DRC's Gecamines plans Chinese joint venture at main asset

16th June 2016 By: Bloomberg

KINSHASA – Gecamines, the Democratic Republic of Congo’s (DRC's) State-owned miner, is in talks to give China Nonferrous Metal Mining Group a majority stake in its most prospective copper asset.

CNMC will finance, build and operate a copper-processing facility at the Deziwa concession in return for a 51% stake in the project, Jean Dominique Takis, head of strategy, said in an interview Tuesday in the capital, Kinshasa.

CNMC will be reimbursed for its investment in the plant, which should have an initial capacity of 80 000 metric tons a year, through an off-take agreement over an agreed period that wasn’t specified, after which ownership of the project will be returned to Gecamines, Takis said.

The agreement is a “new type of partnership” designed to increase revenue in coming years, Gecamines chairperson Albert Yuma said last week.

Since Yuma’s appointment in 2010, Gecamines has been trying to boost production after decades of dictatorship and war left its infrastructure destroyed and cash reserves depleted. The company has smaller minority stakes in copper and cobalt projects with companies including Phoenix-based Freeport McMoRan and Baar, Switzerland-based Glencore that it says have failed to generate the funds required to restore the company’s financial health, leading it to explore different types of partnerships.

CHINESE DEALS
The deal adds to the growing presence of Chinese miners in Congo’s copper industry and follows the sale last month of Freeport McMoRan’s Tenke Fungurume copper project to China Molybdenum for $2.65-billion.

Gecamines currently has $1.58-billion of debt. In January 2013, it borrowed $196-million to acquire Deziwa, which it describes as its flagship project, stating that it would provide the reserves needed to reintroduce the company as a major producer. Until further details are published, the decision to give CNMC a 51% share in the project, even on a build-operate-transfer basis, may provoke criticism by local advocacy groups that have already questioned Gecamines’ plans.

The company says Deziwa has the potential to produce as much as five-million tons of copper over the life of the project. Output in Congo, Africa’s largest miner of the metal, was almost one-million tons last year, of which Gecamines produced 18 836 t.

“We discussed Deziwa with many investors, but at the end the company that showed the most interest and willingness to accept our conditions was CNMC,” Takis said.

CONTRACT CRITICISM
The total value of CNMC’s investment and the repayment period, during which Gecamines won’t receive a part of production, haven’t been agreed yet, Takis said. Gecamines and CNMC expect to conclude the agreement this year, he said.

Advocacy groups including the Atlanta-based Carter Center and London-headquartered Global Witness have called on Gecamines to publish details of the deal and specifically the terms of an initial agreement signed with CNMC in January. A 2011 government decree requires that contracts for any deal involving the country’s natural resources be published within 60 days of execution. The company says the existing accords with CNMC were only designed to “frame the negotiations” and do not represent binding contracts.

“As soon as definitive contracts are signed with our partners they will be published” within the required time frame, Takis said.

A decision on a second phase of the project, which would increase output to 200 000 t/y, will be taken at later date, Takis said.

Copper prices have fallen 2.6% so far this year, extending a 25% slump last year. Commodity prices have declined since 2011 as mounting supply met lacklustre demand in China, the world’s top consumer, which is facing its slowest growth in decades.