Mining: The Path to Congo’s Economic Diversification

The mining sector will provide stability to Congo’s oil-dependent economy.

Jean Pierre Salendres

The President of the Republic of Congo, Denis Sassou Nguesso, presides over an economy sorely dependent on the production of crude oil and gas. With 80% of the government’s revenues stemming from this sector, the country’s finances have been severely affected by the global downturn in oil prices. The oil industry has propelled the country’s economic growth in recent decades, but this growth has not trickled down to most of the 4 million Congolese citizens in this small Central African nation. The President has expressed the need to diversify the economy and has devoted political capital to boost Congo’s nascent mining sector. His administration led the effort to establish the 2005 Mining Code, through the Ministry of Mines, offering attractive contract terms and clearly delineated regulations that could attract substantial foreign direct investment. Since then, the country has hosted two international mining conferences and exhibitions, in 2013 and in 2015, in order to present Congo as a global mining investment destination.

Throughout its 342,000 square kilometers (km) of territory, the Republic of Congo possesses vast deposits of iron ore, copper, lead, potash, phosphates, graphite, nickel, titanium, gold, diamonds, and zinc. According to the Ministry of Mines, Congolese authorities granted 100 new mining titles in 2012 and 110 in 2013. Although most companies are years away from production and the global downturn in commodity prices makes production unattractive, several companies are committed to developing Congo’s mining sector.

The discovery of large-scale deposits of iron ore in the Zanaga, Mayoko, Avima, and Mbalam regions prompted several feasibility studies that confirmed the region’s production potential. Zanaga Iron Ore’s 2014 feasibility study for its Zanaga project, discovered in 2007, in partnership with Glencore Xtrata, projects a first-stage production of 12 million mt/y with a ramp up in production to the second stage for a total of 30 million mt/y. This represents over two billion metric tons in proved and probable ore reserves of high-grade ore with 66% to 67.5% Fe content. The project is slated for production in 2018, having received its mining license in 2014 and already reached agreements with Congolese port and power authorities.

Substantial phosphate reserves are located near the port of Pointe-Noire, with Cominco being the only company with phosphate operations in Congo. This makes Cominco’s project, which is worth $600 million in terms of capital expenditure, much simpler in terms of logistics. The project has been awarded two main research permits: the Hinda and Kola Tchikanou phosphate exploration licenses. The Hinda phosphate project is the largest proven phosphate deposit worldwide with a quality grade of 32%. Drilling began in February 2011 and was completed in July 2014, revealing a proven reserve of phosphate for more than 25 years. The deposit itself is around 25 km long, 350 meters (m) wide, and is very shallow at its southern tip, on average approximately 65 m to 70 m deep. Cominco is now waiting for the exploitation permit that it requested in October 2014. The general manager of Cominco, Patrick Stevenaert, notes that raising the $600 million will be the most challenging part due to current financial environment for the mining industry.

Following independence and prior to the civil wars of the 1990s, Congo’s mining industry was small and capital flight was a large problem. Aside from employment opportunities for the local Congolese, mining’s contribution to the Congolese economy was minor. Mr. Nguesso’s administration understands the need to diversify an economy that is too dependent on oil and gas revenues and hopes that such a move will result in a more robust economy that creates employment and entrepreneurship opportunities for its people. Similar to various African nations, Congo has not seen its wealth in natural resources transform its import-dependent economy. Yet the royalties and corporate taxes to be imposed on a promising mining sector provide an opportunity for Congo to invest in its future and emphasize infrastructure projects that provide employment and incentivize more companies to invest in the country. The 2005 Mining Code established royalties of 3% for ferrous and non-ferrous metals, 5% for precious metals and stones, and 1% for mineral and thermal waters. Corporate taxes are set at 20% for quarry operations and 30% for mining operations. An equitable distribution of profits from mining operations and a sound development plan are key to create a diversified and robust Congolese economy.

Mr. Stevenaert points to a major opportunity for the government to translate its mineral potential into economic growth. “The Republic of Congo…has a unique global position in terms of fertilizer production; both potash and phosphate can be mined in the same place, the location of which is not very far from the nearest port. The country also has large natural gas reserves, meaning NPK fertilizer can be easily produced in enormous quantities. At the moment, companies are looking at just one commodity but, in the future, they will look at all three combined and sell them within the Central African sub-region. Furthermore, President Sassou Nguesso has been trying to promote agriculture in the Republic of Congo. Central Africa, unlike other parts of Africa, has plenty of water. With a supply of local fertilizer, it will be possible to support farming on a large scale, rather than the level of subsistence farming that the country currently supports.”

Yet additional obstacles to investment remain. Due to the country’s lack of reliable infrastructure, mining companies must link their mines to the coast for the export of their mineral resources, which requires large, upfront investments in order to commercialize extracted minerals. Zanaga Iron Ore, for example, built a 366-km pipeline to transport pellet feed from its mine to the port in Pointe-Noire.

Fortunately for investing companies, unlike in other countries, the Congolese government is able to grant approval of a project without the need to conduct hundreds of negotiations with local landowners. Furthermore, the Chinese and Congolese governments have come to an agreement for a $2-billion development project for the port. Cominco’s General Manager explains the need for a new port in the vicinity of Pointe-Noire: “The major challenge is the port. It has been through a number of developments and improvements over the last few years, but is right on the tip of the harbor so it cannot be expanded properly. There is now a need to find a site for a new port. Along with other mining companies, Cominco has identified a zone between the Pointe-Noire refinery – Congolaise du Raffinage (Coraf) – and Pointe Indienne further up the coast. This area is approximately 1,700 hectares (ha). However, when this is incorporated with a special economic zone of almost 2,000 ha, it expands to 3,500 ha in total.”

The optimism surrounding Congo’s mining industry has abated since 2012, when the price of commodities began to steadily decline. Several companies halted exploration efforts and shelved marginal projects in response to the downturn in the mining industry. Other companies have suffered major financial losses due to poor planning in the local environment, including Exxaro, the second largest coal producer, whose entire $407.6-million Mayoko project had to be written down, pushing the company deep into the red in 2015. Exxaro was actively working to obtain contracts with the port and did not follow internal governance procedures, according to the report produced by KPMG.

This article was written as part of research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in October 2015 and can be accessed here. To participate in this report, please contact Sharon Saylar at ssaylor@gbreports.com.

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