Miners told to invest downstream, not to pillage at DRC Mining Week

London — Mining investors in the Democratic Republic of Congo need to be prepared to invest in downstream processing and local jobs, not strike partnerships with politically exposed persons or pillage if they are to be successful there, webinar participants heard at Digital DRC Mining Week events in the week ending June 19.

Olebogeng Sentsho, CEO of South Africa-based Simba Mgodu Mining Incubation Fund, which supports emerging entrepreneurs, said during the event's opening ceremony -- which involved heated discussion -- that the DRC's new mining code not only governed taxes but made stipulations on downstream processing and offered incentives for investment in this area.

"If you go to the DRC, you will make a lot of money but you need to make sure you leave the DRC better than it was before," Sentsho said. "The money can no longer leave the continent, the money has to stay here. Do not pillage! The host community is still not getting enough."

Downstream integration needs to be done in a phased, organic manner, Sentsho said. "It's very important to scale up slowly with phased exposure to financing -- otherwise that can make investors very nervous," she said. "If you are able to build good relations with local communities you can scale up."

The DRC produces more than 60% of the world's cobalt, demand for which has jumped in recent years for use in mobile phone and electric vehicle batteries. It also has some of the world's richest untapped reserves of copper, vital to the energy transition infrastructure chain. Glencore, Ivanhoe Mines and Tenke Fungurume Mining are among major miners active in the country.

Community issue 'great hurdle': tin miner

Boris Kamstra, director of Pangea, an exploration company backed by global equity fund Denham Capital, and executive director of the recently commissioned, $200-million Alphamin tin mine in the DRC, described Alphamin as "a good starting block, producing cash" from which he is looking for further opportunities in the DRC, considered "a very good jurisdiction to work in."

Kamstra echoed Sentsho's need to work with the local communities, which he described as "an ongoing discussion and negotiation."

"One of the great hurdles was the community issue in north DRC," he said, relating how it took three years to form a compact with the company's hosts in the Alphamin project area, as they "started off speaking to the wrong people", including "armed groups." The venture went on to create as many local employment opportunities as possible, including in forest clearance and road construction and more recently in agricultural projects including palm oil production for the local community, for which artisanal mining continues to be a major source of employment.

Willen Jacobs, COO Africa & Middle East of major gold miner Barrick Gold, described the DRC's infrastructure as poor, with safety and security issues that make certain areas "no-go".

"People will mine your deposit for you and not pay royalties...The investors in private equity will ask about this," Jacobs said.

Investors need to make sure they are not engaging with Politically Exposed Persons, known as PEPs, which can bring complexities, he said. "When you have a local partner you need to do due diligence to make sure you're not involving a PEP. We are sitting on a world-class [gold] deposit in Kibali and we've been doing very well out of the DRC. But, we as a mining industry have to understand that if you cannot repay a loan or dividends to investors or shareholders, there is no reason why anybody would put a dollar in the DRC."

Greater political instability foreseen

Olivier Binyingo, director of international law firm Herbert Smith Freehills, told a later webinar that the DRC, for over 30 years a one-party and one-platform state, last year came to be governed by a multi-party coalition, which could give rise to greater instability. Cyrille Mutombo, DRC country manager for Barrick, noted that the DRC expects a 2.4% drop in its economy this year, which albeit a smaller expected drop than the 3% decline foreseen for the global economy, still points to a recession coming.

Willy Kitobo Samsoni, DRC's Mining Minister said that "with COVID-19 about 20% of revenue will be lost for the country's mining sector." He noted several projects had been postponed.

Samsoni said the government was "reviewing lockdown measures to maintain our activities in the mining sector." The pandemic "had impacted the traceability of minerals in the artisanal sector because inspections have been interrupted," he said.

Rudolph de Bruin, founding partner of African Minerals Exploration & Development Fund, said that the geological potential of the DRC is not up for debate as its minerals have "better grades than anywhere in the world. DRC is still elephant country if you want to find big elephants. However, the cost of doing business in the DRC has to be addressed -- it's two and a half times higher than anywhere else in the world, with enormous risk."

The DRC's mineral potential has been known since 1816: "so why isn't everyone there?" de Bruin questioned. The country's "2018 mining code, in at least three places, is very poorly worded, where your repayment of loans and dividends is in question."

As well as contemplating higher royalties and greater state participation in mines, the DRC's 2018 mining code places emphasis "on empowering local business to enter into joint ventures with foreigners, high consideration on environmental regulations and long-term sustainability for mining business," Freddy Shamwana, a member of the country's Chamber of Mines, said at the time of its introduction.