Country Accuses Canadian Mining Firm of 'Cheating'
The East African (Nairobi)
March 13, 2007
Moto Mines Ltd, an Australia-based gold mining company listed on the Toronto Stock Exchange has found itself in the thick of an embarrassing controversy with authorities in the Democratic Republic of Congo, over a gold mining contract it entered into with the state-owned Okimo Mines Ltd in 2003.
The Canadian company, which operates in Congo under a local subsidiary, Borgakim Ltd, has been accused by the Congo government of misrepresenting to the markets the true value of the rights granted to it over some eight mines within the Kilomoto area, thus managing to raise between $60 million and $80 million from the Toronto Stock Exchange.
Apparently, the agreement covered a total of eight mines, seven of which were leased to the Canadians by Okimo Ltd under terms whereby the Canadian company will earn 70 per cent of the revenue and the state-owned company 30 per cent.
The eighth mine - consisting of Karagwa, Durba and Chauffeur mines - with indicated and inferred reserves of 12 million ounces of gold - was granted to the Canadians on a service contract basis.
According to articles three and four of the service agreement on the property, the Canadians were to act as financial and technical consultants and undertake an extensive exploration programme to establish a proven reserve base after which Okimo Ltd will undertake actual mining.
The agreement also stipulated that the Canadians would rehabilitate the infrastructure of the world famous Kilomoto mines.
The agreement further stated that the company would invest up to $100 million and be paid 70 per cent of revenues for a period to be determined at a later date - after which date 100 per cent ownership and the operations would revert back to the state.
Four years later, the total expenditure to date, as reported by the Canadians themselves, on the eight mines is over $25 million, of which some $4 million-$11 million was spent on the eight properties under the service contract.
According to Congolese authorities, the Canadians have not spent any money on rehabilitation of the physical facility and have instead been concentrating on drilling the mines for more gold, which the authorities believe is a tactic to shore up the market capitalisation of Moto Mines at the Toronto Stock Exchange.
The controversy escalated when officials of the Canadian company told the Reuters news agency on February 26 that the company was still awaiting ratification of another protocol signed with the authorities in November 2006 before it can consolidate its operations.
The following day - February 27 - Assistant Minister for Mineral Exploration, Victor Kassongo told Reuters that a notice had been given to the Canadian company on January 26 informing them that the view of the government was that they (Moto Mines) were in breach of the contract on four of the mining properties.
Officials in Kinshasa have expressed concern that the Canadians have given a perception to the investing public that it is earning an interest and owns some other mines and has - contrary to the agreement - used proprietory information to promote the company's stock on the Toronto Stock Exchange.
Market watchers are following the controversy closely to see whether there are parallels with Bre-X Ltd - formerly a Canadian listed company, that lost billions in the stockmarket within days over claims that it had misrepresented the value of gold properties it owned and managed in Indonesia.
In response to the statement by Congo authorities, the Canadian officials are claiming that Okimo's notice is unjustified and the state-owned body is in breach of contract.
Meanwhile, a Paris-based law firm - White & Case - which was engaged by authorities in Kinshasa to look into the matter, has supported DRC's position, pointing out that the agreement on the disputed mines merely gave the Canadians the right to provide technical and financial assistance at a fee - and not an option to earn interest.
Mining pundits in the region are seeing parallels with a deal between Kenya and China's National Offshore Oil Co-operation, which has been given rights over six oil exploration blocks but has secretly gone behind the government's back to seek joint partners without informing Kenyan authorities.
As the ministry awaits the outcome of the Moto saga, Mr Kassongo told The EastAfrican in an exclusive interview that the government's plan in the coming months will be to take Okimo Ltd to the public market through the Toronto Stock Exchange, London Stock Exchange and its AIM market.
The minister said the government plans to raise $45 million by selling 15 per cent stake of the state company. The proceeds will be used to rehabilitate the mining infrastructure and also in an extensive exploration programme.
Mr Kassongo also disclosed that he had started discussions with Uganda's Department of Geological Survey and Mines to see if joint surveys can be undertaken.
The new Kinshasa government says it wants the mining industry to contribute $1 billion in revenues in the next 12 months said Mr Kassongo.
To achieve this, he further said that the government is reviewing all mining contracts and re-evaluating the commitments and obligations international mining companies have made. "Those in default will be advised to 'shape up or ship out," he said.
Mr Kassongo lamented that although Congo is endowed with significant minerals and known reserves, its annual budget is only $2.5 billion compared with Angola which has an annual budget of over $29 billion