and an honours degree in Africa Politics. He also have a national diploma in Nature Conservation and an honours degree in Environmental Management. It is is passion to promote business in Africa and I can assist companies that are interested in doing business in African countries. You can see his work at African Mining and Mining Mirror and online at http://www.miningafricaonline.co.za/.
Tweet with hash tag #miningfeeds or @miningfeeds and your tweets will be displayed across this site.
|Lincoln Minerals Limited