Mining in the Democratic Republic of Congo-A Journey to Africa’s Mineral Heartland

Mining-in-the-DRCWith an estimated $24 trillion worth of untapped mineral wealth in the ground at today’s prices, the Democratic Republic of Congo (DRC) has the potential to become rich beyond imagination. The country’s mineral resources include cobalt (world’s largest reserves, holding more than 45% of overall reserves), copper (world’s second largest reserves after Chile, at 70 million metric tons), diamonds, gold, zinc, uranium, tin, silver, coal, manganese, tungsten, cadmium and crude oil.

Yet, over the past 20 years, average gross domestic product (GDP) growth has lagged below that of its eight neighbours, while total GDP is below that of its smaller neighbours Angola, Tanzania, Uganda or Zambia. Today, as always, the country’s true economic salvation seems to depend, to a large extent, on the successful exploitation of its vast mineral resources.

The enactment of Law No. 007/2002 of July 11, 2002 relating to the Mining Code (Mining Code) was aimed principally at attracting investments in the country’s vast mineral resources. More recently, the presidential and legislative elections in November 2011 dominated the political scene, with incumbent, Joseph Kabila, winning a second mandate. Despite the continued challenges of operating from the DRC, including the physical and institutional infrastructure of the country and continued civil unrests in the eastern Kivu provinces, recently there have also been positive signs.

GDP in 2011 reached 6.5% (a slight drop from the 7.2% figure of 2010) marking 10 years of positive GDP growth, something that has never been recorded before. President Joseph Kabila is implementing reforms and the effects are obvious: inflation fell from 46.2% in 2009 to 23.1% in 2010, and again to 17% in 2011.

The DRC must be analysed cautiously and patiently by those wishing to invest in the country. “Always expect the unexpected.  You must be ready to adapt your plans constantly and you must be flexible. It can be anything, from airline schedule changes to bridges dropping on your route. Understanding the challenges and above all understanding the people who you are doing business with is paramount,” said Alex van Hoeken, president and CEO of Kilo Goldmines, a gold exploration and development company with operations in the DRC.

Mining in the Democratic Republic of Congo

According to the Metals Economics Group, Africa as a whole claimed 15% of planned global non-ferrous exploration budgets in 2011. The DRC ranked first in Africa in 2010, only to slip to second place behind South Africa in 2011. Given the difficulties of operating in the country (the DRC is ranked 18th from bottom in the Fraser Institute Annual Survey of Mining Companies 2011/2012), this is a significant testament to the mineral potential the country has.

The government has yet to produce reliable data regarding production levels of the various minerals. According to the U.S.  Geological Survey Yearbook, the mining and mineral processing sectors accounted for an estimated 13.4% of GDP in 2008 (more recently in 2011, the French Ministry of Foreign Affairs concluded that the mining sector in the DRC represented almost 28% of GDP, up from 25% in 2010).  Mineral exports were estimated to be about $6.59 billion in 2008 and mineral imports, $6.71 billion. Cobalt accounted for 38% of the total value of exports; copper 35%, crude petroleum 12% and diamonds 11%. Other notable minerals exports included gold, tantalum, tin and tungsten. In 2009, the production of refined copper in the DRC increased by an estimated 247%, refined cobalt by 106% and mined copper by an estimated 24%. Tin production instead decreased by an estimated 19%, and diamond by 13%.

Qualifying the DRC as potentially one of the richest mining countries in Africa, analysts forecast that, driven by increased copper production and the development of world class deposits, the country’s mining sector by 2015 will double from 2010 levels.  Much of the copper mining related activity in the DRC developed around the towns of Likasi, Kolwezi and Lubumbashi along the fabled copper belt in the southern province of Katanga. Tenke Fungurume Mining (TFM), a copper and cobalt mine in the Katanga province, is perhaps the project most readily associated with the copper and cobalt industry in the country. TFM produced 127,367 mt/y of copper and 11,182 mt/y of cobalt in 2011, while the operating partner, Freeport-McMoRan Copper was expecting 2012 sales to reach approximately 131,500 mt of copper and 11,300 mt of cobalt.

Also in the premier league, Glencore operations throughout the country continue through two joint ventures, Kamoto Copper Co. and DRC Copper and Cobalt project. Current production levels are at 130,000 mt/y of copper and 8,000 mt/y of cobalt with expansion to 310,000 mt/y of copper and 30,000 mt/y of cobalt planned within 2015.

Despite the general slowdown of business caused by the electoral process, a number of transactions caught the attention of the mining community lately.  Metorex was acquired by Jinchuan Group in a $1.1 billion acquisition which saw the flagship Ruashi copper-cobalt project move into Chinese hands.

The deal was announced early in 2011, when Jinchuan, China’s dominant nickel producer, added almost 22% to Brazilian Vale’s previous offer. The Ruashi mine comprises three open pits and a modern Solvent Extraction Electro-winning (SXEW) plant. Other assets owned by Meteorex in the DRC included the existing Kisenda mine, the Dilala east and the Lubembe deposit greenfield sites, all located in the Katanga province.

Following in Jinchuan’s footsteps, Chinese metal and mineral-trading company Minmetals Resources recently concluded the $1.3 billion acquisition of Anvil Mining.  Anvil also mined copper and cobalt at Kinsevere in the Katanga province and undertook copper exploration in the region.  First Quantum Minerals instead was working on a project to extract copper and cobalt from tailings of older operations around Kolwezi. It was expected to produce around 70,000 mt/y of copper and around 14,000 mt/y of cobalt per year and had spent $750 million on acquiring and developing the property there. In August 2009, the government in the DRC revoked First Quantum’s license due to a dispute over renegotiating the terms of the contract. Later in 2012, First Quantum disposed of its residual assets in the DRC to Eurasian Natural Resources and settled all claims related to its DRC operations.

After half a century of unrealized potential, the DRC’s gold sector is now also on the verge of rapid growth. Banro’s Twangiza mine, became the first producing gold mine in the country after 50 years when its first gold pour took place in October 2011.  Estimated production levels of 120,000 oz/y are forecast. In June 2012, gold production averaged approximately 60% of the rated capacity of the plant. Banro aims to achieve an annualized gold production rate of 200,000 oz/y by the end of 2013.  The Kibali gold project in the Orientale province is 90% owned by a joint venture between Anglogold Ashanti and Randgold Resources, each holding a 45% stake in the project. Covering an area of 1,836 sq km, the Kibali mine is considered the largest underdeveloped gold deposit on the African continent.

An important addition to the mining industry is the role of artisanal and small-scale mining in the DRC. While the nature of artisanal mining makes it very difficult to obtain reliable information, it is estimated that almost 90% of mineral production comes from artisanal miners. Estimates vary on the number of artisanal miners in the DRC: 500,000 to 2 million diggers (creseurs) are thought to be actively involved in extraction of minerals. “Article 5 of the Mining Code allows Congolese nationals to engage in artisanal mining provided they hold an artisanal miner card issued or granted by the relevant government entities. The province therefore witnessed increased artisanal mining in the last decade and not only for gold operations like it used to be,” said the Provincial Minister of Mines in Katanga, Barthélemy Mumba Gama.

Mining in the Democratic Republic of Congo: The Country of the Future?

At African-focused business conferences the excitement of businessmen and investors remains focused on Nigeria and Mozambique. Yet the DRC, a country of larger land area and comparable resource wealth (even if this wealth comes in different forms), is often ignored. This can largely be explained by the business environment, which is considered by many to be among the worst in the world (ranked 176th out of 183 countries in the World Bank’s Doing Business 2012 rankings and 172nd out of 179 countries according to the Heritage Institute’s Index of Economic Freedom).

In terms of infrastructure, the DRC faces one of the biggest challenges on the African continent. Following years of conflict, transport networks have been damaged or left to deteriorate and about half of the existing infrastructure assets are in need of repair.  The country’s vast geography, low population density and extensive forestlands make the situation even more complicated.

Nonetheless, for many of the country’s international investors the development potential for mining in the Democratic Republic of Congo remains extraordinary.

While some choose other mining destinations with lower political risks, most of those that enter the country appreciate that working in a sustainable manner is actually possible. Furthermore, the country’s vast resource wealth and huge energy potential represented by the Inga dams, a series of hydroelectric dams located on the Congo river in Inga, are all indicative of the fact that the country can finally become a popular mining destination.

From a purely mining perspective, its vast resource base combined with today’s commodity prices render the DRC a very interesting, yet challenging, proposition for any potential investor.