Kinross Gold and Katanga Mining: Part of the Pillage of the Democratic Republic of Congo?

According to various analyses, a joint venture involving Kinross Gold, and which is now being taken over by Katanga Mining Limited, gives the multinationals access to huge pieces of the Democratic Republic of Congo’s state mining company, Gécamines (La Générale des Carrières et des Mines) at “fire sale” prices.

Gécamines was formed by former dictator Mobutu Sese Seko in 1966 to nationalise the ill-gotten assets of the notorious Belgian company, Union Minière du Haut Katanga, (formed in 1906 out of the merger of a company created by Léopold II and Tanganyika Concessions Ltd. (a British group created by Cecil Rhodes). Despite years of Mobutu and his cronies siphoning off money, in the early 1990s Gécamines was still the most lucrative source of state revenue in the DR Congo. Now Gécamines has been stripped of virtually all of its assets and ore bodies through a number of disadvantageous contracts. One of those contracts carries a Canadian stamp.

In February, 2004, a contract was signed between Gécamines and British Virgin Islands-based Kinross Forrest Limited, creating the Kamoto Joint Venture and assigning 75% ownership to Kinross Forrest (based on a $200 million investment) and 25% to Gécamines. The Kamoto joint venture holds copper and cobalt leases at Kolwezi, Katanga Province, as well as owning the Kamoto concentrator, the Luilu hydrometallurgical facilities, the Kamoto underground mine, several open pit mines, and related infrastructure.

Kinross Forrest has a definite Canadian connection. It was created some time prior to October 2001, owned 35% by Kinross Gold Corporation, 25% by Tain Holdings Limited (owned by Arthur Ditto, former Vice-Chairman of Kinross Gold), and 40% by George Forrest International Afrique S. PRL (owned by George Forrest, former Gécamines chairman). Kinross only reported on its participation, and the ownership structure, in its 2004 Annual Report.

On August 2, 2005 — confident of President Kabila’s ratification of the joint venture agreement — Balloch Resources Ltd. and Kinross Forrest finalised an agreement giving Balloch the right acquire 100% of Kinross Forrest. Under the agreement, Kinross Forrest shareholders will receive common shares pro rata in proportion to their holdings in KFL.

The joint venture agreement was ratified by President Kabila on August 4, 2005.

On November 30, 2005, Balloch Resources held a special shareholders meeting to ratify and approve the purchase of Kinross Forrest. Balloch also changed its name to Katanga Mining Limited and Kinross Forrest shareholders Robert M. Buchan (former President of Kinross Gold), Arthur H. Ditto, and George A. Forrest were elected to Katanga’s Board of Directors.

Pursuant to the August 2, 2005 agreement (ratified by Kinross Gold shareholders on September 2, 2005), by December 13, 2005 Katanga Mining Ltd. had purchased a 23.33% share interest in Kamoto from Kinross Gold Corporation for $5.45 million, leaving Kinross with 11.67% of Kinross Forrest until such time as Katanga exercises its remaining options.

The joint venture has been controversial in the DRC and internationally. Most recently, UK-based Rights and Accountability in Development (RAID) commissioned a legal analysis of the Kinross Forrest joint venture (and another similar contract with Global Enterprises) from Fasken Martineau DuMoulin (FMD), and wrote to World Bank President Paul Wolfowitz asking him to investigate the contracts. The agreements, ratified under World Bank supervision, relate to extensive assets of Gécamines being transferred or leased for use by the private sector without an international invitation to tender or any evaluation or assurance that the DRC will be appropriately paid for them.

According to RAID’s news release, Fasken Martineau DuMoulin found that Kinross Forrest and Global Enterprises:

• will likely reap substantial benefits from the ventures, including complete repayment of loans, before Gecamines receives any reward for contributing the ore bodies and mining assets;

• will manage their respective ventures, but payment to Gecamines for rented installations and machines will likely be minimal or zero; and

• will likely be paid dividends via service contracts, because this is more profitable for the private partners than sharing the remaining profits with Gécamines.

Bizarrely, RAID has since been notified by FMD that “these letters were sent to you without having been approved by a partner, as they should have been” although this “is not to be taken as any criticism or negative reflection on RAID”. The legal advice was published with FMD’s express knowledge and approval. FMD is one of the main legal firms for the mining industry.

Also in reference to the Kamoto joint venture and the role of Kinross Gold and Katanga Mining, several Canadian non-governmental organisations (including MiningWatch) wrote to Foreign Affairs Minister Peter MacKay on March 17, 2005, urging him to find ways to regulate the activities of Canadian mining companies in vulnerable countries.

But the controversy has been brewing for years. A three-year investigation by a Panel of Experts, convened by the United Nations Security Council in 2000, exposed sophisticated networks of high-level political, military and business persons in cahoots with various rebel groups were intentionally fuelling the conflict in order to retain their control over the country’s natural resources. In a series of controversial reports, the Panel exposed the vicious cycle of resource-driven conflict that had taken hold of the DRC.

In its October 2002 report, the Panel also accused dozens of western companies of violating a set of government-backed international standards for responsible corporate behavior known as the “Guidelines for Multinational Enterprises”. The Panel felt it was necessary to bring to light the companies’ role in perpetuating the conflict.

A Commission of Inquiry was set up in 2003 by the Congolese Transitional Government under the chairmanship of Christophe Lutundula to review the validity of the contracts concluded during the war years (1996-1998). The commission submitted its report to the Office of the Congolese National Assembly on June 25, 2005, but the report was not published until February 20, 2006. The report found that dozens of contracts were either illegal or were disadvantageous to the country, and support a 2003 report prepared by International Mining Consultants (IMC) for the World Bank on Gécamines. The IMC study — still not published — also concluded that the private partners in these joint ventures contributed hardly anything compared with what they gained from Gécamines.

Both the IMC and Lutundula reports called on the Congolese government to suspend all further negotiations, although the Lutundula Commission did not specifically look at the Kinross Forrest agreement. According to the IMC report, the mining concessions that Gécamines still owned in 2003 would have been sufficient to relaunch the company. IMC called for “an immediate halt to all negotiations” and for “rapid preparations for the renegotiation of the partnerships”.

The Lutundula Commission recommended that “all negotiations for the sale of the mine of Kamoto, Kamoto Oliviera Virgule (KOV), the Luilu installations and the Kamoto concentrator, which form the backbone of Gécamines, should be immediately halted.” The Kamoto Joint Venture clearly falls within the conclusions of both the IMC and Lutundula reports, yet President Kabila chose to sign it. There has been much speculation on the reasons for this, based on the individuals involved and their interests as well as the political and economic considerations of Kabila himself.

George Forrest is no stranger to controversy either. A complaint was filed in the US under the OECD Guidelines for Multinational Enterprises on November 24, 2004 by Friends of the Earth-US and RAID regarding Ohio-based OM Group’s joint venture with Forrest, the Groupement pour le Traitement des Scories du Terril de Lumbumbashi, Ltd., alleging anti-competitive practices, supply chain responsibility, violation of national law, and improper political involvement. OM Group never responded to US authorities.

According to the 2002 report of the UN Panel of Experts, Kinross had been thwarted in initial investment efforts by Congolese officials and George Forrest; clearly, they have worked out their differences. According to Katanga, the Kinross Forrest portion of the Kamoto joint venture is now worth almost three times the initial $200 million investment, and the fact that senior Kinross Gold executives quit their posts in order to take up with Katanga would indicate their confidence that the venture is worth quite a bit more than that.

Katanga Mining Ltd. is registered in Bermuda and reports to the British Columbia, Alberta, and Ontario Securities Commissions. It trades on the Toronto Venture Exchange under the symbol KAT. Kinross Gold is registered in Ontario and reports in all Canadian provinces; it trades on the Toronto Stock Exchange under the symbol K and on the New York Stock Exchange under the symbol KGC.

On February 20, 2006, the Lutundula report was finally released.

See also “Congo Squanders its Crown Jewels” by John Vandaele, MO*31, March 2006.