AMN - DRC fails to listen to industry with new code – comment by Yolanda Torrisi

The DRC government’s decision to implement a new mining code without including any concessions put forward by leading miners appears certain to throw the country’s mining industry into turmoil. As well as increasing investment uncertainty in the resource-rich country, the move seems almost certain to spark extensive and expensive legal action.

The international miners that have led the campaign against the original mining code as put forward by the government of Congolese President Joseph Kabila previously threatened to resort to legal actions if their concerns were not addressed and these threats now appear almost certain to be carried out.

This group includes Randgold Resources Ltd, AngloGold Ashanti Ltd, Glencore PLC, Ivanhoe Mines Ltd, Gold Mountain International/Zijin Mining Group, MMG (PTY) Ltd and China Molybdenum Co Ltd.

They have been collectively negotiating with the government in a bid to resolve corporate concerns about anticipated impacts on their DRC operations.

The regulations to immediately implement the new code were signed into law last Friday. The code increases royalties on copper from 2% to 3.5%, on gold from 2.5% to 3.5% and could potentially increase royalties on cobalt from 2% to 10%, if cobalt is deemed a ‘strategic mineral’, which seems highly likely.

Also, a new 50% tax on so-called super profits, defined as income realised when commodity prices rise 25% above levels in the project’s bankable feasibility study, will be introduced.

Other key changes include a provision that doubles the state’s free share in mining projects to 10% and a reduction on the period during which contract stability is guaranteed down to five years, from 10 years stipulated in the current mining law.

The miners proposed linking a sliding scale of royalty rates to the prices of the key commodities, which industry representatives believe would have been a more effective mechanism than the windfall tax and at current prices would have immediately given the government a higher share of revenues than what has been provided in the new code.

The DRC accounts for about 54% of the world’s cobalt production and any increase in the cost of doing business there is likely to tighten supply of the commodity that is expected to be a top performer in the metals sector as demand for new-age batteries surges.

It is also a major African copper producer and the changes will do little to enhance or maintain this industry, with the same applying for gold.

The miners have stated that the changes are likely to cost the government more than $3 billion of income over a decade from existing copper, cobalt and gold projects, which brings into question the very reason for implementing the changes.

They have stated that mining companies would suffer major financial losses, which could result in projects under construction being left unfinished and the closure of producing mines.

As well as this income, the miners are also likely to claim for damages, which if successful would further hit the government’s revenue.

Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the continent. Contact:yolanda@yolandatorrisi.com