AMF reworks Kolwezi deal

American Mineral Fields (AMZ-T) has agreed to relinquish a tax holiday for the Kolwezi cobalt-copper tailings project in the Democratic Republic of Congo in return for a larger equity stake.

Under the new deal, AMF stands to earn an 87.5% interest, with state-owned Gecamines (Generale des Carrieres et des Mines) retaining the balance.

In addition, AMF would pay Gecamines US$5 million once titles were transferred to the pair’s joint-venture company, Kingamyambo Musonoi Tailings; another US$10 million is due once project financing has been finalized.

The new deal replaces a previously re-negotiated deal that called for AMF to own 60% of the project, with the remainder held by Gecamines. AMF was also obliged to pay Gecamines US$25 million before building a mine, followed by another US$10 million on project commissioning. An even older deal required a payment of US$130 million before commercial production.

The new plan is subject to approval by the both company’s boards and the DRC government.

The revised deal coincides with a freshly minted peace plan in the Congo that calls for a unified army, part of a larger plan involving the installation of a transitional government that aims to reunite the country. A bitter civil war in the DRC has killed some 3.5 million people since 1998.

Says Tim Read, AMZ’s president and chief executive: "With a secure title and a stabilizing political environment in the DRC, we can get on with the task of bringing this world-class asset to value.”

Earlier this year, AMF struck agreements allowing the World Bank Group’s International Finance Corp. (IFC) and South Africa’s Industrial Development Corp. (IDC) to acquire up to 10% of the project on a farm-in basis. The price tag would be based on AMF’s accumulated costs at Kolwezi at the time of the option’s exercise.

Also under the deal, the IFC and IDC have each been granted warrants to purchase up to 2.5% of AMF’s common shares at 75 apiece. The 5-year warrants are exercisable after one year.

AMF plans to raise the balance of financing for Kolwezi once it has completed its ongoing bankable feasibility study.

The company still requires a presidential decree allowing production at Kolwezi.

Reserves at Kolwezi are pegged at 112.8 million tonnes of oxide tailings grading 0.32% cobalt and 1.49% copper (T.N.M., Feb. 10-16/03). Some 42.3 million tonnes are found in a 1.5-km-wide tailings dam containing; the balance comprises an 11-km-long body of tailings discharged carelessly into the Musonoi River Valley.

The project has the potential to be one of the world’s largest and lowest-cost cobalt producers, with annual output projected at 7,000 tonnes cobalt and 42,000 tonnes copper over 38 years.

AMF shares were trading 22, or about 24%, higher at $1.14 in afternoon trade in Toronto following the news on July 3.