A couple of articles that may be of interest.ANALYSIS-Eastern...

A couple of articles that may be of interest.


ANALYSIS-Eastern war adds to "perfect storm" of Congo woes
25 Nov 2008
Source: Reuters
By David Lewis

KINSHASA, Nov 25 - Congo's eastern war, tumbling mineral export prices, doubts over government handling of mining investment and popular anger over graft and inefficiency have created a "perfect storm" of pressures for the African giant.

President Joseph Kabila's weak and chaotic army has suffered embarrassing defeats by eastern rebels led by Laurent Nkunda, and his government is coming under pressure from the United Nations to open peace talks with the dissident Tutsi general.

DRC's Katanga mining sector in jeopardy -- Katanga mines minister

Windhoek, Namibia 20 November 2008 12:22

The revival of the Democratic Republic of Congo’s mining sector is in jeopardy due to the slump in global copper prices, coupled to the continued process of reviewing mining licences in the country, Barthelemy Mumba Gama, provincial mines minister for Katanga province, told MB.

The slump in global copper prices and the country’s mining licence review have caught up with the 72 unlisted companies, most of which started up in mineral-rich Katanga after following the provincial government’s ban on exports of raw ore in March 2007, according to Gama.

“Following the ban, we had more than 72 processing companies operating in Katanga, but 45 have closed since July due to the high production costs,” he said.

Some processing companies are reducing output or closing due to the scarcity of raw material.

Chemaf Sprl, a mining and metallurgy company privately owned by the Shalina Group that has been operational in the DRC for nearly 30 years, is understood to have scaled backits production.

According to sources, Chemaf, which produced 16,000 tonnes of copper cathode in 2007, had expected to increase output this year to 30,000 tonnes. The company was not available for comment.

“In October, our exports of copper cathode went down 70%,” Gama said, without elaborating on how much the province exports.

“[November] will be worse as most mining companies are not producing,” he added. “We had eyes on copper output of 400,000 tpy by 2010, but currently that target looks doubtful.”

Katanga imposed the ban on exports of raw ore to encourage local beneficiation and employment creation, according to Gama.

“But we are currently sitting on an unemployment time-bomb,” he said.

There has been no new significant investment in the province this year, Gama told MB.

The situation is compounded by renewed insecurity in eastern Congo that has created uncertainty, making it difficult for listed companies to access capital markets, he added.

The provincial government is due to meet to discuss measures to save the province from the crisis, Gama said.

It will consider cutting taxes paid by mining companies, subsidising transport costs and removing unnecessary “obstacles [to] safeguard the sector”, he said, without elaborating further.

Most of the listed companies operating in Katanga have shed over 80% of their value since the start of the review. First Quantum has shed 80% of its value, while Katanga Mining has seen 95% of its value eroded since the start of the year.

Gama said companies such as Katanga Mining, Central Africa Mining & Exploration Co (Camec) and First Quantum, which have producing mines in the Katanga province, have either scaled back or suspended production altogether.

Those still in the construction stages, such as Tenke Fungurume partners Lundin Mining and Freeport McMoRan Gold and Copper Co, have not been spared, said Gama.

“The situation has more to do with cash money and difficulties in raising capital for investment,” he said. “Production costs have gone up while copper prices have gone down making it difficult for mining projects to be sustained.”

First Quantum has responded to the “changed global economic circumstances” by suspending copper cathode production at its Bwana Mkubwa mine in Zambia, cutting operating and overhead costs, renegotiating supply contracts, improving supplier credit terms and other working capital management initiatives, and deferring non-essential exploration and capital expenditure programmes, a spokeswoman told MB.

“The conflict in eastern DRC and the ongoing review of mining contracts are not good for companies with assets in the country, but these are realities that we at First Quantum Minerals disclose to our key stakeholders to an extent we are able to,” she told MB.

Katanga Mining said it is reviewing its capital expenditure requirements to optimise its growth plans, maximise operating cash flow and preserve balance sheet capacity, said a spokesman.

“Given the changed market conditions, which make it more difficult for all companies to secure funding or credit, we are reviewing all our future financing options to ensure maximum flexibility in how we expand our operations,” he told MB. “At this stage it is too early to provide further detail on the outcome of this review.”

Camec has temporarily halted its copper and cobalt mining operations in the DRC, citing a sudden steep decline in Chinese cobalt demand and the falling copper price.

It has declared a production holiday, anticipating that it will restart production in early 2009.

“During this time, sales will be fulfilled from stock,” the company said.

But Gama said the problems for DRC miners begun last year when the country launched the mining review process.

“Most companies’ shares have gone down, making it so difficult for them to attract capital. It is currently a matter of survival, with most operating with half their workforce just to remain operational,” he said.

Last week, First Quantum reported a 19.6% slump in third-quarter profit to $147.5 million from $183.6 million a year earlier, despite a 50% increase in copper sales volumes during the quarter, which it attributed to falling metals prices and higher operating costs.

Teal Mining and Exploration, which is also listed in Toronto, has scaled back output at its Lupoto copper project in Congo (MB Nov 18).

Anvil Mining has said it will delay work on the second stage of the $380 million Kinsevere solvent extraction-electrowinning copper facility until it has arranged additional funding and global financial and commodity markets stabilise (MB Nov 18).

The recent fighting in Democratic Republic of Congo's east has coincided with a global financial crisis, which has reduced demand for Congo's copper and cobalt. An official 2009 growth forecast has been revised downwards from 12 to 9 percent, but a government commission fears growth may drop far lower.

Misgivings over a multi-billion-dollar investment deal with China, combined with popular anger at government inefficiency and corruption among officers in the poor-performing army, are fuelling frustrations at a lack of progress in rebuilding Congo.

"The dynamics are not good for Congo. Copper is down, there is the (mining contract) review process, and the financial crisis has hit. There are even bigger things than the war in the east," said one foreign mining executive who works in Congo.

"We are in the middle of a perfect storm," he added.

The vast former Belgian colony is still struggling to recover from a 1998-2003 war which sucked in six neighbouring armies and created a humanitarian catastrophe that has already killed 5 million people. The latest fighting is making it worse.

U.N.-backed elections in 2006 returned President Kabila to power and lured in investors who pledged billions of dollars for mining, especially in the southeast copper region of Katanga.

But world copper prices have slumped 60 percent from a record high of $8,940 in July as demand has fallen.

London Metal Exchange copper for three month delivery fell on Tuesday to a low of $3,560 a tonne.



MINING FEELS THE PINCH
Source: Metals Bulletin

The government says that over 40 mining and processing firms that provide incomes for thousands in Katanga have stopped operations completely as profit margins evaporated.

Firms like Katanga Mining , Anvil Mining and Central Africa Mining and Exploration Company have suspended some Congo activities as costs rise and prices fall.

Even long-term Congo optimists concede the war and economic downturn have created what they call a "double whammy".

Investor confidence has also been hit by a long, drawn-out review of all mining contracts that was called last year to improve the government's stake in deals. Originally due to have been completed in six months, it has lasted 18 months so far.

"Everyone has talked, but not everyone is prepared to be pressured," the mining executive said. Congo's newly installed government has called for the process to be completed soon.

A senior member of the Federation of Congolese Businesses (FEC) said several companies were complaining about fiscal harassment as the government tried to boost revenues.

Congo's copper and cobalt mines are far from North Kivu, where the recent fighting has displaced 250,000 people.

But rebel chief Nkunda -- who now says his four-year-old revolt, originally launched to defend fellow Tutsis, is aimed at "liberating" all Congolese -- has added to his demands the renegotiation of Congo's $9 billion investment deal with China.

DELAYS IN CHINA DEAL

The deal gives Chinese companies access to mines in return for loans for five strategic development projects. Analysts say bringing the Chinese deal into the conflict equation is a ploy by Nkunda to dispel the image of a localised rebellion.

But he is also tapping into popular frustration at apparent lack of progress in the Chinese infrastructure projects.

"His (Nkunda's) ally is the crisis as Kabila's margins are very small. Kabila is losing face in the east and the "5 Projects" are not working," a diplomat told Reuters.

The FEC official said an initial $350 million Chinese cash injection had been delayed due to legal wrangling and some of the deal's parameters had been altered due to Chinese fears over falling copper prices and IMF doubts over debt sustainability.

Some economists now fear that inflation will also take off as a result of higher military spending due to the eastern war.

A government commission studying the financial crisis' impact envisaged three scenarios, which saw growth ranging from 7.4 to 5.7 percent, well down from the hoped-for 12 percent.

But Kabila's administration overruled the commission, setting a revised 9 percent growth forceast for 2009.

Concerns are also growing about Congo's future oil prospects. The country now produces 22,000 barrels per day on its Atlantic side, but has been negotiating exploration blocks with foreign firms on the shores of eastern Lake Albert.

Security sources fear Tutsi rebel Nkunda may be linking up with resurgent militias in this area bordering with Uganda.