Having filed the much-awaited Initial Public Offering (IPO) of Ivanplats Ltd. on the Toronto Stock Exchange (TSE) earlier this week – hoping to raise at least $300 million in stock sales -, mining billionaire Robert Friedland has his eye set on new opportunities, this time, in Africa. While he is no stranger to setting up operations and producing in inhospitable locations, most recently in Mongolia, speculation is rife as to the wisdom of his proposed move in to the Democratic Republic of the Congo (DRC) – renowned for its brutal and lawless approach to the mining industry.
The mining sector in the DRC came crashing to a halt in 2010, when the Congolese government seized copper assets from Canadian mining company First Quantum Minerals Ltd, who were operating in the Katanga province at a mine known as Kipushi. Having already agreed the commencement of operations with the Canadian mining firm, state-owned La Generale des Carrieres et des Mines (Gecamines) nonetheless ousted the Canadian company, and seized a controlling stake in the copper producing plant, thereafter selling part it on for undisclosed amounts of profit – the stake eventually ending up in the hands of controversial businessman Dan Gertler.
It is now this 68 percent stake in the Kipushi zinc-copper mine that Friedland has purchased from Gertler, in a deal estimated to be worth $175 million. The IPO prospectus discloses that of this sum, $100 million is still owed to Gertler, hence one of the reasons for Ivanplats’ debut on the TSE. Once the balance is settled, Ivanplats will launch into a joint venture with Gecamines to bring the Kipushi mine back into operation in order to recuperate the remaining copper stocks. It is estimated that bringing Kipushi into operation will be a project costing in the region of $2 billion.
Of course the question remains, how can Friedland be certain that his involvement at the Kipushi mine will run any more smoothly than the First Quantum Minerals project? Following two years of legal action, with First Quantum Minerals attempting to sue a long line of Gertler affliates, the case has finally been settled with a $1.25 billion pay-out to the company.
Friedland’s other Congolese coup-de-Coeur is the high-grade copper mine at Kamoa, also in Katanga province. Ivanplats located the Kamoa stock in 2008, when prospecting in the region of the Central African Copper Belt. The Kamoa project seems to hold the biggest appeal for Friedland, he himself having billed the Kamoa mine as: “the project that we think will set the mark for the rebirth of the mining industry in the Congo”.
However, all of these plans can only come to fruition if sufficient funds are raised in the forthcoming stock sale, and whether the funds are raised or not largely depends on whether investors are willing to take a risk in dedicating funds to a Congolese project.
Risk-analysis group Maplecroft has recently upgraded the risk rating of the DRC to “extreme” – the highest level of risk possible. Maplecroft head of mining practice James Smither, says: “I would call the DRC the ultimate high-risk, high-reward mining destination — it’s one that’s on the radar of all serious mining companies because of its huge wealth and mineral resources… With that comes a significant array of potential pitfalls ranging from political uncertainty to contractual variances and very significant security challenges”.
Daniel Balint-Kurti, campaign leader at Global Witness – an organisation working to highlight the corruption and human rights abuses that often come hand-in-hand with natural resource exploitation – has added: “There is … clearly a risk of confiscation of assets…The justice system is generally seen as not being independent, meaning you’re more at the mercy of what government officials want you to do”.
Despite Friedland’s global reputation in the mining sector, it will be an interesting period at the TSE as investors are drawn into marketing pitches, and it will be anyone’s guess as to which way investors will go when the Ivanplats shares do finally come up for sale.