Congo Government Wants 35% of Mine Projects in Code Changes

Congo Government Wants 35% of Mining Projects in Code Revisions
Congo is the world’s largest cobalt producer and was the tenth-largest exporter of copper last year, according to CRU Group, a London-based research company. Photographer: Naashon Zalk/Bloomberg News

The Democratic Republic of Congo may increase state participation in mining projects to 35 percent from 5 percent and raise royalties on mineral exports, according to a report obtained by the country’s business association.

The 35 percent stake would be acquired for free and could not be diluted, according to the report, which was prepared for an inter-ministerial commission set up to revise Congo’s 10-year-old mining code. The report was given to Bloomberg by a member of the business association, known by the French acronym FEC.

“These proposals will be submitted to all parties for a consensus,” Mines Minister Martin Kabwelulu said in a mobile-phone message today. The changes to the code will be negotiated at a workshop to be held at an unspecified date, Kabwelulu’s chief of staff, Valery Mukasa, said in an Oct. 25 e-mail.

Congo is the world’s largest cobalt producer and was the 10th-largest exporter of copper last year, according to CRU Group, a London-based research company. The Central African nation, which is almost the size of Western Europe, also has deposits of gold, iron, diamonds, tin and coltan.

Freeport McMoRan Copper & Gold Inc. of the U.S., Baar, Switzerland-based Glencore International Plc, and Minmetals Resources Ltd., based in Hong Kong, have copper and cobalt projects in the country. Randgold Resources Ltd., AngloGold Ashanti Ltd. and Banro Corp. are investing in gold mines.

Shares Fall

Banro fell 5.8 percent to C$4.35 at the close in Toronto. Naomi Nemeth, a spokeswoman for Toronto-based Banro, said that the proposals, if implemented, would have no impact on the company because it isn’t subject to Congo’s mining code.

“Banro has a mining convention, which is unique in Congo,” Nemeth said in a phone interview. “Banro doesn’t fall under the mining code.”

Simon Tuma-Waku, the national vice president in charge of mines for the FEC, criticized the proposals.

“We feel abandoned and we were not consulted,” he said in a phone interview yesterday. “What’s important for investors is the fiscal regime and stability and we think this shouldn’t be modified because right now it’s very attractive for investors.”

The modifications were proposed “to resolve the unequal advantages given by the mining code to investors compared to those of the state,” according to the 30-page report. “The rise in the mining tax rate will lead to substantial growth in revenue for the state coming from the mining sector.”

Draft Report

The government hasn’t officially presented the suggested changes to miners, though companies have “managed to obtain” the draft report and are concerned about the proposals, Tuma-Waku said.

Randgold, AngloGold, Minmetals and Freeport didn’t immediately respond to e-mailed requests for comment. Charles Watenphul, a Glencore spokesman, declined to comment in an e-mail.

Randgold said in a statement on Oct. 16 that “increasing the tax burden on those who had taken the risk of investing in the DRC would not only damage the country’s fledgling mining industry, it would also discourage future investors from developing new operations.”

The report also calls for a royalty increase to 4 percent from 2 percent for non-ferrous metals, which include copper and cobalt; to 6 percent from 2.5 percent for “strategic” and precious metals, such as gold; and to 6 percent from 4 percent for precious stones.

Profit Tax

The recommendations include a windfall-profit tax where the state will share equally with a company any profit earned when metal prices rise 25 percent above those projected in a venture’s feasibility study.

Companies may also be required to sign written commitments to protect the environment and help local communities. Those that don’t meet their obligations may have their permits revoked, according to the report.

Once producing, projects may no longer benefit from preferential customs rates on imports destined for use in mining, according to the proposed changes.

Congo will also require companies to pay a capital-gains tax in the event of a takeover, which would vary depending on the progress of the project, the report recommends.

Kabwelulu said in July that he wants to increase the percentage that mining contributes to Congo’s economy to 25 percent by 2016 from 10 percent now.

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