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Congo Uncertainty Seen Posing Risk for Glencore, Randgold

Mining companies in the Democratic Republic of Congo including Glencore Xstrata Plc (GLEN) and Randgold Resources Ltd. (RRS) face “serious risks” as the country’s 2016 elections approach, Liberum Capital Ltd. said.

An attempt by President Joseph Kabila to change the constitution to seek a third term may destabilize the country, while an opposition victory may jeopardize titles held by some miners, the London-based investment bank said today in a note.

“Given the risks in the DRC significantly impact its copper exposure, we believe Glencore should in fact trade at a discount,” the bank said. Glencore has two copper projects in the country that may eventually produce a combined 500,000 metric tons of the metal a year, according to the Baar, Switzerland-based mining company.

Congo was the world’s eighth-largest source of copper last year and the biggest producer of cobalt. It is also rich in gold, diamonds, tin ore and coltan, a material used in electronics. Glencore Xstrata, Freeport-McMoRan Copper & Gold Inc. (FCX) and Eurasian Natural Resources Corp. (ENRC) are the country’s biggest copper and cobalt producers. Randgold operates the Kibali gold project, also part-owned by AngloGold Ashanti Ltd. (ANG)

Randgold Chief Executive Officer Mark Bristow said the Liberum note was “out of context,” given changes in the country. A spokesman for Glencore declined to comment.

Voluntary Exit

Congo’s 2006 constitution forbids changing the length or number of terms for the president and was written after 32 years under the rule of Mobutu Sese Seko, who was overthrown by Kabila’s father. The country’s 2011 elections, in which Joseph Kabila was re-elected to a second term, were disputed by the opposition and criticized by observers from the European Union and the country’s Catholic church.

Liberum “assumes” Kabila will amend the constitution to run again. If he doesn’t, “whether his voluntary exit would ensure stability is another matter entirely,” it said. “It is dependent on how the country’s institutions and other political candidates strengthen and mature towards the elections.”

“For me the report is sensational and it’s out of context,” Randgold’s Bristow said by phone today from Austin, Texas. “If you look at the changes on the ground both in Kinshasa and in eastern DRC, it’s a very different place today than in 2002” when the country was still at war, he said.

Congo’s recent military success against the M23 rebel group and attempts to improve diplomatic relations with its neighbors are signs of progress, Bristow said.

The 2016 elections shouldn’t effect Randgold’s operations in the country, he said. “Our business is structured in such a way that we’ll survive political change,” Bristow said.

To contact the reporters on this story: Michael J. Kavanagh in Kinshasa at mkavanagh9@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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