• CONGO-KINSHASA

Ivanhoe rides into the elections

A dispute between a Canadian conglomerate and the Mines Ministry points to battles over the coming elections and Chinese cash

Buccaneer mine owner Robert Friedland claims to have discovered the world's biggest undeveloped copper mine at Kamoa, in Congo's Katanga Province. He has also brought in one of China's biggest mining companies, Zijin Mining Group, to finance the project, which is due to start producing copper in 2018.

However, the project has run into a political roadblock ahead of elections next year as top officials jockey for position and argue over the distribution of hundreds of millions of dollars of state spending and political funding. The political climate has heated up this year since Parliament blocked President Joseph Kabila's bid to change the constitution and get himself a third term (AC Vol 56 No 12, Talking longer term). Late last month, Kabila launched anti-corruption investigations into some of his most powerful political rivals.

The battle over Kamoa pits Kabila and Moïse Ekanga, who manages China's investments in Congo-Kinshasa, against Mines Minister Martin Kabwelulu, who wasn't involved in Friedland's deal making with Zijin (AAC Vol 6 No 8, Too great expectations). Now Kabwelulu says his government should get a bigger stake in the project and wants the whole deal reviewed, a process that could drag on for years. Under the terms of the deal between Friedland's Singapore-based Ivanhoe Capital Corporation and Zijin, the Chinese company would take 49.5% of Ivanhoe's Kamoa Holdings Limited for US$412 million. It would have an option to increase its stake to 50.5% after financing a large part of the construction costs.

For Friedland, whose controversial career took off in the emerging market boom in the 1990s and survived allegations of malfeasance in Mongolia and Myanmar (Burma), getting the Chinese money was a massive boost to his company's standing in the markets. 'Promoting a stock is like making a movie… you've got to have stars, props and a good script,' Friedland told journalists and analysts. This time, the script started off well for Ivanhoe, after its exploration engineers started investigating the Kamoa deposit. The Zijin deal pushed up Ivanhoe's share price up by 13% soon after it was announced in May.

Kabwelulu was unimpressed. He said his Ministry hadn't been properly informed. It was the second time Zijin had run afoul of the Mines Ministry, which blocked the company's attempt to buy into another copper project in 2010 for similar reasons. The state-owned Générale des carrières et des mines (Gécamines) now controls those concessions, which sit unused because it can't find financing. 

After news broke of the Ivanhoe-Zijin deal, Kabwelulu summoned Ivanhoe Mines' President and Chief Executive Officer, Lars-Eric Johansson, to Kinshasa. Then the Ministry put out a statement signed by Kabwelulu and Portfolio (State Assets) Minister Louise Munga Mesozi on 16 June: 'The government is going to order, shortly, a due diligence [investigation] of the Kamoa Copper SA company in order to evaluate its legal situation.'

Up to that point, Ivanhoe had skillfully navigated Congo's bureaucracy. In 2012, it offered to increase Congo's stake in Kamoa Copper SA, the joint venture company that holds Kamoa's permits, by 15% at fair market prices. The state already has a free 5% stake as the law demands. That proposal helped Ivanhoe to secure its mining permits relatively rapidly. Yet negotiations over the extra 15% have dragged on for years. Most of Congo's mining and exploration permits were handed out during its civil war or the transitional government that followed. Critics have questioned their legitimacy.

Ivanhoe started exploring in Congo-K in 2003. It bought the Kipushi project, with its rich reserves of copper and zinc, from another controversial mining baron, Israel's Dan Gertler, for $150 mn. In 2011. On Kamoa, Ivanhoe insists the government has no right to block the deal with Zijin because it affects only the shares in Ivanhoe's Kamoa Holdings company and not the broader joint venture with Congo.

Kabwelulu doesn't care. Even if he can't stop the sale of the shares to Zijin, he could cause bureaucratic hassles for Ivanhoe's operations in Congo, which require regular approvals from the Ministry. He wants the Zijin transaction suspended until the government gets its 15% increase. Since these problems emerged with the Zijin deal, Ivanhoe's share price has dropped more than 27% in a month, from $1.25 on 26 May to $0.91 on 26 June.

Kabwelulu's threats are, in part, a clever if blunt negotiation tactic to get a cheaper price for the share purchase but the fight also exposes divisions in the ruling elite, whose future is uncertain if Kabila's mandate ends as scheduled in December 2016.

Although Kabwelulu may have been kept in the dark about the Zijin deal, Ivanhoe insists that throughout the negotiations, it was in regular contact with Congolese officials, including Kabila and Ekanga. 

One of Kabila's closest confidants, Ekanga heads the Bureau de coordination et de suivi du programme sino-congolais (BCPSC), which oversees the $6.2 billion minerals-for-infrastructure agreement between Congo and China (Africa Confidential and Africa-Asia Confidential passim). The Mines Ministry insists the BCPSC has no statutory right to oversee other mining deals. Given his political position, that doesn't matter to Ekanga.

Ekanga's role in the President's inner circle has grown since the death in a 2012 aeroplane crash of his mentor, Augustin Katumba Mwanke, Kabila's top advisor and architect of some of the country's biggest mining and political deals (AC Vol 53 No 4, The trouble after Katumba). With elections less than 18 months away, Ekanga's importance to Kabila will only increase in the coming year, as the mining part of the minerals-for-infrastructure deal – the $3.2 bn. The Sino-congolaise des mines (Sicomines) copper project – is due to start producing in October. Even more useful for the President is Ekanga's oversight of what will amount to $3 bn. in infrastructure contracts.

The China deal, signed in 2007, greatly boosted Kabila after his first election. Congo needed massive infrastructure improvement after two wars and decades of neglect but its ruined economy made it nearly impossible to take on new debt. China offered vast amounts of money at low rates for something Congo had plenty of – copper. It also offered flexible terms and few conditions, unlike traditional lenders from Europe and North America. Some hailed it as an innovative model for development: nearly $1 bn. has been disbursed for infrastructure projects.

Many people outside the ruling Parti du peuple pour la reconstruction et la démocratie are far more ambivalent about the Congo-China contracts. In practice, the flexibility of the contracts has caused confusion about what projects are included in the deal. The lack of clear conditions also means weak oversight.

A December report by two local human rights organisations, the Association d'intégrité et la bonne gouvernance and Initiative pour la bonne gouvernance et les droits humains, said that residents around the Sicomines mine had been kicked off their land without proper compensation. They had lost their jobs and didn't have enough food. The Kinshasa-based rights organisation, the Association africaine des droits de l'homme, put out an even more damning report in February, saying it was clear that millions of dollars meant for infrastructure projects were being embezzled. Asadho's researchers went to one road in the capital that the government works agency that was set up for the China contract, the Agence congolaise des grands-travaux, had declared finished and found that no more than a few hundred metres were paved. 'Only motorbikes can pass,' Asadho said. The total cost of the road was $21 mn.

To counter the bad publicity, Ekanga has been leading a charm offensive on Sicomines' behalf. He's giving tours of the mine for Western diplomats and offering accounts for the money that's been spent. There's still no independent auditing, though: it's difficult to reconcile the cash flows in different BCPSC and ACGT documents.

China Eximbank still has more than $2 bn. to disburse for infrastructure projects. Ekanga is pushing for much of that money to flow in the coming 18 months, coinciding with election season. Drawn on state assets, it is a vast amount without any accountability. As Ekanga blocks efforts to monitor these payments, he risks major clashes with several ministers and aspiring politicians. 

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