Katanga Mining's DRC/China copper/cobalt conundrum (Source: Mineweb)

Strange Chinese rumblings at Katanga Mining, in the Democratic Republic of the Congo.

Author: Barry Sergeant
Posted: Tuesday , 29 Jan 2008

JOHANNESBURG -

What's really going on at Katanga Mining (KAT CN, C$14.80 a share), busy merging with Nikanor (NKR LN, £4.76), its neighbour in Katanga Province, Democratic Republic of the Congo? Congolese Mines Minister Martin Kabwelulu told Reuters, in Kinshasa, that he had signed a loan deal with China which could lead to the development of DRC-parastatal "Gécamines' Mashamba and Dikuluwe copper/cobalt projects".

These are known, to Katanga Mining, as the Dima Pits, which include Dikuluwe, Mashamba East and Mashamba West. The official line from Katanga Mining is that the pits, which are anything but small, but all flooded, "will form part of Katanga Mining's production during later years and a dewatering schedule will be developed accordingly".

So who owns Mashamba and Dikuluwe? Pressed for an answer on Tuesday, Katanga Mining reacted with a statement to the effect that it was currently in meetings with Gécamines over the friendly merger of the Katanga Mining and Nikanor assets. "As part of these negotiations", Katanga Mining added, "a transaction is contemplated whereby the Dikuluwe and Mashamba West deposits in the southwest portion of the KCC [Kamoto Copper Company] concession, which were scheduled for mining approximately 12 and 15 years from now respectively, will be transferred to Gécamines. It is contemplated that any transaction will be on commercial terms reflecting full value of the assets transferred".

China's ambassador to the Congo, Wu Zexian, reportedly told Reuters following the signing of the deal: "These are large projects and the mines are large. In my opinion it's surely in the billions. That is certain". Last year, a China-based "loan" to the DRC was announced, in an amount of $5bn, but Congolese and Chinese officials have since shied away from confirming the total value of loans and investment on offer.

According to those familiar with the latest deal, the "new" DRC venture is in fact with a consortium of Chinese companies. In a nutshell, Chinese interests - such as Sinohydro Corporation and China Railway Engineering Corporation - will invest around $3bn in infrastructure, and $3bn into the mining deposits, which are held as to 32% Gécamines and 68% as to the Chinese consortium. Then there is a further $3bn earmarked by the Chinese consortium for future investment in infrastructure.

Based on an unpublished document, the Gécamines-China mining JV includes cuvette ("basin") Mashamba, cuvette Dima, Synclinal Dik Colline "D", Kolwezi, containing in total 8.1m tons of copper, and 203 000 tons of cobalt. The deal also includes "a trouver" (literally, "has to find") "Au" (gold), in an amount of 372 tons. The total value of the metals indicated is given as $3bn.

According to those familiar with the situation, Gécamines has structured some kind of a swap with Katanga Mining over the relevant Dima assets, but no details are yet available on what's on the other side of the swap. Before Katanga Mining shareholders start salivating, it should be pointed out that Katanga Mining only ever had the rights to a limited depth in Dikuluwe and Mashamba; the rest belongs to Gécamines.

For many decades Gécamines (and its predecessor) ran Luilu, the substantial hydrometallurgical facility in Kolwezi (now owned by Katanga Mining). The plant was fed with concentrate feed from KOV (now in Nikanor) and Dikuluwe-Mashamba as oxides, and from Kamoto underground (Katanga Mining) as sulphides. (The Kamoto open pit and KOV lie alongside each other, with the inevitability that Katanga Mining and Nikanor were always going to merge.)

In days gone by, the sulphides were roasted to sulphates and then leached together with the oxides. Sulphate was then mixed with water to form sulphuric acid; as such, the wonderful system under discussion had a net acid consumption of zero. Such a system would be no small advantage in the modern world, given shortages of sulphuric acid.

Now that Katanga Mining has merged with Nikanor, the combined entity possesses both the oxides from KOV and the sulphides from Kamoto, once again allowing processing to proceed with zero net acid consumption. This would have made it a lot easier to swallow the deal that Gécamines has struck with Chinese interests.