Congo Mining Code Review Raises Concerns About Government Stakes

--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 [e-mail]

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