(Bloomberg) -- Mining companies in the Democratic Republic of Congo told the government it will lose more than $3 billion over a decade and face legal action if plans to implement a new industry code proceed.
Miners including Glencore Plc and Randgold Resources Ltd. are demanding the government abandon aspects of the legislation approved by President Joseph Kabila in March. Discussions about the regulations that will be used to implement the new law concluded earlier this month and the industry says the negotiations failed to address their concerns.
“There can be no ambiguity, from a governmental point of view, as to the intention of the mining companies to protect their rights” if the legislation is applied, a group representing investors including Randgold, Glencore, Ivanhoe Mines Ltd. and China Molybdenum Co. said in a note submitted April 30 to the Mines Ministry. The note, which hasn’t been made public, was shown to Bloomberg by two people familiar with the negotiations who asked not to be identified.
Mines Minister Martin Kabwelulu declined to comment on the government’s reaction to the note. “The future will decide,” he said by email. The country is the world’s largest source of cobalt and Africa’s biggest copper producer.
By refusing to accept a package of industry proposals made in March, the government may lose more than $3 billion of income from existing copper, cobalt and gold projects “since the mining companies will pursue the application of their rights” contained in the former mining code and “the government will not consequently be able to collect the revenues expected” from the 2018 law, according to the note.
If the code were enacted in its current form, mining companies would suffer major financial losses, which could result in projects under construction being left unfinished and the closure of producing mines, according to the note.
“The claims for damages intended to cover the consequences of the harms suffered will be much higher than the gains that the government can expect from the application” of the new law, it said. “The damages demanded by the mining companies will be payable immediately and in full.”
The mining companies insist the government reinsert a stability clause, present in the former code, which protected license holders from complying with changes to the fiscal and customs regime for 10 years. They’ve also asked for the removal of a 50 percent tax on so-called super-profits and a new categorization of “strategic substances,” which have a 10 percent royalty rate.
“The mining companies have confidence in their legal position,” they said in the note, which was written in response to questions from the government about the financial impact of the new law. “The government will not benefit from any of the expected benefits of applying the current version of the Mining Code, since the mining industry will vigorously and collectively reject this application.”
The law has already harmed mining companies operating in Congo, despite not having been implemented yet, according to the note. Its promulgation “immediately resulted” in a sharp fall in the share prices of several companies, notably Randgold and Ivanhoe, it said.
MMG Ltd. has postponed a decision on whether to advance to the next phase of its Kinsevere copper project because of uncertainty about the code, a spokesman said by email.
Major projects yet to start production such as Ivanhoe’s Kipushi and Kamoa projects and Alphamin Resources Corp.’s tin mine have also been imperiled after concluding fundraising arrangements under the replaced legal regime, according to the note. The amendments in the 2018 code could “make it impossible to complete construction” at Alphamin’s Bisie mine, it said.
Ivanhoe and Alphamin declined to comment.
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