Bloomberg News

Gecamines of Congo May Take Action Against Partners After Audit

October 07, 2013

A Sign for Gecamines in Katanga Province

A sign for the state-owned mining company Gecamines, or La Generale des Carrieres des Mines, stands at the entrance to Katanga Mining Ltd.'s copper and cobalt mining complex in Kolwezi, Katanga province. Photographer: Simon Dawson/Bloomberg

Gecamines, the Democratic Republic of Congo’s state-owned miner, may take action against some of its partners after an audit of its joint ventures showed the company has been treated unfairly, Chairman Albert Yuma said.

The company, whose partners include Phoenix, Arizona-based Freeport McMoRan Copper & Gold Inc. (FCX:US) and London-based Glencore Xstrata Plc (GLEN), received the results of the audit two weeks ago, Yuma said in an Oct. 3 interview in Kinshasa, Congo’s capital. He declined to identify the companies that Gecamines is considering action against.

“We’re having lawyers look at the report and are hoping that in all cases there will be discussions with our partners,” he said. “In cases where we are not convinced that our partners were very fair to Gecamines, there will be action. I don’t know what yet.”

Gecamines announced the audit two years ago as part of a plan to revitalize the Lubumbashi-based company by raising money to build new processing plants and expand production. Copper output almost stopped at the company in the early 2000s after decades of mismanagement and war in the Central African country. Gecamines was previously one of the world’s biggest copper miners, producing 476,000 metric tons in 1986.

Congo’s copper output reached more than 600,000 tons last year, making it the eighth-largest producer in the world. The majority of that production came from Gecamines’ joint ventures, according to Mines Ministry statistics. Gecamines’ other partners include London-based Eurasian Natural Resources Corp. (ENRC), Australia-based Tiger Resources Ltd. (TGS), Jinchuan Group of China, China Minmetals Corp. and Lundin Mining Corp. (LUN) of Canada.

‘Excellent Relationship’

“Tiger enjoys an excellent working relationship with Gecamines with both partners working co-operatively to bring Stage 2 of the Kipoi Copper Project into production by mid-2014,” Chairman Neil Fearis said today in an e-mailed response to questions. Gecamines holds a 40 percent interest in Kipoi, which could produce more than 50,000 tons of copper per year, according to Tiger’s website.

Freeport, Lundin and ENRC didn’t immediately respond to an e-mailed request for comment. Glencore spokesman Charles Watenphul declined to comment. Four calls to China Minmetals Corp. went unanswered today, a public holiday in China. No one was available for comment when Bloomberg called Jinchuan’s offices.

‘Old Stove’

Gecamines has struggled to attract financing for its fully owned properties because of outdated equipment and a nearly $1 billion debt burden, Yuma said. Last year, the company produced about 35,000 tons of copper and lost as much as 10,000 tons of output because of power blackouts in Katanga province.

“We haven’t been able to increase production and revenue as we wanted because of old equipment,” Yuma said. “In the kitchen, they say that on an old stove you can still make good sauce. That’s not true in mining.”

The company has prepared a new reorganization plan, which will require about $2 billion in financing for new factories and a further 550 million euros ($750 million) for a coal-fired power plant, Yuma said.

To help it raise money, Gecamines will spin off its minority shareholdings into a separate offshore company, using the cash flow generated from royalties and dividends to attract investment. It may also sell its 20 percent stake in Glencore’s Kamoto Copper Co., one of Congo’s biggest mines, Yuma said.

First Priority

The company’s first priority is to develop the Deziwa and Ecaille C copper project, which has about 5 million tons of proven reserves, Yuma said. Production could eventually reach 200,000 tons, he said.

Gecamines also plans to combine its CMSK and Kalumines projects, which it recently took over from partners George Forrest Group, African Rainbow Minerals Ltd. (ARI) and Vale SA. (VALE:US) The single entity would produce about 60,000 tons of copper, he said.

Gecamines has begun litigation against Societe National d’Electricite, the state-owned electricity company known as SNEL, to take back three or four hydropower projects in Katanga province, Yuma said.

“They belong to Gecamines” and were put under SNEL management in the 1970s during a nationalization campaign in the country, Yuma said.

Court hearings begin Oct. 22, Yuma said. If the company gets control of the dams, it will create a private partnership to run them, he said.

Miners in Katanga have an energy deficit of more than 300 megawatts, according to the Energy Ministry. Companies have been forced to buy generators or purchase power from neighboring Zambia.

To contact the reporter on this story: Michael J. Kavanagh in Kinshasa at mkavanagh9@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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