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The Ministry of Mines of the Democratic Republic of Congo (DRC) has thrown into uncertainty the future of some of the richest metal and gem deposits on earth, along with the prospects of several UK listed companies, after a review of over 60 mining licences concluded that none was properly structured.
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The scope of the review by president Joseph Kabila was far more wide-reaching than first anticipated. It sought to identify illegal contracts inherited from the civil war, and renegotiate those it felt were improperly structured.
First Quantum Minerals has been informed that the government considers it is owed a further $115m in respect of the Kolwezi project. The group may now have to make a substantial cash payment, expand its social development projects and allow state mining company Gecamines more say in operational matters in order to retain the project.
One-off charges of $100m are an irritant, but with a market value of around £3bn, First Quantum can cope. However, for smaller miners, particularly those not yet in production, Mr Kabila's review could have far more serious consequences.
Both Central African Mining & Exploration (CAMEC) and Mwana Africa have received notices regarding licences and are likely to have to make additional payments, step up their social plans and allow local venture partners more say. Neither looks likely to pull out of DRC, but the uncertainty has hit their shares. Mwana has halved in the past six months, to 36p, while CAMEC is off 7 per cent in the past week alone.
The miners have little choice but to pay up. They can't prospect, let alone mine, without government backing - and the Congo isn't short of rival suitors for its mineral wealth. Chinese companies in particular, who some suspect to be behind the whole review, are poised to snap up any relinquished assets.
Government meddling is the principal reason why Congo's mineral industry ended up in such a mess, so these developments are hardly encouraging. But First Quantum should be able to ride this out, and remains good value at 4,752p. The political risk is more acute for CAMEC and Mwana, leaving their shars fairly priced at 49.75p and 36p respectively.
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