Congo expropriates Banro’s Sakima gold project

The government of the Democratic Republic of the Congo (DRC) has taken advantage of the armed conflict in the eastern regions of the country to expropriate Banro Resource’s (BNRS-C) Sakima gold project in the provinces of South Kivu and Maniema.

Rebel forces that once supported President Laurent Kabila have taken control of North Kivu, South Kivu and Maniema provinces, near the Rwandan border, and have launched an assault on the country’s Atlantic coast. The offensive is eerily reminiscent of Kabila’s own rise to power less than two years ago.

On the night of July 30, Banro was forced to pack up its most sensitive equipment and evacuate its Sakima concessions in the face of the latest rebel advances, says Vice-President Arnold Kondrat.

Banro learned of the expropriation the next day through Kinshasa radio. There was no warning or consultation with the government. According to a presidential decree, the government dissolved Banro’s 93%-owned Congolese subsidiary Societe Aurifere du Kivu et Maniema (Sakima) and terminated a 25-year mining convention signed in February 1997 by the government, Banro and Sominki (Sakima’s predecessor).

Since the early part of the century, Sakima and its predecessor have been the registered holder of 47 mining concessions totalling 10,271 sq. km in eastern Congo.

In its decree, the government cited “certain irregularities in the liquidation of Sominki and the creation of Sakima,” though the nature of those alleged irregularities have not been explained to the company.

“There’s a lot confusion in the country at the moment,” says Kondrat. “We’re in touch with Kabila’s office and we’re trying to find a solution to the situation, but we’re still waiting. They’re starting to realize the ramifications of what they’ve done, and it appears they’re trying to find a way to rectify it.

“It’s frustrating,” continues Kondrat. “We know we have the strongest title in the country, but someone has been terribly misinformed or ill-advised to take this action.” He points out that, unlike many mining projects in DRC, Banro does not have a joint-venture agreement with a state agency. “Terminating the convention doesn’t affect our property rights, because the property rights are held separately — which I think they realize now.”

Banro stresses that it has honored all of its commitments under the mining convention and has conformed to the legal provisions governing its operations. Furthermore, the company maintains that the Congolese government’s actions directly contravene the mining convention, as well as the country’s own laws.

According to the convention, the Congolese government must first notify Banro of any contravention and, if valid, allow the company six months to remedy the situation. If the dispute persists after six months, it is to be taken to arbitration at the International Center for the Settlement of Disputes in Washington, D.C.

While Banro’s counsel in Washington prepares for arbitration proceedings, Kondrat does not expect the conflict to advance to that stage. “We’re confident that a resolution satisfactory to the company will come our way,” he says.

Banro has spent roughly US$15 million on the Sakima project and was about to launch another major drilling campaign when the crisis erupted.

Three companies no doubt watching the Banro situation closely are Tenke Mining (TNK-T), with its Tenke-Fungurume copper-cobalt project in the southeastern Katanga province, as well as America Mineral Fields (AMZ-T) and partner Anglo-American. Those companies own the Kolwezi copper-cobalt tailings project, also in the southeastern Copper Belt.

Tenke has stated that its Congolese subsidiary has not been affected by the recent turmoil, though President Phil Wright says that the company is “obviously concerned at this development and trust that it will be resolved shortly. We are at an important stage in the finalization of our financing and it remains to be seen what impact this and other events have.”

Tenke says that its discussions regarding debt financing are at an advanced stage with strong indications of a full underwriting on normal terms.

Meanwhile, 360 km north of the Sakima project, in southwestern Uganda, guerrilla attacks have disrupted Banff Resources’ (BFF-V) construction of a cobalt-processing facility. Banff Vice-President David Constable says that during the first week of August, members of Uganda’s Allied Democratic Forces (ADF) attacked the nearby town of Kasese, fleeing after contact with Ugandan security forces. While the attack did not specifically target the project, work at the site was curtailed. One of those killed in Kasese was an employee of a Banff sub-contractor.

Constable describes the ADF as a semi-organized, anti-government group that lives in the mountains of southwestern Uganda. “They don’t have much of a political following — they actually have to kidnap most of their members. It’s pretty well recognized that Ugandan President Yoweri Museveni has emerged as a stable leader and it’s not viewed that he has significant opposition,” he said.

Museveni visited Kasese following the attack, meeting with the company, its contractors and local officials before developing a new security plan for the region. Banff’s project area has been secured, and construction has resumed.

“We’re sort of breathing a sigh of relief at this moment,” says Constable. “Still, we’re keeping an eye across the border in the DRC. From our selfish point of view, every time there’s a delay in the Congo on another cobalt project, it just opens our window a little wider for us to operate before we have a lot of competition. We all face some degree of political risk, but Uganda is fairly stable compared to its neighbors.”

Banff is active in Uganda through its 55%-owned subsidiary Kasese Cobalt. Banff, in turn, is 74%-owned by Paris-based LaSource, a partnership between Normandy Mining (ndy-t) and a French government agency. Kasese Cobalt expects to begin processing stockpiled concentrates using both bio-leach and solvent extraction-electrowinning methods in the first few months of 1999. Production of cathode cobalt is estimated at 2.2 million lbs. annually. Reserves total 922,000 tonnes grading 1.38% cobalt, enough for at least 10 years of production.