Mutanda Mining’s Missing Millions

This is a guest blog written by a diplomat based in the Congo.

The Bloomberg News story published here last week could be Congo’s treasury scandal of the year. The article is about Gecamines, the once prosperous but now moribund state company, selling off assets worth over $800 million. No one wants to tell how much they’ve been sold for or what happened to the revenues. One allocation could be the state treasury – with a 7.2 billion budget, half of which is donor money, extra revenues wouldn’t be a luxury. But given the secrecy surrounding the case, there is little reason to expect much public benefit from the transactions. Half a year before elections are scheduled, there may be a need for cash flows that escape the governance rules the country has endorsed.

Assets worth over 800 million

A few months ago, Gécamines sold 20% in Mutanda Mining (MUMI) and 25% in Kansuki Mining. Both mining projects had been off the news radar so far, even though MUMI in particular is a very promising project. It’s only when Glencore, the world’s biggest commodity trader, got listed on the London Stock Exchange that one could read about the Gécamines sales, somewhere on page 830 of a 1600+p document describing Glencore’s assets and activities. In that document, an independent expert valued MUMI alone at over 3 billion USD. This means that Gécamines’ share was worth over 600 million.
This doesn’t even include the royalties Gécamines was entitled to. Royalties are typically a compensation mining companies pay to the state for depleting the deposit – in other words, for making Congo’s soil a little poorer as minerals get out. The MUMI Joint Venture was to pay such a 2.5% royalty on gross copper sales to Gécamines, in addition to the 2% legal royalties it owes directly to the treasury.

Over the life time of the open pit project, Gécamines royalties would run up to more than 200 million USD. Now, that money will no longer go to the State, not even to Gécamines: it will go the private entity that bought the Gécamines stake.

Sold to Gertler

Logically, Glencore could have bought Gécamines’ stakes, especially if it was being sold for cheap. As a shareholder in MUMI and Kansuki, it could block an purchase offer from a third party by buying the stake instead. But Glencore didn’t buy, even though it had the cash to do so. Instead, Gécamines sold its stake to “Rowny Assets, an entity associated with Dan Gertler”. As a reminder, Gertler is the businessman who got First Quantum’s cancelled Kolwezi Tailings license before including it in a package of assets it sold to ENRC for $175 million.

Gertler has great connections with the country’s highest authorities. After having been invited to Kabila’s exclusive wedding, he was more recently spotted on the VIP tribune during the last June 30th celebrations in Lubumbashi. Knowing that someone close to the Presidency bought assets worth over 800 million, two key questions remain. How much did Gécamines sell the assets for? And what happened to the revenues?

For how much?

Bloomberg News says it tried to reach Gécamines for over a month, only to get ‘no comment’ as an answer. Same silence from Glencore and Gertler. In theory, the sale price should feature in the Ministry of Finance’s revenues bulletin to be published every trimester, but there has been no report to date of any revenues for the state companies, whether from selling stakes, getting royalties or other cash benefits.

The sales agreement should be published on the Ministry of Mines’ website within 60 days of its signature. The deadline has past but the agreement is not up. There are two options. Either Gécamines sold the assets far under the market price (rumors say it went for much less than its market value). In this case we have a classic example of Congo losing hundreds of millions. If Gertler indeed paid a lesser price and he later sells it at market value, he takes the profit Congo as a state could have made. If he happens to sell to Glencore, then the latter confirms its shady reputation. It will have allowed someone close to the presidency to make a profit by not using its preemption right when it could.

If on the contrary Gécamines got something close to the assets’ real value, there is all the more reason to worry about the second question: where did the cash go?

Benefiting whom?

That’s the other secret. “They must (…) justify what the Congolese state has gained from the sale of all these concessions”, Honorable Bahati said in his Bloomberg interview, but it’s actually not clear whether the Congolese state got a single dime out of this. Hardly anything is known about the money flowing to Congo’s state companies: there is no well-defined system, let alone a transparent one. It could be transferred to the central government, or stay with the state company, or flow to selected individuals. It could be used for the organization of free and fair elections –buying, dispatching and collecting sealed ballot boxes and the like. But it could just as well be used for financing a presidential campaign – not the ballot boxes but the t-shirts, posters and other promotion that makes a single candidate popular.