Gécamines to restructure mining contracts with JV partners - chairman

Gécamines is to invite all of its joint venture partners to discuss the terms and conditions of their mining contracts with it in an effort to restructure them, the chairman of the Congolese state-run company said.

According to Albert Yuma, the goal of the various discussions will be to ensure reasonable levels of capitalization and more shared decision-making mechanisms.
“Otherwise, we will not hesitate to use all legal remedies,” he added.
The move follows on the heels of the restructuring of Gécamines’ contract with Glencore-owned Katanga Mining after a long-running dispute at their jointly owned operating subsidiary, Kamoto Copper Co (KCC) in the Democratic Republic of Congo.
Glencore has written off roughly $5.6 billion in a debt-for-equity swap, ending an attempt by Gécamines to dissolve KCC to mitigate the copper-cobalt joint venture’s $9 billion debt. Katanga owns 75% of KCC and Gécamines the other 25%.
“From now on the financial costs will be drastically reduced, the breakeven point will be lowered and we think that by the end of this year, this company (KCC) will be able to pay a tax on the income and to distribute dividends to its shareholders,” Yuma said.
“Over the next decade, expected profit taxes for the Congolese state would amount to $3.5 billion and dividends for Gécamines to more than $2 billion. Do you realize this change? It's historic, but it's just a fair situation,” he added.
The company is now aiming to replicate the changes across its joint ventures in the copper, cobalt and gold rich country.
“With our legal counsels, we will be in touch with all our other partners in the coming days and weeks to invite them to come and discuss with us, for a frank and open discussion about the purpose for them and for us of our partnerships, which is that of producing wealth for the country and its people through the exploitation of its subsoil,” Yuma said.
Particular attention will be paid to key financial aspects such as the calculation of royalties, investments made, accounting standards, recovery rates, borrowing interest rates paid, the use of subcontractors and salaries.
“In the end, whether they want it or not, we will take all the necessary measures to enforce our rights,” he added.
Gécamines hired consultancy firm E&Y to audit its joint ventures after it said it was dissatisfied with the profitability of the partnerships and wanted to understand why they had failed to generate the revenues that it had anticipated.
Yuma told Metal Bulletin in an interview in February that the audit, conducted by E&Y over the past three years, would likely result in the renegotiation of mine licenses and their potential revocation if no new agreement were made.
Yuma said the company had wanted to “structurally understand why our partners had not produced any positive taxable result and why no dividend had been received so far for Gécamines for more than 15 years.”
“In fact, as a result of investment spending exceeding forecasts by an average of 170%, operating expenses higher by 95% and financial expenses by 200%, the state lost over the period around $3.3 billion and Gécamines around $1.4 billion,” he noted.
The move comes amid strong cobalt demand following an expected boom in sales of electric vehicles, which use the raw material in its batteries. Prices hit near-decade highs last month, with Metal Bulletin’s benchmark assessment for the low-grade cobalt price settling at $40.50-41.60 per lb, in-warehouse, on Friday June 15, and the high-grade price settling at $40.60-41.75 per lb.
International mining companies active in the DRC are also engaged in discussions over the country's new mining code, about which they have expressed concerns. Randgold Resources, AngloGold Ashanti, Glencore plc, Ivanhoe Mines, Gold Mountain International/Zijin Mining Group, MMG (PTY) Ltd, Crystal River Global Ltd and China Molybdenum Co Ltd (CMOC) have been negotiating via representatives with the DRC government since mid-March.

Andrea Hotter

ahotter@fastmarkets.com

Published

Andrea Hotter

June 18, 2018

17:28 GMT

New York