Congo Lobby Criticizes Prime Minister Over Changes to Mine Law

July 15 (Bloomberg) -- Congo's main business association criticized the country's prime minister over changes to mining laws that it says are damaging the investment climate in the Central African country.

Decrees in April that rescinded tax exemptions on imports of petroleum products and outlawed exports of concentrated minerals contravene the mining code and have heightened perceptions that investing in Congo is "risky," the Kinshasa- based Fédération des Entreprises du Congo, or FEC, said in a June 29 letter to Prime Minister Adolphe Muzito.

Muzito's spokesman, Aime Dionzo, said he couldn't verify whether the prime minister received the letter. Simon Tuma-Waku, the FEC's national vice president in charge of mining, said the organization hasn't had a response from Muzito's office.

Judicial security in Congo is becoming "more and more precarious in the mining sector," FEC President Albert Yuma said in the letter. "It's creating a negative effect for banking institutions that finance mining projects in our country."

Congo holds 4 percent of global copper reserves, is among the world's largest producers of cobalt and industrial diamonds, and is Africa's largest producer of tin ore, according to the U.S. Geological Survey's website. Companies that operate in the country include AngloGold Ashanti Ltd., Africa's largest gold producer, and Freeport-McMoRan Copper & Gold Inc., the world's biggest publicly traded copper producer.

Moratorium

On April 22, Muzito decreed a moratorium on tax exemptions for miners on imports of petroleum products. Congo's mining code sets the rates at between 2 percent and 5 percent, depending on the stage of the mining process.

The freeze on the exemptions came two weeks after Congolese Mines Minister Martin Kabwelulu called for a halt to shipments of concentrated minerals. Exports are continuing after the Katanga province enacted a $60-per-ton tax to circumvent the government ban. FEC says the Katanga tax is also illegal. At 2009 production levels, the tax would cost miners more than $33.8 million.

First Quantum Minerals Ltd.'s Frontier mine in southeastern Congo accounted for 84 percent of the nation's concentrated copper exports last year, according to Katanga's Mines Ministry. Glencore International AG's Mutanda Mining SPRL shipped 39 percent of concentrated cobalt and Eurasian Natural Resources Corp.'s Boss Mining SPRL shipped 17.5 percent, the ministry said.

The export ban and the new taxes aim to encourage companies to increase revenue for the state and add value to their products by refining them in Congo, according to the Mines Ministry. In March, Muzito called for a doubling of government revenue in 2010. The Mines Ministry expects revenue from the industry to more than triple this year to $87.5 million as copper prices recover from 2008 lows.

Copper Price

Copper for delivery in three months fell 0.6 percent to $6,683.75 a metric ton on the London Metal Exchange today. The price declined to as low as $2,817.25 a ton on Dec. 24, 2008.

The FEC said that while it supported Muzito's aims, "the mining sector cannot alone support the economic rebirth of the DRC." The chamber also argues that a 10-year "stability clause" blocks changes to the 2002 mining code unless approved by an act of parliament.

Miners are also struggling to raise financing in the Congo because of the continuing dispute between government and First Quantum, Eric Monga, head of FEC's mining unit in Katanga, said by phone from Lubumbashi on July 13.

First Quantum's $750 million Kolwezi copper and cobalt project was canceled by the government in August following the state's review of mining contracts. The case is awaiting international arbitration in Paris.

Political risk insurance premiums have risen 40 percent since August as a result of the First Quantum case, according to the African Trade Insurance Agency.

The insecure investment climate has cooled investor interest in Congo, London-based Barclays Capital said in a July 12 research note. "It remains to be seen whether the DRC will reverse Western investors' perceptions," it said.