Congo’s Government Wants 15% Stake of New Mines in Revised Code...

Congo’s Government Wants 15% Stake of New Mines in Revised Code

By Michael J. Kavanagh - Oct 11, 2013 8:50 PM GMT+1100 .

The Democratic Republic of Congo plans to raise its free stake in new mining projects to 15 percent from 5 percent, said Chantal Bashizi, the vice president of the commission revising the mining code.

The government has been in a dispute with companies for more than a year about changing the 2002 regulations, particularly over a proposal to increase the state’s share in new mining projects to 35 percent, Bashizi told the iPad mining conference in the capital Kinshasa yesterday.

“It was among the clauses that angered operators,” she said. “In the current structure we’ve lowered it from 35 percent to 15 percent.”

Congo’s government is seeking to increase revenue from the recent expansion of its mining industry. Mining and oil account for 32 percent of the country’s economic output, according to the central bank. The present rules were written at the tail end of a series of wars that decimated metal production and led to the sale of majority stakes in some of Congo’s biggest mines to private companies.

Last year, the Central African nation was the world’s eighth-largest producer of copper and the biggest producer of cobalt. Glencore Xstrata Plc, based in Baar, Switzerland, Phoenix, Arizona-based Freeport-McMoRan Copper & Gold Inc. (FCX), and London-based Eurasian Natural Resources Corp. (ENRC) were the country’s biggest copper exporters.

Proposed changes to the code include tripling the royalty on copper and cobalt to 6 percent, and cutting the amount of time that contract stability is guaranteed to five years from 10 years, Bashizi said in a separate interview.

Reduced Profitability

“With the new code, profitability could be divided by three or four,” David Guarnieri, the director of the tax department at Freeport’s Tenke Fungurume mining project, told the conference yesterday. “Changing the rules of the game of the limit of the stability clause will call into question the economic model at the origin of the decision to invest.”

The government will host a workshop Nov. 15 with companies and civil society members to discuss the proposed changes. A report by a consultant from Duncan & Allen, the Washington-based law firm, hired by the World Bank to oversee the revision will be published by Oct. 16, Bashizi said.

The draft code may be sent to parliament for approval in March, according to the Mines Ministry.

Companies would cede the 15 percent share to the state at the time their exploration permits are transferred into exploitation permits, according to the code. The state’s percentage is a free carry and can’t be diluted.

Australia-based Tiger Resources Ltd. (TGR) and MMG Ltd., Jinchuan Group of China, Canada’s Lundin Mining Corp. (LUN) and Ivanhoe Mines Ltd. (IVN) have copper projects in Congo. Banro Corp. (BAA), Randgold Resources Ltd. (RRS), and AngloGold Ashanti Ltd. (ANG) are producing gold.

http://www.bloomberg.com/news/2013-10-11/congo-s-government-wants-15-stake-of-new-mines-in-revised-code.html