Bloomberg News

Congo May Have Violated IMF Deal With Mining Asset Sale

May 28, 2012

The Gecamines plant, right, now largely unused in Lubumbashi, which is the heart of the mineral rich Katanga province in the Democratic Republic of the Congo. Photographer: Phil Moore/AFP/Getty Images

The Gecamines plant, right, now largely unused in Lubumbashi, which is the heart of the mineral rich Katanga province in the Democratic Republic of the Congo. Photographer: Phil Moore/AFP/Getty Images

The Democratic Republic of Congo sold a stake in a mining company last year, according to company minutes, potentially breaching conditions attached to the country’s $561 million International Monetary Fund loan agreement because it failed to disclose the transaction.

Gecamines, the state-owned miner, sold its 25 percent stake in Comide Sprl, which owns copper deposits in the resource-rich Katanga region, to Straker International Corp., a British Virgin Islands-registered company, according to Comide board minutes from June 29 obtained by Bloomberg News. Eurasian Natural Resources Corp. (ENRC), the London-listed company founded by Kazakh investors, is the biggest shareholder in Comide.

Congo hasn’t published details of the deal on government or Gecamines websites as is required under the IMF accord. The multilateral lender is due to decide in about a month whether to release the next tranches of the loan, about $160 million, blocked after Congo failed to disclose four similar asset sales in the past 18 months. Mines Minister Martin Kabwelulu said in a May 24 phone message he had no information on the stake sale.

“Our views and the conditions under the program have not changed,” Samir Jahjah, the IMF’s representative in Congo, said in a May 24 interview in Kinshasa, the capital. He declined to comment further. All state-owned companies, including Gecamines, are required to report share sales to the government and IMF under the terms of the loan program, Jahjah said in September.

IMF Aid

Gecamines Chief Executive Officer Ahmed Kalej declined to comment when contacted on his mobile phone on May 24 and didn’t answer calls or text messages on May 25 and yesterday. Chairman Albert Yuma didn’t respond to two phone calls, two text messages and an e-mailed request for comment. A list of Gecamines’ joint ventures on the Mines Ministry’s website still includes Comide. No contact details for Straker were available. ENRC didn’t respond to requests to confirm the sales.

The IMF blocked aid to Congo, ranked by the United Nations as the world’s least developed country, as it enforced transparency conditions designed to ensure revenue from natural resources go to state coffers.

Laurent Lambert Tshisola Kangoa, CEO of another state-owned miner, Sodimico, said in July his company was asked to pay $10 million to the Treasury to help fund last year’s presidential election after a similar stake sale that wasn’t announced.

Loans Suspended

Sodimico last year sold its share in two copper projects for $30 million, less than a 16th of the value of the assets, according to estimates by Numis Securities Ltd. and Oriel Securities Ltd., two London-based brokerages. Those deals prompted the IMF to suspend its loans to Congo.

Over the past 18 months, Congo sold copper and cobalt assets estimated by analysts at Numis, Oriel and Atlanta-based Golder Associates to be worth more than $2.4 billion. The Comide board minutes didn’t disclose the value of the sale of Gecamines’ stake or the identity of Straker’s owners.

Comide owns deposits in a mineral-rich seam in the southern Katanga province containing 4 percent of the world’s copper reserves and more than half of its cobalt, a metal used to make rechargeable batteries. Freeport McMoRan Copper & Gold Inc. (FCX:US) and Glencore International Plc (GLEN) are investing billions of dollars in copper and cobalt mines on either side of Comide’s concession.

ENRC became Comide’s biggest shareholder in 2010, when it purchased 50.5 percent of Camrose Resources Ltd. from Dan Gertler, an Israeli mining investor who says he is a friend of Congo’s President Joseph Kabila.

Katanga Acquisitions

ENRC has spent $2.65 billion since 2009 buying into projects in Katanga, according to regulatory filings from the company. It bought one of these, a project called Dezita that borders Comide, for $195 million last year, according to a company statement in August. The company’s copper production climbed 46 percent in 2011, its annual report shows.

In August 2010, ENRC became the biggest shareholder of a mine tailings project that Congo’s government had seized from Vancouver-based First Quantum Minerals Ltd. (FM), prompting the Canadian miner to sue ENRC and Gertler-affiliated companies for more than $2 billion. The case was settled for $1.25 billion in January. Mine tailings are waste from earlier mining operations that can be reprocessed to extract metal.

Deal Argument

ENRC’s value declined more than 14 percent over eight days in August 2010 while the deal with Gertler was being concluded. Ken Olisa, an independent ENRC director at the time, said in July the Camrose purchase exacerbated arguments between independent board members and the main shareholders. ENRC stock rose 1.3 percent to 456 pence as of the close in London today. It has fallen 28 percent in the past six months.

ENRC has said it’s in talks to take over licenses for two mines formerly owned by First Quantum that were subsequently sold by Sodimico to companies registered outside the country. The IMF has also questioned those sales, which were at prices below independent valuations done by Numis and Oriel.

In addition to copper, Comide’s concessions may contain cobalt, gold and nickel, according to the website of Congo’s Mining Registry. Camrose, which holds ENRC’s and Gertler’s shares in Comide, is drilling in two of its permit areas and “aims to define probable reserves during 2012 to accelerate development,” according to ENRC’s 2011 annual report.

ENRC couldn’t immediately comment when contacted on May 25. The company’s 2011 annual report still says Gecamines is its partner at Comide. Gertler declined to comment yesterday through a spokesman who declined to be identified in line with company policy.

To contact the reporters on this story: Michael J. Kavanagh in Kinshasa at mkavanagh9@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net; Andrew J. Barden at barden@bloomberg.net


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