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Old July 14th, 2011, 01:31 PM   #1
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Gecamines Sale of Congo Copper Assets May Undermine Share Offer

By Michael J. Kavanagh and Franz Wild - Jul 13, 2011 12:00 AM GMT

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The undisclosed sale of assets by Gecamines, the Democratic Republic of Congo’s state-owned copper and cobalt miner, may undermine its plans to offer shares to investors, analysts and lawmakers said.

Gecamines, which sits on the world’s biggest cobalt reserves, this year sold stakes in two mining projects to Israeli businessman Dan Gertler. The transactions were revealed without a sales price in a prospectus issued by Glencore International Plc, which operates the mines, before Glencore’s initial public offering in May.

While Gecamines has “world-class assets,” with some of the richest copper deposits available, investors may be reluctant to buy if it doesn’t disclose its revenue from selling properties, Adam Kiley, a London-based analyst at brokerage Ambrian Partners Ltd., said in a June 24 phone interview.

One of the complexes, Mutanda Mining Sprl, is worth more than $3 billion, according to calculations by consulting firm Golder Associates that were included in the prospectus.

Gecamines, based in Lubumbashi, is among state-owned assets being prepared for sale to private investors. The sale is intended to bring in capital to boost output after years of underinvestment and political corruption in Congo. The company’s production stood at about 20,000 metric tons last year, compared with 476,000 tons in 1986, central bank figures show.

“If they are getting rid of some of their better assets on the cheap that may not be such a good thing, so they would need to tell investors exactly what they have and what they’ve sold,” Kiley said.

World Bank Agreement

As of January, sales and prices of Congo’s natural-resource assets are supposed to be made public, according to an agreement between the government and the World Bank, and a Finance Ministry decree.

“Now that they’re becoming a private company they don’t tell us anything,” Modeste Bahati Lukwebo, head of the audit board of the National Assembly’s Economic and Financial Committee, said in an interview on July 6. “They must make management transparent and justify what the Congolese state has gained from the sale of all these concessions.”

Gecamines officials, including Managing Director Ahmed Kalej, didn’t respond over a one-month period to phone calls, text messages, visits to the company’s head office in Lubumbashi and a letter from Bloomberg requesting comment.

“Gecamines has no comment,” Chairman Albert Yuma said by mobile-phone message on July 11, adding that he was traveling in Malaysia.
Gertler Acquisitions

Rowny Assets Ltd., an entity “associated” with Gertler, “recently” acquired a 20 percent interest in Mutanda from Gecamines, according to Glencore’s May 4 listing prospectus. Biko Invest Corp., also linked with Gertler, recently bought a quarter of Kansuki Sprl from Gecamines, it said. Both companies were incorporated Feb. 23 in the British Virgin Islands, according to filings with the islands’ corporate registry.

The net present value, a measure that includes future earnings prospects, of Gertler’s stake in Mutanda alone may be more than $800 million when royalties and other payments are taken into consideration, according to calculations using figures in Glencore’s prospectus.

The entire Mutanda project is worth about $3.1 billion and could produce 110,000 tons of copper annually by 2012, the prospectus said. Neighboring Kansuki has “the potential to be a bigger producer” of minerals, Deutsche Bank AG said in a June 6 report on Baar, Switzerland-based Glencore.

First Refusal?

A Tel Aviv-based spokesman for Gertler, who said he can’t be identified in line with management policy, declined to comment.

Glencore’s half-owned subsidiary in Mutanda, Samref Congo Sprl, should have right of first refusal on any share sale by its partners, according to its joint-venture agreement with Gecamines. Simon Buerk, a spokesman for Glencore, declined to comment on the sale by phone on June 24.

Gertler has been doing business in Congo for more than a decade, first winning a monopoly over its diamond exports in 2000. He then diversified into copper, cobalt, iron ore, oil and banking projects across the central African nation, according to public filings and websites.

His success has also brought him into conflict with business rivals such as First Quantum Minerals Ltd. (FM), which is suing companies he owns with Eurasian Natural Resources Corp. (ENRC) for alleged involvement in the Congo government’s cancellation of its Kolwezi tailings license in August 2009.
License Rights

After Vancouver-based First Quantum lost the rights to the license, a series of transactions put it in the hands of ENRC, which bought 50.5 percent of Gertler’s Camrose Resources Ltd. for $175 million and a $400 million loan facility, according to an ENRC public filing.

ENRC required Gertler to sign a letter saying he wasn’t involved in the loss of the license, ENRC board member Paul Judge said on July 7 in an e-mailed response to questions, adding that ENRC lawyers said that nothing was illegal about the transaction.

Congo was ranked the second-least developed nation in the world last year by the United Nations Development Programme, out of 169 countries. Almost half its $7.3 billion budget comes from international donors. At the same time, such mining companies as Phoenix-based Freeport McMoRan Copper & Gold Inc. and AngloGold Ashanti Ltd. (AU) operate in the country.

In its heyday, Gecamines was the largest employer in the southern Congolese province of Katanga. It provided housing, hospitals and schools around Lubumbashi, Likasi and Kolwezi, the main production areas in the so-called Copper Belt. That stretch across northern Zambia and southern Congo holds about 10 percent of the world’s copper reserves.
‘On Its Knees’

After providing 60 percent of Congo’s exports in the 1980s, Gecamines was losing $15 million to $20 million a month last year, according to the World Bank. The company has $1.5 billion of debt, according to the Portfolio Ministry, which manages Congo’s state-owned companies.

“It was the giant of the country, but when the giant was on its knees, the economy of the country was on its knees,” Moise Katumbi, governor of Katanga province, said in a June 15 interview. “We now have many partners with Gecamines. It’s a very good thing. First they need to stabilize production.”

The government, which holds all of Gecamines’ 10,000 shares, has yet to decide when it will begin offering stock to investors, Valery Mukasa, chief of staff at the Mines Ministry, said in an interview in Kinshasa, the capital, on June 23. The company also hasn’t said where it might be listed.
That Moment

“At a certain moment, the shares will be open and we’ll let investors invest in the shares of Gecamines,” Mukasa said, without providing further details. In December, the government valued the company’s shares at about 406 billion Congolese francs ($438 million).

“The sale of assets is a dynamic move because it’s recapitalizing the company,” Paul Fortin, who was Gecamines’ chief executive officer for four years until he resigned in September 2009, said in an interview. “If properties are sold to the private sector, that will increase production, no doubt. I think the route that has been selected is the proper one for the country to turn the resources into cash.”

Both Gecamines’ assets and debts are still being assessed as part of its transformation into a commercial company, a process that will continue until at least the end of this year, Steven Dimitriyev, head of the World Bank team advising Congo’s state-owned companies on their privatization plans, said in a June 28 phone interview from Kinshasa. “The valuation of the company is ongoing,” he said.

The Bank and the IMF are “insisting on fully transparent disclosure of all divestitures and new joint venture contracts” involving Congo’s state companies, he said.

“We trust in the government’s sincerity to do the job correctly, but the process should be going faster,” he said.

To contact the reporters on this story: Michael J. Kavanagh in Kinshasa at mkavanagh9@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net.

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net; Andrew J. Barden at barden@bloomberg.net.
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