Farewell, Katanga

A mining veteran packs his bags, as jaws savagely tighten around the two biggest mining companies in the central African copperbelt.

JOHANNESBURG - 

A mining veteran who has tried to crank up broken down vehicles more times than he cares to remember has decided to pack his bags, days after First Quantum announced that it had suspended work at the 65% complete US$600m Kolwezi tailings project, Katanga Province, Democratic Republic of the Congo.

Katanga Province, which hosts some of the world's biggest and highest grade copper deposits (with cobalt as byproduct) employs a general prosecutor, who sealed Kolwezi tailings, an action described by First Quantum as "illegal". The insane move on Kolwezi tailings has been long in the making, and was no surprise to anyone familiar with the story.

The mining veteran - let's call him Jim Bender - says "it's sad that the government is intent on self destruction by taking precipitous action to destroy the two best projects in Katanga". The other one, of course, is the biggest copper mine in the DRC, Tenke Fungurume, where Freeport-McMoRan operates and holds 58.8%; Lundin holds 24.8% and DRC parastatal Gécamines (La Générale des Carrières et des Mines) the balance of 17.5%. The first phase at the mine cost US$1.8bn to build, and produced its first copper cathode earlier this year.

Bender continues: "To gain First Quantum as an investor is a major asset to any developing economy. It is a successful and also honest operator. Its anti corruption stand in the early days of the upsurge in activities is an example to all investors. First Quantum has a unique ability to think laterally and develop projects without outside help. The group's stock price reflects this success. First Quantum will rightly pursue this in the courts and win".

First Quantum and Freeport McMoRan continued their mine builds in Katanga Province during the great copper price slump, which commenced in mid-2008. Tens of thousands of artisanal miners were driven out of work. Bigger formal companies ran into cash crunches and had to take drastic action, as seen in the cases of Metorex, Katanga Mining, and Anvil; some, such as Camec, suspended mining, and other such as Africo halted plans to start building mines. Today, metal prices are at healthy levels, and an air confidence is returning, but First Quantum and Freeport McMoRan are taking severe punishment of a different kind.

There are heavy knock-ons: First Quantum points out that the sealing of Kolwezi tailings means the loss of 700 jobs in the Kolwezi area, loss of tax revenues to the DRC government, and an indefinite delay in commissioning of the Kolwezi Project, targeted for May 2010.

Where First Quantum holds 65% of Kolwezi, Gécamines holds 12.5%, the Industrial Development Corporation (IDC) of South Africa 10%, the International Finance Corporation (IFC) 7.5%, and the government of the DRC, 5%. When commitments were made in November 2007 to proceed with the development of the Kolwezi tailings project, First Quantum, the IDC and IFC were left alone to raise finance or procure third party debt project financing for Kolwezi.

This is tough countryside for any mining company, and any individual. After becoming one of the world's wealthiest outlying nations during colonial rule, the country descended after independence into one hellpit after another. After the so-called second Congo war, from 1998 through 2003, peace accords assisted in ushering in a rush of foreign private capital aimed at recapitalising the wreckage of so many copper mines, rotting under the hellfroth of greed.

Intermittent fighting continues to this day, mainly in the remote northeast of the country, where AngloGold Ashanti and Moto Goldmines hold valuable gold concessions and deposits that have not been mined for decades. AngloGold Ashanti and Randgold Resources recently agreed a joint venture deal to buy Moto Goldmines.  To the south, Banro holds substantial gold concessions west of Bukavu, and wants to start building a mine at Twangiza. During the colonial era, Bukavu was known as the "African Riviera", and for very good reason as anyone who has been there would know.

During the second Congo war, which saw more than 5m people prematurely meet their maker (outflanking the kill rate in the Second World War), mining continued, one way or another, down in Katanga Province, such is the richness of the ores. Given this week's events in and around Kolwezi tailings, Bender is worried that "the Tenke Fungurume story has not yet unfolded, but it could become the same thing on a larger scale. Frightening". There were strong rumours heard by Katanga insiders during April that Tenke Fungurume would be shuttered in six month's time, which is now not far away.

First Quantum has deeper roots in this part of the world. First Quantum had acquired Bwana Mkubwa, on the Zambian side of the copperbelt, in 1996. The grand old man exhausted the last of its own ore reserves in mid-2002; those "reserves" in any event were poor quality tailings from previous operations. The mine had been worked on and off since its discovery in 1902. So tattered and torn was Bwana Mkubwa that First Quantum's acquisition was a straight commercial deal. The mine's state of dereliction and apparently hopeless future left it outside the mandate of the copper industry privatisation initiated by the Zambian government. First Quantum, headed to ore reserve starvation from when it bought Bwana Mkubwa, "rediscovered" Lonshi, just over the DRC border, in 2000.

The small, rich, deposit had first been found by Belgian geologists in the 1930s, but had never been worked. First Quantum sunk the first modern drill holes into Lonshi in November 2000, and commissioned the US$25m mine just eight months later. Lonshi was the first greenfields copper mine built on the copperbelt in 33 years. First Quantum also built the next one, a very big one, Kansanshi, at a deposit known since 1899, in Zambia. But make no mistake, these were rotten times for the copper price. In 2002, Anglo American quit Zambia Copper Investments (ZCI) and its main interest, Konkola Copper Mines, at a cost of US$34m in addition to a US$353m write-off taken in 2001. The smart guys at First Quantum soldiered on.

In mid-2006 I found myself bundu bashing with First Quantum, and it was on the road to Lonshi that I met Prince Marvelous. I was told that he had nine wives, but did not have time to meet them all. He would strike anyone as fearless, and keeping up with nine wives was evidence that he was fearless. His palace stood just off a dusty but solid laterite road just before the Lonshi border crossing.

Prince Marvelous had every reason to be confident, standing as he was atop a gigantic unmined copper-cobalt deposit that could one day underpin his ascendancy to the throne of the King of Africa. He was standing on the Central African Copperbelt, which extends some 500km through Zambia and into the DRC's Katanga province. The belt is around 50km in width.

The copperbelt hosts one of the world's greatest contiguous mineral deposits, and many decades ago, settlements like Ndola and Kitwe in Zambia, and Lubumbashi across the border, were among the wealthiest in the world. All the while, the 40-ton Volvo trucks went on, thundering down the road past the dreamy Prince Marvellous. The huge trucks ran "hot," with two drivers working consecutive 12 hour shifts, seven days a week, hauling ore 36km from Lonshi to Bwana Mkubwa.

But if it was going to be much of a story, then it must mention that First Quantum acquired mining rights for Lonshi in 2000, but it was only in mid-January 2003 when First Quantum acquired inalienable rights under the new Congolese Mining Code. The formulation of the code, regarded as truly world class, was heavily sponsored by the World Bank. Those were the days, all right.

Back in the present tense, Bender continues: "In all my time here I have not seen the government get involved in its responsibilities, such as building roads, providing electricity and water, and so on. The mining companies have to do all of this, as well as build their plants. The border, through which all of the thousands of trucks have to pass with construction inputs and the metal exports, is widely recognized as the most corrupt and obstructive in the world".

Bender is referring, of course, to Kasumbalesa (sometimes "Kasile"), less than 100km south-south-east of the Katanga Province capital, Lubumbashi. In times gone by, Lubumbashi was connected by rail to the deep south, to Johannesburg, and on to Durban or Cape Town, or even Maputo. It was also connected via the Benguela system to the west to the port of Lobito in Angola. It is via the Katanga link that the Benguela system also connects east through exchanges in Zambia to further connections to Mozambique's port of Beira, and also Tanzania's Dar es Salaam, both on the Indian Ocean.

Today, the Benguela rail system would cost tens of billions of dollars to build from scratch. Today, the railroads are frugal skeletons of a long forgotten glorious era. Today there is only Kasumbalesa, with its filth and grime and corruption and abject hopelessness, a tollgate into and out of hell, teeming with devils. "This is not an enabling environment", states Bender, "quite the contrary. My time in the DRC is drawing to a close. I shall remain in contact with the DRC as a consultant to a civils company".

You may wonder where a somewhat disillusioned Bender is off to. Well, here it goes: "I am heading back to Zimbabwe where I hope to develop a gold mining business". And perhaps that says it all; hell comes in big packages, but some are smaller than others. Farewell, Katanga.

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

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responses to this article

katanga its the clash between first and third world and the arrogant big egos in the latter. by h.schmenger@gmx.de on September 18 2009, 15:21 Find this comment inappropriate? Report it

katanga itsthe clash between first and third world and the arrogant short sighted selfish big egos in the latter. by hermann schmenger on September 18 2009, 15:23 Find this comment inappropriate? Report it

The Congo The Democratic Republic of Congo will always remain a backward, underdeveloped, pathetic, war ravaged and filthy country until their leaders decide to change their greedy ways. Both Katanga and Freeport made gigantic investments brings back . .more to production projects which were rusted shells. They hired hundreds of people, gave them hope with good jobs and training, developed a modern mining industry. But the mindless leadership of this backward country, just killed the geese that laid the golden eggs. They have no concern for the or own people or their welfare. They only grab, lie and cheat for themselves so that they can buy villas in France. Want copper? Go to Chile where you can invest and operate in peace with normal people and normal rules. . .less by Michael Thompson on September 20 2009, 14:12 Find this comment inappropriate? Report it

Katanga Big multinationals with western "ethical" business approaches are in some respects ill-equipped to work effectively in the DRC & developing world generally, where what we consider as corruption is ingrained within business norms. No wonder then that . .more host governments consider this approach as rude & intrusive, and no wonder that major commodities hungry nations with a more "relaxed" attitude such as the Chinese are making such great inroads. . .less by Nick Bateman on September 21 2009, 04:03 Find this comment inappropriate? Report it

so long Katanga Note to our man Bender - when you hit the Limpopo do sharp about turn as you have gone too far again! Should you cross that river you would very well be in for more of the same, albeit a slightly different flavour ... by Wildeman on September 21 2009, 05:29 Find this comment inappropriate? Report it

Jim Hehe - a quick Google search of Jim Bender shows him to be associated with the Marijuana Party of Canada !! Quite appropriate because anyone who thinks that these African countries with vast mineral resources will ever crawl out of their respective . .more holes is smoking something. The bribery and corruption to get through Kasumbalesa typifies the mindset of the officialdom of these central African countries. . .less by Ex Kitwe on September 21 2009, 20:18 Find this comment inappropriate? Report it

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