AMN - Fresh wave of interest in DRC riches - comment by Yolanda Torrisi

A recent report released to the market showed that there has been a fresh wave of ChInese companies investing in Central Africa and especially the Democratic Republic of Congo (DRC). Latin America was the darling of Chinese investment until recently and still is. Actually anywhere that has promising copper and gold assets is attractive to Chinese investors.

Recently China Molybdenum acquired Freeport-McMoRan’s Tenke Fungurume mine in the DRC. This is one of a long list of acquisitions being eyed closely by Chinese companies looking for a steadfast supply of metals, mainly copper, cobalt and gold.

A report by BMI Research says the DRC will remain the destination of choice for Chinese mining investors in the coming years, thanks to the country’s low production costs and the largest undeveloped high-grade (2-3% compared to global average of 0.8%) copper deposits in the world.

Analysts predict that China's slowing gold production growth as a result of depleting domestic reserves and rising production costs will also boost the presence of Asian investors in the DRC's largely untapped gold sector:

The report says the DRC's growing economy, with average annual real GDP growth rate of 7.9% from 2011 to 2015 and the mining industry accounting for 10.9% of GDP in 2015, will absorb most foreign investment in the African region with South Africa's production costs on the rise.

Many believe that China’s current investment policy is new, but rather it is repeating the same policies that were implemented at the turn of the new millennium.

From the early 2000s, China moved to secure supplies of traditional commodities such as oil, industrial minerals and strategic minerals. These were done through investments, acquisitions and loans-for-oil deals especially with Angola and Venezuela. There was also significant investment into infrastructure projects in Africa, however, returns can be slow.

An example is a $6 billion loan in place since 2009 between Exim Bank of China and the DRC, which is expected to improve Congolese infrastructure and boost the development of mines in return for control over some copper deposits.

Progress is slow. Last month, the Congolese government awarded a $660 million contract to a consortium of Chinese investors to build a 240 megawatt hydroelectric project at Busanga, near the Sicomines copper project, which is a joint venture between DRC-owned Gecamines S.A., China Sinohydro and the China Railway Group Ltd.

The BMI report warns that regulatory uncertainty in the country, mostly linked to a potential revision of its mining code and upcoming presidential elections, will continue to be a key barrier to the resource sector's long-term growth. They place the country in 59th position for mining risks out of the 61 countries they list in their Mining Risk/Reward Index.

BMI also warns that going forwards, lack of substantial infrastructure and power are two other factors that will weigh on investors decisions.

- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the African continent. Contact:yolanda@yolandatorrisi.com