By Gavin du Venage
The Democratic Republic of Congo (DRC) is unlikely to roll back its contentious mining code reforms, in spite of vehement objections from the industry. At the recent Katanga Business Meeting (KBM) held in the DRC’s second city Lubumbashi, Congolese officials put the mining industry on notice that the recently introduced mineral code was here to stay.
A new set of mining laws were signed in March, in spite of misgivings by companies such as Glencore, Ivanhoe and Randgold, among others. Mining companies have warned that the new law put in jeopardy more than $3 billion of income from existing copper, cobalt and gold projects.
At the time of its promulgation in March, President Joseph Kabila said concerns would be addressed, and revisions considered. However, it now appears increasingly unlikely miners will secure any relief.
“Change is always difficult, but in the end we can all adapt,” Simon Tuma Waku, former mining minister and the architect of the new code told the KBM. “The DRC’s mining industry will grow 18% in 2018, which is very much more than any other market.”
Changes in the new code include a greater stake for the state, increased from 5% to 10%, as well as a 10% share to be held by Congolese citizens. Mineral royalties were raised from 2% to 3.5%, while items declared “strategic substances” would invite an additional 10% royalty. Among the latter are cobalt and coltan, two metals very much in demand by the high-tech industries.
Waku said the previous code had been drawn up in the shadow of conflict, at a time when investors were wary. “Mining policy hadn’t changed since it was first introduced in 2002. At the time, civil war had just ended and the code was drawn up to make the country as attractive as possible.”
Since then the DRC’s value to investors had been established, Waku said, and the mining code needed to be adapted.
The DRC is the world’s sixth-largest producer of copper, the biggest cobalt supplier while also exporting large quantities of gold and diamonds. At the same time, exploration had widened the scope of the DRC’s mineral resources, including cobalt and coltan, which the original code did not take into account, Waku added.
Louis Watum, managing director of DRC operations for Ivanhoe Mines, which has one mine and another nearing completion under way in the country, warned that the DRC risked losing investment to competitors. “Africa now only draws 40% of exploration spend, with most now going to South America. The DRC needs to be competitive to attract exploration, which is the most expensive part of mining.”
He said current projects also required substantial investment, and further taxes and royalties would add to the financial burden of operating in the DRC. For instance, Ivanhoe’s Kipushi zinc mine flooded in 2011, and had to be dewatered. “It took us three years to pump the water out of Kipushi, and at great cost.”
However, given the enormous financial troubles the DRC faces, the government was unlikely to budge on the new code, said economics professor of the National Pedagogical University in Kinshasa, Claude Sumata, on the sidelines of the KDM. “More than 70% of the population lives off a dollar a day, the international poverty benchmark,” Sumata said. “The government is under pressure to grow the economy away from minerals alone, and to do this they need money.”
The government also wanted more local involvement, he said. “The aim is for more local ownership, especially of small businesses,” he added. “This is the way to build up a middle class.”