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Source:Financial Post
Miners' shares hit by rumours Congo may scrap some contracts
Peter Koven
6 November 2007

Investors were thrown into a panic yesterday after reports surfaced that a government commission wants more than 60 mining contracts in the Democratic Republic of Congo (DRC) to be renegotiated or scrapped.

The commission's chairman put out a statement denying the reports and saying the commission has not finished its work. But that wasn't enough to prevent frantic selling of shares of nearly any company with DRC exposure.

The hardest hit were Anvil Mining Ltd. and Katanga Mining Ltd., which have all their operations in the DRC. They both fell more than 10%. Other companies such as First Quantum Minerals Ltd. and Africo Resources Ltd. also saw their shares drop.

However, they recouped some of those losses over the course of the day.

Arthur Ditto, chief executive of Katanga, said investors are over-reacting, and that the commission report is nothing to get worried about. He thinks the government could take action on contracts where little or no work is being done, but he is not worried about substantial changes to Katanga's mining concessions.

"This is simply a commission, it's not the government," he said in an interview.

"Their mandate is to submit this report to the government, and from there the government will decide what to do, if anything."

The big problem, industry experts said, is that the latest rumours show how difficult it is to do business in the DRC, one of the most politically risky jurisdictions in the world.

In September, the government effectively blocked an attempted takeover of Katanga, leading to allegations of corruption. And the mining contract review, which started in June, has not been transparent and has created a negative overhang over all the companies in the region.

"The biggest problem is that nobody has any confidence any more in the Congo," said Kerry Smith, an analyst at Haywood Securities. "Nobody knows the rules, nobody knows who you can trust."

But experts have a hard time believing many of the commission's alleged findings. For example, the commission reportedly said the government should cancel Anvil Mining's rights to the Dikulushi copper-silver mine, which the company has been operating since 2002.

If that happened, it would likely scare away foreign invest-ment in the region, which is the opposite of what the government wants, experts said. Anvil stated yesterday it has not received any notice regarding renegotiation or cancellation of its contracts.

"But in the meantime, you've vaporized a lot of shareholder value. And it's going to be harder to get people to commit capital to this part of the world," Mr. Smith said.

The one issue overhanging the commission's review is China. Gecamines, the DRC's state-owned miner, recently signed a massive, US$5-billion joint venture agreement with China.

By cancelling some current mining concessions, they could theoretically be added to the venture.

The commission's final report is expected to be ready in the next week.