Details emerging of DRC mining contract re-negotiation requirements

Mining companies working in the Democratic Republic of Congo (DRC) have been receiving the notifications of contract re-negotiation requirements from the country's Government.

LONDON - 

Many of the major exploration and mining companies operating in the DRC have had a communication from the country's Minister of Mines, following the announcement by the Government on February 18 that it has completed its review of the country's mining licenses. Herein we note the requirements put to, and the responses, of Anvil, Banro, Lundin Mining and Moto Goldmines. In most cases, it is heartening to see a focus on ensuring that local communities benefit from mine developments. 

Other details for other companies involved in the DRC are likely to be forthcoming over the next few days as companies involved consider their responses.  Virtually every mining contract in the country will require some form of re-negotiation.

For instance Moto Goldmines has received written notifications of the results of the revisitation of the contracts. These notifications have been received for the various sub-lease agreements with L'Office des Mines d'or de Kilo-Moto (OKIMO) to which Moto's DRC incorporated subsidiaries, Borgakim Mining, Blue Rose, Gorumbwa, Kibali Gold and Tangold are a party, and the Technical and Financial Assistance Agreement (ATF agreement) between Borgakim Mining and OKIMO. Moto is still awaiting notifications in respect of the Amani and Rambi sub-leases.

The notifications set out a number of elements of the agreements which the Commission has identified for review and outlines how these provisions should be amended. Responses were requested by February 20, although there has been informal indications that this time period can be extended. The key points being requested by the Government in relation to the agreements are summarised as follows:

The lease contracts are to be registered with the Mining Registry, pursuant to the Mining Code and regulations.  The Moto DRC incorporated subsidiaries are to regularise the payment of the surface rights as from 2003 to date Lease rents are to be reviewed upwards.  The geographic coordinates of the deposits are to be clearly specified.  The feasibility study for the project is to be provided to the Government. This study shall, in particular, identify and assess the real participations of the parties in the joint venture to be created with a view to an equitable allotment of the shares in that joint venture

The joint venture to set out a schedule of the social actions to be implemented and communicate this to the Government prior to any actions being performed The partner to pay a lease premium and royalties on the gross revenues OKIMO is to take an active part in the daily management of the joint venture to be created The sub-lease agreement with Tangold is to be cancelled and arrears of rentals paid (this sub-lease was agreed to be cancelled in an agreement with OKIMO in November 2006 and arrears of rentals paid).

In addition in respect of the ATF agreement the following additional points have been noted:

Borgakim Mining is to comply with its obligations relating to the rehabilitation of the mining, metallurgical and energy infrastructures in accordance with the ATF agreement.  The partners are to clarify any confusion between, on the one hand the technical assistance and on the other hand, the joint venture project for the mining exploration and exploitation.  The situation of the OKIMO debt to be taken on by Borgakim Mining is to be clarified.

Moto's subsidiaries, Amani and Rambi are still awaiting receipt of notification letters in respect of their sub-leases. However, Moto notes that it was agreed with OKIMO in November 2006 that the mining areas covered by the Amani sub-lease and a portion of the area covered by the Rambi sub-lease should revert to OKIMO.

Since the Commission started its work the Moto group has completed its feasibility study and a report prepared in accordance with NI 43-101 has been lodged on SEDAR, it has paid the requested arrears of rents on the areas for which OKIMO's title has been registered with the DRC Mining Registry and it has started working with OKIMO to have the sub-leases registered with the DRC Mining Registry. In addition a number of the points which have been raised have been previously dealt with between OKIMO and Moto in a protocol agreement between the parties signed in November 2006.

Moto proposes to submit its formal response with the Minister of Mines as soon as practicable and thereafter to obtain approval from the Minister of Mines to commence discussions with OKIMO. Moto confirms that no resources included in its most recent resource update and feasibility study reside within the area which is to revert to OKIMO.

On February 19, Anvil Mining announced the details of the Government's position with respect to its Dikulushi property. Anvil has majority interests in and operates the Dikulushi copper-silver mine, the Kinsevere copper mine and the Kulu copper tailings operation, all in the Katanga Province of the DRC.

The office of the Minister of Mines has also advised Anvil that the deadline for responding to the Government's position has been extended to February 27. Anvil says it will shortly submit a response to the letters received from the Minister of Mines in respect of all three of its properties in the DRC and will seek discussions with the Minister of Mines.

Regarding the Mining Convention governing the Dikulushi copper-silver mine, the Dikulushi Convention is held by Anvil Mining Congo, a Congolese company in which Anvil holds 90% of the shares. A 10% equity interest is held in trust for the benefit of the communities surrounding the mine.

The letter from the Minister includes a statement of terms upon which the Government proposes discussions be based to balance the partnership between the DRC and Anvil. The position of the Government under their proposed terms is that the Dikulushi Convention should be cancelled but that the Dikulushi mine project may be transferred to the current DRC Mining Code. The Dikulushi Convention pre-dates the current Mining Code. By its terms, the Mining Code specifically 'grandfathers' all mining conventions that predate the adoption of the Mining Code and provides that the holders of mining rights described in a duly signed and approved mining convention are governed by that convention and not by the Mining Code.

The Minister further advised that it is the Government's position that Anvil Mining Congo should pay to the Government an amount in respect of the 10% interest in the Dikulushi mine held for local communities, from the date of inception of the Dikulushi Convention. Anvil has also been requested to submit to the Government a plan for social programs that will have a visible impact. The 10% interest has been held in trust for the benefit of the people of the DRC since the inception of the Dikulushi project. Using earnings allocated for the trust, Anvil has financed, developed and continues to maintain numerous social and infrastructure projects including, among others, medical clinics and equipment, schools, fresh water wells, and a water pipeline to Pweto. In addition Anvil is rebuilding a 192 km road from Kilwa to connect with the road to Lubumbashi at Kasomeno.

The mining rights to the Kinsevere project tenement areas are currently held through a 25 year mining lease agreement between La Générale des Carrières et des Mines (Gécamines), the Congolese para-statal entity that is the mining title holder, and Mining Company Katanga (MCK). MCK is in the process of assigning the lease to AMCK Mining, which is a joint venture company owned as to 95% by Anvil and 5% by MCK.

The Minister's position is that the existing contractual arrangements with Gécamines have financial terms that ought to be renegotiated. The specific requirements stated by the Minister are that:

●The cash bonus paid to Gécamines should be increased to $150 million

● The ceiling on rent paid of a maximum of $70/t of copper equivalent should be removed and the contract altered to reflect changes in metal prices

● The term of the contract with Gécamines (which extends for 25 years) should coincide with the term of the underlying mineral tenures, which have an initial term that expires on April 3, 2009 and which are renewable thereafter for successive periods of 15 years

● AMCK should submit to the Government a plan for social programs that will have a visible impact.

Pursuant to the existing contracts in relation to the Kinsevere Mine, a lease premium of $1 million has been paid by Anvil and there is no provision for additional payments. Rent is payable on a sliding scale that varies with the price of copper and is between $35 and $70/t of copper equivalent, with the maximum rent payable being reached at a copper price of $4,000/t. In addition, a 2% net smelter return royalty is payable to the DRC Government pursuant to the Mining Code.

The Kulu copper tailings operation is an incorporated exploration and mining joint venture between a subsidiary of Anvil, Entreprise Minière de Kolwezi (EMIKO), and Gécamines. The mineral rights to the Kulu operation are held under two principal tenements, both of which were originally in the name of Gécamines and were transferred to Soc Minière de Kolwezi (SMK) in 2005 and 2006. EMIKO holds 80% of the shares of SMK and Gécamines holds the remaining 20%.

The Minister's position is that the interest of Gécamines in SMK is unfairly low, in part due to the absence of a feasibility study, and that the joint venture must therefore be renegotiated. The specific requirements stated by the Minister are that:

● A feasibility study be submitted which identifies the actual contributions of the parties in order to establish a fair balance of shares in SMK as between EMIKO and Gécamines

● A royalty of at least 2% of gross revenue be provided in favour of Gécamines,

● Gécamines must be actively involved in the day to day management of SMK

● SMK should submit to the Government a plan for social programs that will have a visible impact.

Anvil reports that a feasibility study was submitted to Gécamines in 2005. "The current agreements with Gécamines provide for a 2% net smelter return royalty to be paid to Gécamines. In addition, a 2% net smelter return royalty is payable to the DRC Government pursuant to the Mining Code. The agreements governing SMK provide that Gécamines has the right to appoint three of the eight members of the management board of SMK and EMIKO has the right to appoint the other five members. The President of the management board is to be chosen from the members appointed by EMIKO and the Vice President of the management board is to be chosen from the members appointed by Gecamines. In addition, the position of General Manager shall be filled by a candidate presented by EMIKO and the position of Assistant General Manger shall be filled by a candidate presented by Gécamines."

Lundin Mining says it has received a copy of a letter from the Ministry addressed to Tenke Fungurume Mining (TFM), an entity in which it has an equity investment of 24.75%. In the letter, the Ministry of Mines requests that further discussions take place regarding the TFM mining partnership with Gecamines. Discussions have been requested in respect of such matters as the quantum of transfer payments; Gecamines percentage share ownership in TFM; Gecamines involvement in the management of TFM; regularisation of certain issues under Congolese law; and the implementation of social plans.

Lundin says it "believes that its agreements with Freeport-McMoRan Copper & Gold and TFM's agreements with the Government are legally binding, that all associated issues have been dealt with fully under Congolese law and that the overall fiscal terms previously negotiated and incorporated into the Amended and Restated Mining Convention exceed the requirements of the Congolese Mining Code. Discussions are being held between the company and Freeport-McMoRan, who is the operator in accordance with the project's agreements and who holds a 57.75% interest in the project. An appropriate response will be made to the Ministry of Mines."

Gold explorer and developer Banro reports it has received a letter from the Minister of Mines. "The letter refers to certain surface tax issues and the liquidation of Sominki. There are no issues with Banro's titles. The company is confident that the matters referred to in the correspondence will be clarified with the Ministry of Mines.

Banro is focused on the development of four major, wholly-owned gold projects along the 210 km-long Twangiza-Namoya gold belt in the South Kivu and Maniema provinces of the DRC.

John Chadwick is Editor and Proprietor of International Mining magazine - www.im-mining.com  

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