Mining News

Congo Looking to Take a Piece of Kamoa Sale

Posted by Cheryl Rutledge on 7/14/2015 12:24:13 PM

By Alexander Collen, Taylor Jackson and Kenneth P. Green

The Democratic Republic of Congo (DRC) has indicated that they wish to postpone the sale of Ivanhoe Mines’ Kamoa operation to China’s Zijin Mining Group Co. The deal is being delayed until the government decides on whether or not to increase its own shareholding in the project. The Kamoa operation is currently 95 percent owned by Kamoa Holdings Ltd. and five percent by the Congolese government. Kamoa Holdings is owned by Vancouver-based Ivanhoe Mines.

Mines Minister Martin Kabwelulu and Portfolio Minister Louise Munga Mesozi of the DRC are negotiating to increase the government’s shareholding to 20 percent following the announcement in May from Zijin that it would acquire 49.5 percent of Kamoa Holdings Ltd. for $US412 million.

Kabwelulu stated that the Congolese government had not been informed of the deal at the time, and that the purchase would damage the value of its shares. According to Bloomberg, Ivanhoe stated that Congolese law did not require the government be consulted over the sale, and that “any review should not delay the closing of its proposed transaction with Zijin.” In the meantime, the Congolese government has begun a review on the legal status of Kamoa Holdings’ operations within the DRC.

Despite the commotion, it seems that Ivanhoe and Zijin will agree to sell the Congolese government the extra 15 percent stake, acknowledging that they will dilute their own interests in the process. Events such as these bring to surface the political uncertainty that miners face when investing in the DRC.

Policy uncertainty and instability compounds the inherent risk that miners readily face and threatens the viability of projects. Consequently, potential investors can be dissuaded. Within the DRC, political and legal instability accounts for a large portion of the deterring effect on investment.

According to the Fraser Institute’s 2014 Annual Survey of Mining Companies, 55 percent of respondents viewed political instability as a strong deterrent to investment and 16 percent said they would not invest in the region for this reason. Respondents were also asked to rate the impact on investment of “uncertainty concerning administration, interpretation and enforcement of existing regulations” and the country’s legal system. Those who said that these factors were strongly deterring investment amounted to 35 percent and 55 percent of the total respondents for the DRC, respectively. In addition, 15 percent of respondents said that they would not invest in the DRC because of perceived uncertainty from the administration, interpretation and enforcement of existing regulations, while 21 percent said that they would not invest because of concerns regarding the country’s legal system.

The same survey found that despite ranking 34th of 122 jurisdictions in the Best Practices Mineral Potential Index (a measure of pure geological potential based on the perception of executives), the DRC performed rather poorly on the Policy Perception Index ranking 94th of 122.

This evidence suggests that based purely on geology, miners view the area as a potentially attractive investment target. However, they may be deterred by the broader policy uncertainty. Without the assurance of a more stable platform for investors, the DRC may continue to underperform its potential investment attractiveness.




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