minister surprised at markets reaction

Congo official surprised at speech reaction; Scared Investors
Peter Koven
Financial Post
7 February 2008

CAPE TOWN, South Africa -Victor Kasongo, Deputy Minister of Mines in the Democratic Republic of Congo, is clearly disappointed in the negative reaction the market has had to a speech he delivered earlier this week at the Indaba mining conference in Cape Town.

It "is not our intention" to "hit" shares, Mr. Kasongo said yesterday. "We want to get the process for appeals closed as quickly as possible."

Shares of several West-ern-based mining companies with operations and projects in the DRC plummeted after Mr. Kasongo's speech, which included his statement that all mining contracts reviewed by his government have been found to contain "significant flaws." The remark was interpreted as a threat to the con-tinued existence of those mining contracts.

The intense reaction to the speech caught Mr. Kasongo off-guard. He noted the sell-off when he hosted a breakfast yesterday morning, and was clearly disappointed that it happened.

Throughout much of yesterday, the talk at the Indaba conference centred on Mr. Kasongo's speech. Many were shaking their heads as they studied the damage. "Two billion dollars [of shareholder value] wiped out just like that. Unbelievable," said one investor at the conference, who asked not to be named.

However, the concerns were largely ignored by the mining companies themselves. A number of the DRC firms made presentations yesterday to large groups of investors, including First Quantum Minerals Ltd., Katanga Mining Ltd. and Anvil Mining Ltd. They did not mention Mr. Kasongo or the political challenges of operating in the DRC, which is expected to generate many more investment dollars in the months and years ahead.

All the mining companies in the DRC have been under a black cloud because of the infamous contract review undertaken by the DRC government. The review has gone on a lot longer than expected and investors have started to worry about what the potential resolution will look like.

Mr. Kasongo's speech on Tuesday was intended to put investors at ease. The Deputy Minister tried to demonstrate he is committed to working with foreign mining firms and wants to generate more foreign investment in the DRC.

Most significantly, he said that he realizes the contract review needs to be fast-tracked, and he plans to do exactly that. The government plans to notify each company about the status of their contracts in the next few months and start negotiations that could get them resolved. "We must show we'll always act reasonably," he said.

Mr. Kasongo also said the DRC plans to establish a stock exchange to allow Congolese citizens to participate in the country's mineral wealth. He said the exchange will be put in place after the review of mining contracts with companies is completed in the next few months.