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Democratic Republic of Congo Mining Report Q1 2010
Business Monitor International, Jan 2010, Pages: 46
Business Monitor International's Democratic Republic of Congo Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the Democratic Republic of Congo mining industry.
Latest News The final negotiations resulting from the recent review of mining contracts continues to cast a shadow over the mining sector and indeed the wider DRC economy as BMI enter 2010. In November 2009, the government accused Canada of holding up a rescheduling of its Paris Club foreign debt obligations in a tit-for-tat response to DR Congo’s decision to cancel First Quantum Minerals’ contract for the Kolwezi cobalt and copper project, it was reported by Reuters. Getting agreement for a debt rescheduling is critical for DR Congo to receive fresh funding under an IMF debt relief programme.
The cancellation of the Kolwezi contract in August 2009 came as a surprise to First Quantum, which has also recently been landed with a bill for US$6mn in damages related to three failed lawsuits it filed against the Congolese authorities relating to Kolwezi. Although the DRC government has said First Quantum can renegotiate terms for Kolwezi, expectations are that First Quantum will instead move to have this dispute heard by a court of international arbitration. Development at Kolwezi is estimated to be 65% complete and production was scheduled to start in Q110 before this recent dispute took hold.
Separately, in November 2009, the junior partner in the Tenke Fungurume copper-cobalt mine, Canada’s Lundin Mining, said that ongoing mining contract renegotiations in the DR Congo could well impact on the development timetable for the mine if issues are not resolved by the end of Q110. Quoted by Reuters, Lundin’s CEO Phil Wright said that this date will mark a time when Freeport McMoran (the majority owner of Tenke Fungurume) will have to decide on whether or not to press ahead with the next phase of construction. At the present time, Tenke is continuing to operate normally, despite an October 12 2009 deadline set by the government to conclude these contract negotiations having expired. On a more positive note, the government was able to strike agreements with AngloGold Ashanti, Banro, Mwana Africa and Gold Fields at the start of August 2009.
New Data For 2010, BMI has made significant changes to the way in which BMI forecast mining data. As well as using local statistics agencies and associations, BMI now also draw on the expertise of the UN’s Industrial Commodity Statistics Database, the US Geological Survey and the World Bureau of Metal Statistics for BMI's historical export and production data. BMI then forecast this data using their own proprietary econometric model. Human intervention also plays a necessary and desirable role in their mining forecasting; experience, expertise and knowledge of industry trends and developments ensuring that BMI can spot likely future changes and anomalous data that a purely mechanical model would not.
Country Overview The Democratic Republic of Congo (DRC) is home to vast reserves of a wide variety of natural resources such as cobalt, copper, gold and diamonds. DRC is believed to contain about 4% of the world’s copper reserves and one-third of its cobalt reserves.
All mineral deposits in the DRC are state-owned and the holder of mining rights also gains ownership of the mineral products for sale. Governed by the National Mining Code, the Ministry of Mines regulates the Mining Registry, Directorate of Mines and the Geological Directorate. A peculiar feature of the mining industry in the DRC is that artisanal mining (ie: non-mechanised, small-scale mining) accounts for 70% of the national diamond production. So despite of being the world’s third largest diamond producer in terms of output, the country is rated seventh in terms of value. Furthermore, the use of archaic mining techniques has restricted possible growth in the diamond mining segment.
Outbreaks of violence and civil unrest, and the looting of minerals and precious stones by armed militia, continue to drain the country’s rich natural resources. In addition, although multinational miners have started investing in the country’s mineral and metals sector, the physical infrastructure remains extremely poor or even non-existent at times.
Industry Forecast DR Congo is in the process of developing its rich mineral endowments of cobalt, diamonds, copper and gold. Although the DRC has great potential in mining- related activity, political instability needs to be tackled urgently to ensure that the growth opportunity is not lost. BMI believes that the Congolese mining sector can reach growth rates of between 4-6% per annum across BMI's forecast period. Many new mining facilities are scheduled to start production in 2010-11, which will boost output levels. However, BMI would caution that their forecasts remain dependent on relative political stability within the African state.
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