The Democratic Republic of Congo’s (DRC’s) mining sector “has been given a boost, owing to a surge in demand for battery metals”, says Nedbank Corporate and Investment Banking mining and resources finances co-head Nivaash Singh.
He states that this has increased investment in operations for these commodities in the DRC, particularly in the past few years, with the country renowned for its supply of lithium, cobalt and nickel.
Singh emphasises that the DRC is one of the most mineral-rich countries in Africa, with a multibillion-dollar industry that is well developed and understood.
“The DRC’s mining industry has been the beneficiary of investments totalling more than $30-billion over the past 15 to 20 years. Primarily a high-grade copper- and cobalt-producing country, the DRC is also renowned for its high-grade, shallow gold mineralisation and a plethora of diamonds, in alluvial and kimberlite form.”
The country is also endowed with coltan and tin.
He points out that almost all of these commodities are trending upwards in terms of price, and the short-term outlook for the industry remains positive.
“However, operators in the DRC will have to contend with corruption, illegal mining by artisanal miners, growing terrorism, and now the Covid-19 pandemic, having suffered the effects of the Ebola virus for some time in the recent past.”
Singh cites these challenges as some of the reasons why Nedbank is not currently aggressively pursuing debt finance opportunities in the DRC’s mining industry on a standalone basis, adding that the DRC remains on Nedbank’s “high-risk” country list.
“In other words, we will consider financing in the DRC if the mine owner has assets outside the DRC as well, to pledge as security.”
He explains that this geographic diversification enables companies to limit the effects of currency volatility and ensures that challenges faced by assets in high-risk regions are offset by production and/or revenue from assets in stable, low-risk regions.
Singh says risks to investment, such as high political risks, can sometimes be mitigated by political risk insurance, while sanctions and compliance risk cannot be mitigated, as several high-ranking government officials in the DRC are listed on the UK and US Financial Sanctions List.
A lack of transparency around securing mining licences will also impact on mining investments in the DRC’s mining sector, as financiers and insurers require “absolute transparency and adherence to laws when evaluating a new mining project for financing”.
Artisanal mining also means that companies investing in the country risk having artisanal mining on their mining lease area, as well as a consequent loss of equipment, consumables and, in some cases, mineral ore.
“Regions such as the Copperbelt region in Lubumbashi, have satisfactory infrastructure to produce and develop copper, cobalt and lithium. The eastern and northern side of the DRC, however, such as the North Kivu and South Kivu regions, have little to no infrastructure, which makes mining more challenging.”
Singh adds that terrorist attacks, such as those that have occurred in the eastern DRC throughout last year, can also pose a threat to investment, as the safety and security of mine personnel and visitors are at risk.
Moreover, the lack of available Covid-19 test kits and the difficulties associated with accessing hospitals and healthcare facilities have also impacted on investment.
Nevertheless, “owing to the positive run in commodities prices, mainly in gold and copper, mining companies are generating sufficient cash, and host governments should be accessing higher tax revenue, which could be used to fight the Covid-19 pandemic in the country”.
He adds that miners should assess their corporate social investment budgets to help fund the buying of Covid-19 test kits and personal protective equipment for health workers.
Singh further stresses the importance of establishing a partnership between government and the mining industry to fight the pandemic.
“Several of our clients and global commodity traders continue to operate in the DRC successfully, such as diversified miners Alphamin Resources, AngloGold Ashanti, Glencore, Trafigura, Ivanhoe Mines and others,” he concludes.