The Democratic Republic of Congo’s president Joseph Kabila has signed the revised Mining Code into legislation, largely disregarding concerns and issued raised by key mining stakeholders.
This means major mining houses such as LSE-listed gold company Randgold Resources, amongst many others, will have to pay higher taxes and royalties.
This article first appeared in Mining Review Africa, Edition 4 2018
According to Dona Serge Ngandu who is heading up AIM-listed African Battery Metals’ Congo subsidiary Congo ABM Kobald SAS, the Mining Code in the DRC was introduced in 2002, drafted on the back of the country’s emergence from what people referred to as the African war of the century from 1996 to 2003.
“10 years later it was decided that the 2002 Mining Codes needed to be renegotiated. However, it was placed on hold due to a decrease in commodity prices and severe industry opposition,” explains Ngandu.
“Miners and explorers knew that DRC would be raising taxes and royalties following on-going negotiations at the time. Despite reaching agreement on terms within the draft, law makers of the country voted in favour of a few items which were not agreed upon,” he adds.
This was recently promulgated, despite industry engagement and clear opposition to key amendments.
Key changes to the Mining Code
Some of the key changes include:
- Increased royalties on non-ferrous metals and or base metals from 2% to 3.5%;
- Increased royalties on precious metals (including gold) from 2.5% to 3.5%;
- Increased royalties on cobalt from 2% to 10%, if deemed a “strategic substance”
- A new 50% tax on super profits, on excess profits, defined as profits made when a commodity exceeds by 25% the price used in the bankable feasibility study;
- A provision that doubles the state’s free share in mining projects to 10%;
- A reduction on the period during which contract stability is guaranteed down to five years, from 10 years stipulated in the current mining code.
A key stakeholder’s perspective
Randgold Resources was engaging with the government of the DRC to head off the enactment of a new Mining Code which the company believed would severely limit the growth of the mining industry in the DRC as well as the country’s own economic prospects.
Randgold Resources CEO, Mark Bristow, stated in a speech at the Investing in African Mining Indaba 2018 that since the new code surfaced in draft form in 2014 the mining industry had made detailed and repeated representations to the Congolese Ministry of Mines about what it regarded as very serious flaws in its provisions.
“When we set out in 2014, to negotiate the code, we did have constructive engagements and we made progress and reached agreements on just about every contentious issue, but the code that was presented to parliament this last time was not that draft,” stated Bristow.
“When we started we requested the Ministry of Mines draft a ‘proper code’ with a clear and defendable objective. It is essential to have a transparent platform and a code that benefits all mining stakeholders which beyond ourselves includes, Glencore, Ivanhoe Mines and many others,” he highlighted.
“It is therefore very disappointing to see that none of our proposals and comments is reflected in the legislation. Among other things, it scraps the 10- year stability clause enshrined in the 2002 code, which was the basis on which Randgold and other mining companies invested in the DRC.”
“In fact, when Randgold and AngloGold Ashanti bought the project which became the Kibali mine, we sought and received a formal written declaration from the DRC government which entrenches our rights under the 2002 code and confirms that the law would be honoured in respect, not only of Kibali but also any permit renewals.”
Bristow added that the old mining code of 2002 had very specific laws about environmental management and dealings with local communities.
“It forces the miners to invest more than 50% of the value of the person who you are relocating. It was one of the best mining codes in Africa, it had the best regulations. The current code that’s been through parliament and the senate has no regulations,” he stressed.
Randgold Resources’ far-stretching contribution to economic upliftment in DRC
“Randgold Resources along with its partners, both international and local in the DRC set out on a voyage in 2009 to build one of the biggest gold company’s in the world. It took us eight years and US$3 billion and despite the claims of the minister, the only beneficiaries of that investment to date are the state of the DRC and its people. Our investors will only start receiving their returns back in 2018,” stated Bristow in his speech at Mining Indaba 2018.
He pointed out that the company has built three hydro-power stations and it has upgraded the national road (Doko) from Uganda to the mine.
“We used to take three weeks to drive to Doko from Uganda, today its four hours. We maintain that road, everyone uses it and we pay the tax to the states,” he commented.
“We have paid salaries of $184 million, we’ve paid taxes to the state while we built the mine of $337 million and we have invested in suppliers. We’re definitely not taking from the DRC,” noted Bristow.
Randgold Resources and its partners have also invested in schools and clinics. The cash flow into the region is more than the outflow.
“We have employed 5 000 people. The mine today is the most modern mine in gold mining in the world and its run by Congolese, not expatriates from oversees. We operate the equipment underground from surface. We have built hydro-power stations of which two are complete and the third one is still being built by Congolese, not foreign investors and contractors but Congolese that we have trained, a very competent group of highly professional men,” noted Bristow.
In addition, Bristow noted that the company has also invested in the Garamba National Park, which had been neglected for many decades.
“We have invested in this park even before we’ve made one single cent back to our shareholders, because we are a long-term investor not in only the Congo but in Africa,” he stated.
“We believe that the DRC is a bread basket, it’s a mineral endowment, it been like that for 100 years and it stayed like that with the people of Congo not benefitting from it. It is therefore our responsibility and I agree with the minister that we must find ways where the Congolese benefit from their own natural resources and to do that we need investment. And we need the big investors because it’s going to take tens of billions of dollars to bring this great country to its rightful place both in Africa and in the world,” said Bristow.
However, Bristow commented that “It is our express wish that the government grasps the serious consequences this ill-considered code will have on its ability as a country to attract international investment and re-investment to the DRC and to refer the code back to the ministry of mines for further consultation with the industry. If this fails, however, we shall seek to enforce our rights including those which provide for international arbitration.”
Despite the current uproar in the DRC and its new Mining Code, Ngandu is optimistic about the future particularly on the back of cobalt demand increasing so significantly going forward.
“Cobalt has become the hottest commodity in mining as the boom from electric vehicles and grid storage technology continues,” he comments.
Ngandu notes that the revised code is likely the result of the thriving demand of cobalt for electric vehicles and lithium ion batteries – which the DRC is richly endowed with.
He adds that copper is up 67% since January 2016 and cobalt is up 157% since January 2016. “With the increases in copper and cobalt demand, an increase in tax will benefit the government in terms of the newly stipulated Mining Code.”
In addition to his positive outlook Ngandu believes that continued negotiations with President Kabila’s approach to dealing with the concerns of mining on a case by case basis will benefit smaller miners because the codes could impact them tremendously. However, he mentions that hikes are more directed towards the big mining houses.
“If mining companies see that the tax money being generated for the country is being used to improve the country’s infrastructure, then I believe those companies would be more open to the new legislation because the money would be put to good use,” Ngandu suggests.