New mining code to rock DRC
Joseph Kabila’s government, which has for years accepted extremely low royalties from mining companies, now risks antagonising the industry with a new mining law
Mining companies have had a rough start to the year in the Democratic Republic of Congo (DRC). President Joseph Kabila is about to sign a new mining code into law, which the industry is in something of a panic about.
On the books since 2012, the revised mining code was finally wrapped up by parliament in late January. It is set to introduce major fiscal and regulatory reforms, including the repeal of a measure established by the 2002 law that exempted licence holders from complying with changes to the fiscal and customs regime for 10 years.
This means companies such as Glencore and Randgold will have to pay higher royalties.
The reforms come amid a boom in the price of cobalt, a key element in the lithium-ion batteries used in electric vehicles. In the past 12 months, cobalt prices have doubled as automobile companies have rushed to secure supply. The DRC has half of the world’s cobalt reserves.
Naturally, mining companies are furious. After five years of on-off negotiations, the DRC’s biggest investors are faced with what they consider the worst possible outcome.
Last month, they formed a new club in an attempt to stop the legal reforms from going ahead. In a letter to Kabila, they demanded that the newly created group replace the Chamber of Mines, claiming the chamber is "unable to satisfactorily consolidate and communicate our wishes during the re- visitation of the mining code".
This is hardly surprising. The Chamber of Mines is a subcommittee of the Fédération des Entreprises du Congo headed by Albert Yuma, who is also the chairman of state-owned mining company Gécamines SA and one of the driving forces behind the reform of the mining law.
Yuma has made no secret of his intention to retake control of the mining sector, recently floating the idea of nationalising the DRC’s mines. He has verbally attacked foreign-owned mining companies operating in the country, accusing them of "stealing money from Gécamines for many years".
At the Mining Indaba in Cape Town last month, Yuma’s feud with company CEOs was on full display. No-one minced their words.
"Yuma is the guy who’s championed this process," Bloomberg quoted Randgold CEO Mark Bristow as saying. "He’s the CEO of a bust organisation, with all sorts of accusations levelled at him, and he’s saying that he wants more."
Advocacy groups have repeatedly accused Gécamines of selling the company’s best assets below market value and failing to account for how the money has been used.
Yuma, meanwhile, says the DRC has not benefited sufficiently from its mining assets, and claims companies have manipulated costs and production figures to avoid paying royalties to the government.
Both sides own a piece of the truth.
While investing in the DRC is risky for businesses, and shareholders are entitled to high returns on a high-risk investment, the old mining law was introduced at a time when part of the country was controlled by rebel groups. It does not guarantee the DRC a fair share of its own mineral wealth.
But the real question is why the government, which has one of the smallest budgets in the world, didn’t push for such reforms earlier?
As is often the case in the DRC, the response likely lies with Kabila.
Last week he invited representatives of the industry to his palace to discuss the reforms. Kabila went to great lengths to impress on them who is in charge: he delayed the meeting for more than 24 hours, making representatives of powerful companies such as Glencore (with US$100bn in annual revenue) wait at their hotels, and branded the meeting a simple "clarification session".
His show of force is not without context: in the face of mass demonstrations against his incumbency — his presidential term ended in 2016 — Kabila may need every cent available to make sure he remains in power.
Gécamines will now invite mining companies to renegotiate contracts and joint ventures following the promulgation of the law. Metals such as cobalt and tantalum could be classified as "strategic substances", allowing government to tax them at 10% — up from the current 2%.
Mining companies may still be able to strike back. In Zambia, a similar reform led to several groups closing factories, ultimately forcing government to reconsider its position.
But with cobalt reserves so highly concentrated in the country — and with prices at a record high — companies will find it difficult to close the door altogether.