America Mineral Fields still keen on Kolwezi cobalt

Although hopes for better days are routinely crushed in the Democratic Republic of Congo, London-based America Mineral Fields (AMZ-T) is optimistic recent peace negotiations will finally allow its Kolwezi cobalt-copper project to be developed.

The reserve estimate explains why AMF has been so patient: 112.8 million tonnes grading 0.32% cobalt and 1.49% copper, equivalent to 361,000 tonnes contained cobalt and 1.7 million tonnes contained copper. About 97% of the reserve is in the proven category, and the mineralized material has a recoverable value more often seen in precious metal deposits — about US$70 per tonne.

Kolwezi is the world’s third-largest cobalt resource, after the Groupe Ouest assets and the Tenke Fungurume deposit, also in the DRC. However, the Kolwezi reserves are in the form of oxide tailings (from the Kov and other nearby mines, exploited from 1952 onwards), which means a commercial operation would be less a mine than a reprocessing facility, making use of high-powered hoses and slurry-moving equipment.

The reserves are divided into two parts: Kingamyambo, a genuine, 1.5-km-wide tailings dam containing 42.3 million tonnes; and Musonoi, an 11-km-long body of tailings discharged carelessly into the Musonoi River Valley, containing 70.5 million tonnes.

Situated 300 km northwest of Lubumbashi in Katanga province, Kolwezi is AMF’s keystone project, says President Tim Read. “It has the potential to be the world’s largest and lowest-cost producer of cobalt, as well as a superlative producer of copper.”

AMF envisages an operation that would ramp up within a few years to treat 3 million tonnes of ore annually, producing some 7,000 tonnes cobalt and 42,000 tonnes copper per year.

The total operating cost would be about US$24 per tonne, or US$69.6 million per year, with cash costs pegged at US$2.60 per lb. cobalt and US32.7 per lb. copper.

Mining would begin with a few high-grade pockets, which would hasten payback. Kingamyambo would be mined year-round whereas Musonoi would be mined only in the dry season. (A side benefit to processing the Musonoi tailings and building modern tailings dams would be improved environmental conditions.)

Conventional solvent extraction-electrowinning process would be employed to produce high-quality cobalt and copper cathode for export.

Recovery rates to cathode are estimated at 76% for cobalt and 93% for copper, based on a year’s worth of pilot-plant work in South Africa that tested 100 tonnes of Kolwezi material.

A study by consulting firm Hatch in August 2002 estimated the total capital cost of the project at US$335 million, consisting of: US$2.1 million for reclamation of tailings (in effect, the mining component); US$87.4 million for the copper plant; US$40.6 million for the cobalt plant; US$91.5 million for infrastructure and services; US$35.5 million for engineering, procurement and contracting; US$33.7 million for indirect costs; US$2.9 million for owners’ costs; and US$41.1 million for contingency.

The net present value, using a 10% discount rate, is US$366 million, assuming prices of US$7.50 per lb. cobalt and US85 per lb. copper.

Almost all technical work has been completed, and a final feasibility study and environmental impact study are expected by June.

“Essentially, there’s negligible geological and mining risk,” says Read. “The issue for us is that we have world-class assets in a distressed area, and the challenge for management has been to bring these assets to value. Thankfully, we are seeing significantly reduced political and economic risk levels.”

He points out that most hostilities in the DRC ended when warring parties signed a peace accord in December 2002 and that the nation is again being engaged by international agencies such as the World Bank. As well, the country adopted a new mining code in June, which Reid describes as “well-composed and generous in its fiscal terms — all of which makes the DRC a more attractive setting for foreign investment.”

Nonetheless, the ownership issue at Kolwezi is still not settled — despite six years of effort by AMF that initially entailed negotiating mineral deals in Zaire with rebel leader Laurent Kabila (later president, only to be assassinated in 2001 and succeeded by his son, Joseph, the DRC’s current leader). AMF holds a 100% interest in Congo Mineral Developments (CMD), which ostensibly holds a right to buy a 60% stake in Kolwezi, with the remaining 40% held by state-owned Gecamines (Gnrale des carrires et des mines). However, AMF has yet to obtain a key presidential decree granting the company full rights to enter production in partnership with Gecamines.

(A few years ago, Anglo American (AAUK-Q) acquired a 30% stake in CMD, though this was sold back to AMF last year for US$3.5 million.)

In 2001, CMD re-negotiated an agreement to develop Kolwezi, whereby CMD would pay Gecamines US$25 million before building a mine, followed by another US$10 million once the project is commissioned. (Under the previous deal, a payment of US$130 million was required before commercial production.)

AMF is now trying to enter a new round of negotiations with the DRC government, and has offered to relinquish a previously negotiated tax holiday in return for an increased stake in Kolwezi.

Under a new ownership structure proposed by AMF, CMD would be partially owned by a new industry partner, and the Kolwezi project would be 20% held by international financial institutions.

In the meantime, ownership of AMF remains consistent, its two largest shareholders being Belgian financier Jean-Raymond Boulle, with 29%, and Belgian company Umicore, with 11%. The latter, formerly known as Union Minire, took down a $22-million private placement in AMF in 1999.

Elsewhere in Katanga province, AMF has its Kipushi zinc project, which consists of the mothballed Kipushi mine. Reserves stand at 26 million tonnes grading 19% zinc and 2.18% copper, or 5.8 million tonnes of contained zinc-equivalent. Zincor, a major refiner in South Africa, can acquire a half-interest by matching the US$3.5 million that AMF has spent on the project to date.

AMF intends spend this year raising capital for the Kolwezi project and, to that end, may seek an additional listing in London, possibly by the end of 2003.

At last count, AMF had no debt, US$3.5 million in cash and 34.4 million shares fully diluted. AMF shares are trading at about 50.

Says Reid: “The big disparity between the value of Kolwezi and our market capitalization of about US$10.5 million is due to the confidence people have in the Congo and Angola, and the ability to change the political dimensions there.”

He adds that in his experience politically unstable countries almost always improve over the long term, and that in order to be successful in such areas a junior mining company requires vision and a willingness to take risks.

Angolan assets

Meanwhile, in Angola, the long civil war appears to have ended following the February 2002 killing of Jonas Savimbi and the subsequent collapse of the fighting force he led, the National Union for the Total Independence of Angola (UNITA).

The decrease in tensions could see AMF resume diamond exploration at its 3,000 sq. km of licences along the Cuango River in the northeast. The properties are held in a joint venture with government-controlled Endiama and privately held Twins, and though reserves have yet to be outlined, the area has historically yielded high-quality stones at high grades. AMF plans to focus on the northern portion of the licences, which has not been explored by local garimpeiros.