As his chartered Cessna flies above the Democratic Republic of Congo’s Katanga province, Mussadiq Hamid Merican flips through the pages of his Malaysian passport, counting Congolese visas.
“Nine, 10, 11,” he laughs, while the plane passes over villages of thatched-roof huts scattered across sparsely forested savannah. “And these are multiple entry visas so it’s actually more than that.”
The pilot banks and approaches a dirt landing strip rolled in the 1980s by a now-defunct tin company. For the past four years, Merican, 34, has been flying in and out of mines like this in Congo for Malaysia Smelting Corp. (SMELT), the world’s second-largest tin producer. Merican’s company is among those trying to determine if it’s possible to mine in the country profitably -- without enriching warlords.
Since the mid-1990s, when war broke out in eastern Congo in the aftermath of the genocide in neighboring Rwanda, Congolese minerals have been linked with corruption, killing and sexual violence. Rebels, unscrupulous traders and members of the army helped themselves to tin ore, of which Congo is Africa’s biggest producer, gold and columbite-tantalite, or coltan, an ore used in smartphones and laptops.
The illegal trade helped armed groups buy weapons and fund their wars. As of last month, almost 2 million people were still displaced by conflict in eastern Congo.
As the appetite for electronic gadgets grows, so does demand for tin, which is used as a solder in circuit boards. Chinese imports of tin concentrate tripled last year, according to St. Albans, U.K.-based industry group ITRI Ltd. Morgan Stanley in November identified tin as its top base metal to invest in in 2014.
Tin prices on the London Metals Exchange have risen 24 percent over the past four years to $23,000 per ton in London today. That’s sent companies looking for new deposits in far-flung locations. Merican’s MSC views Congo, the world’s poorest country, as one such place.
Congo currently accounts for only 2.5 percent of global production, though “this number could easily grow to 5 percent over the next five years,” said Daniel Jones, chief executive officer of Denver, Colorado-based Pioneer Management LLC. Jones’s company is considering building a tin smelter in Katanga through a subsidiary, Ramika Sarl.
They will have to work around the legacy of the conflict period. The U.S. Congress in 2010 passed legislation requiring all companies monitored by the Securities and Exchange Commission to report whether certain metals in their products may have supported conflict in the country. This month the European Union proposed a similar plan starting next year.
The SEC estimates that almost 6,000 businesses are subject to the rule, from Cupertino, California-based Apple Inc. (AAPL) to Chicago, Illinois-based Boeing Co. (BA) Companies are set to file their first disclosures to the SEC on May 31.
Soon after the U.S. law was passed, most companies, including Kuala Lumpur-based MSC, stopped buying from Congo altogether rather than risk their reputations. Congo went from producing more than 12,000 tons of tin ore in 2009 -- 4 percent of the world total –- to 2,900 tons in 2011, according to the U.S. Geological Survey.
The immediate results were disastrous for the hundreds of thousands of Congolese who relied on Congo’s tin ore and tantalum industries.
In some communities the pullout caused security to deteriorate “by depriving the region of foreign earnings, by removing economic opportunities, by driving young people to seek a living through violence,” according to an April 2013 report by the Pole Institute, a Congolese research group based in North Kivu.
The status quo ante wasn’t much better. Officers in Congo’s army controlled most of the trade networks in the Kivu provinces, according to the UN. Digging was barely regulated and often dangerous. Artisanal miners were harassed, illegally taxed and poorly paid. The region had little to show for its riches, Merican said.
In 2011, MSC joined with ITRI and electronics-industry groups to test a mineral-monitoring program that had been in the works for several years. Motorola Solutions Inc. (MSI), based in Schaumburg, Illinois, joined other partners to do the same for tantalum, the metal that is extracted from coltan.
The plan was to tag and trace tin and coltan from the moment they left the mine in Congo all the way to the smelter to make sure no armed groups were involved.
Katanga’s governor, Moise Katumbi, thought the initiative could revive the province’s tin mining industry and invited ITRI to begin its pilot program there. While Katanga is best known for its copper and cobalt, it also has large deposits of tin ore and coltan that lay dormant after years of mismanagement and war. Most importantly, there was little conflict in the province, which is located in the country’s southeast, relative to eastern Congo, Katumbi said.
Merican’s plane lands near a mine called Kanunka. The earth is pockmarked with hundreds of small pits where three or four men dig with buckets and shovels for cassiterite, tin’s ore.
“Everywhere around us is cassiterite,” Kabwulo Wa Kabala, a 27-year-old digger says. Wa Kabala sells all the ore he finds to a trader for what he says is a cut-rate price of $5.50 a kilogram (2.2 pounds) with grades between 50 and 60 percent. There’s little room for Wa Kabala and Kanunka’s estimated 3,000 diggers to negotiate.
“We don’t have the money to organize,” he says.
The metal eventually ends up with Mining Mineral Resources Sprl, a Congolese-registered company partnered with MSC and part of the global network of Tanzanian-registered Vinmart Group. Kanunka is one of 11 artisanal tin-ore and coltan projects supplying the company. MSC buys all of MMR’s tin; its coltan ends up in several countries including the U.S., U.K., Germany and China. All of it is tagged, the company says.
MMR says a cooperative manages the diggers and buys the material as well, before selling it on to the company. The sites are sometimes difficult to control, with new diggers arriving all the time, it says.
“We saw how accusations of funding conflict destroyed the tin and tantalum business in the Kivus, and we wanted to be credible and sell conflict-free minerals,” Safina Abdul Razak, MMR’s compliance and due diligence manager, said last month. “It fits with our business strategy to have a reputation in the market as an ethical supplier.”
Mining has made Wa Kabala’s village a little richer than others nearby. Orange tarpaulin covers the straw roofs to keep out rain that soaks the huts of neighboring communities.
Along the dirt road through the town center, music drifts out of a stall powered by solar panels hijacked from the street lamps donated by MMR. Under mango trees, off-duty diggers play bottle-cap checkers.
Most of these men were farmers before the tin boom. Throughout the province, agriculture has suffered as people turned to mining, according to Katumbi. While he supports the small-scale mining, he knows it’s highly sensitive to metal price fluctuations.
“You can’t eat minerals,” he says. When commodity prices fell during the global economic crisis in 2009, more than 300,000 Katangans lost their jobs, according to the World Bank.
The national government is pushing for large-scale industrialized mining. While MSC and MMR are considering that route, the risk is high.
In 2012, the companies jointly built a tin smelter on the outskirts of the provincial capital, Lubumbashi. It sits unused because the national electricity company won’t provide the required 2 megawatts of power. Mining in remote parts of Katanga also means impassable roads and no banks. Merican’s planes carry bags of cash to pay metal traders.
“Mobile banking could really change things,” he said.
Security issues are increasing as well, threatening Katanga’s claim as a place where minerals are guaranteed “conflict-free.”
Empty villages and burned-out huts pop up on the road about 50 kilometers south from Kanunka. MMR says they were destroyed by local militias, which sprang up in central Katanga in 2011, calling for the province’s independence and terrorizing the population.
In 2012, MMR and ITRI shut down two sites twice after the militias attacked nearby villages and entered mines. A third site, Katonge, is still closed for security reasons, MMR says.
In the past month, the situation has deteriorated in Manono territory, where Kanunka is located, with multiple reports of pillage, burned villages and torture, according to the UN. In total, more than 400,000 people have fled militia attacks throughout Katanga, the UN Refugee Agency says.
Congo’s government has struggled to contain the armed groups amid widespread poverty and desperation throughout the region, said Father Alain Kabange, the director of the Catholic Church’s Justice and Peace Commission in Manono. Most rebels are uneducated and unemployed and many are boys armed with nothing more than bows and arrows, he said.
“Build them roads, and bring them electricity and this problem will go away,” Kabange said in an interview in Manono town, about 35 kilometers north of Kanunka.
Tin and coltan mining are unlikely to resolve these issues alone. Profit margins are slim and government revenue from the metals is tiny compared to copper and cobalt. Of the estimated $7 billion in gross value of Congo’s 2012 official mineral exports, tin ore and tantalum made up only 2.5 percent, or about $175 million, according to Mines Ministry statistics. Copper and cobalt accounted for 95 percent.
The SEC’s reporting regulations diminish profits further. Compliance will initially cost companies $3 billion-$4 billion, and $207 million-$609 million per year thereafter, the SEC estimates in its final rule on conflict minerals from August 2012.
MSC, which sources as much as 20 percent of its tin from Central Africa, posted a full-year profit of 10.9 million ringgit ($3.3 million) last year, compared with a loss of 238.3 million ringgit a year earlier, according to the company’s preliminary annual report.
For companies sourcing tin and tantalum in Congo, “the real issue isn’t the value of this trade, it’s the reputational damage they’re trying to avoid,” says Gregory Mthembu-Salter, who wrote guidelines for businesses buying minerals from Congo for a UN Group of Experts report in 2010 and has advised companies, including MMR. “It’s an expensive business, this reputational issue.”
Public companies also fear running afoul of stock market regulations against corruption. Throughout Congo’s tin and tantalum trade there’s “extensive bribery in the country, occurring at every level,” Brussels-based consulting group Channel Research said in a 2012 report for ITRI on the industry in Katanga.
It will take time to eliminate facilitation payments in Congo and ITRI is working to clarify what is officially required of companies, Kay Nimmo, the head of the group’s sustainability program, said this month.
“If companies cannot avoid making unofficial payments then we ask them to as a minimum record what they were and to whom,” she said.
Katumbi said he welcomed the scrutiny and supported the push for more transparency in the trade.
Even amid the obstacles, business is growing, ITRI says. Its tagging programs expanded to North Kivu last month after successful pilots in South Kivu and Maniema provinces.
MSC has invested in the Bisie project in North Kivu run by Toronto-listed Alphamin Resources Corp. (AFM) and initial drilling results show shafts with grades as high as 26.5 percent tin, according to company filings. MMR officials said they’d consider a public offering in a few years if they could certify enough proven reserves. Other companies, such as Luxembourg-based Traxys Sarl, which once fled Congo’s risky investment climate, say they are also looking at new deals.
“Within 20 years, mining in the ‘conflict’ region of eastern Congo will be one of the most sought-after regions for exploration and development in the world,” Jones of Pioneer Capital said.
Flying above central Katanga’s tin deposits, Merican slaps his hands together.
“You want to engage, so you come in, you do it,” he said. “And you do it right.”
To contact the reporter on this story: Michael J. Kavanagh in Kinshasa at firstname.lastname@example.org