When it comes to
Drilling on the company’s majority-held concession in northeastern Democratic Republic of Congo (DRC) produced strong inferred results of 8 million oz. gold, and much of that is near surface.
But not everyone is convinced that the DRC is ready for business.
Some analysts still consider the nation to be one of the highest-risk places to do business in the world, and until elections are held in April and the new mining code is tested by companies moving into the production phase, their skepticism will be hard to shake.
“The appetite is improving,” one analyst says of the market’s willingness to invest in the DRC, “but people are waiting for the first real investments (to be tested).”
The Congo’s recent history holds the ghosts of 3.5 million bodies — the most killed in any war since the Second World War.
The armies of six different countries fought within its borders in the five years following the overthrow of dictator Mobutu Sese Seko in 1997, and they weren’t eager to leave the resources they plundered during their stay. When they finally left in 2002, the United Nations, the World Bank and the International Monetary Fund moved in. Along with Congolese President Joseph Kabila and a conglomeration of four disparate leaders acting as vice-presidents, they have been trying to achieve stability ever since.
Moto’s Chief Executive Klaus Eckhof is unfazed by the political turmoil that has caused other companies to turn away from the nation’s resource-rich soil.
“I took a longer-term view,” says Eckhof, who began to gather geological data on the Moto part of the Kilo-Moto gold concession in northeastern Congo as early as 1999. “The geological potential for a junior is the most important thing. The geological risk (at Moto) is virtually zero . . . the political risk is about eighty per cent.”
Eckhof says that if a political “hiccup” does occur, it would be manageable, and at worst cause operations to be temporarily put on hold.
Such “hiccups” proved too much for
The situation opened the door for Eckhof.
“I was in Tanzania watching the area,” Eckhof said. “I knew Ashanti was working in the Kilo area, and I knew that no one was in Moto.”
All that was left was to convince the state-run gold mining company and holder of the Kilo-Moto concession — the Offices des Mines d’Or de Kilo (OKIMO) — that Moto wasn’t too small to handle the deposits. Eckhof sold OKIMO on the speed and single-mindedness he would bring to Moto — qualities that Eckhof says the competitors for the concession,
“The big boys were trying to consolidate the area, but they weren’t keen to start working because of the political situation,” Eckhof says, “I said, ‘if you sign with me, we’ll be on the site in a day, and it will be our only project so we’ll be one-hundred-per-cent focused.'”
The agreement reached between Moto, Orgaman (a Belgium-based company that has had long-time business dealings in the Congo) and OKIMO, gives Moto a 68.5% stake in five of the eight concessions, with a 60% stake in the remaining three. OKIMO holds between 20-30% depending on the concession and Orgaman holds 10-11.5%.
As per the new mining code, there is a mining levy of 2.5% that is paid to the government, but it can be reduced if capital is spent on infrastructure and community development during operations.
The concessions are located in the Moto greenstone belt, which comprises Archean Kilalian volcano-sedimentary rocks and banded iron formation metamorphosed to greechist facies.
A significant part of the resource resides in the oxidized zone, and the relative proximity of the deposits makes one centrally located mill likely once production begins.
During a recent site visit by The Northern Miner, project manager Greg Smith admitted drilling thus far has only produced a “sniff of what’s there.” But added: “It’s a pretty good sniff.”
Moto has started serious exploration drilling at 12 different sites. It has over $20 million available — thanks to a recent private placement that raised $21.6 million — and a burn rate of roughly $1 million per month, although the company anticipates that number to be cut in half in the coming year.
Smith says a prefeasibility study will be completed by the first quarter of 2006, with a feasibility study ready by the end of 2006.
Of the 12 sites, only Pakaka is in the indicated category with 8.23 million tonnes at 2.6 grams gold per tonne for 700,000 oz. Pakaka has an additional 814,000 oz. inferred, bringing the total to 19.64 million tonnes at 2.4 grams per tonne for 1.5 million oz. gold.
‘The ugly sister’
Those numbers were strong enough to get the attention of analysts in Australia. In November of 2004, Alex Passmore, an analyst with Australia’s Patersons Securities, wrote: “Pakaka is presently the most valuable deposit within Moto.”
But intense drilling since then — at times, four diamond drilling rigs have operated around the clock — has uncovered inferred deposits that overshadow Pakaka’s once-glowing results.
“It used to be the pretty sister,” Smith says with a laugh. “Now it’s the ugly sister.”
One of the warts on Pakaka’s beauty is Mengu Hill. Smith explains that along with Pakaka, Mengu Hill could go quickly to the mill.
“You probably put Mengu Hill in production first,” Smith says. “You got a low strip ratio, decent gold grade and a lot of upside.”
Mengu Hill has inferred deposits of 6.1 million tonnes at 3.6 grams gold per tonne for 900,000 contained ounces.
Of the remaining 10 sites, Gorumbwa and Karagba are the most impressive, with 8.55 million tonnes at 6.4 grams gold per tonne for 1.75 million oz., and 9.29 million tonnes at 3.1 grams gold per tonne for 914,00 oz., respectively.
With such robust deposits, Smith and the rest of Moto management are being careful to cover all of their bases — which includes establishing good relations with the surrounding communities.
While Moto is broadly located in the much-maligned Congolese northeast, the specific area around the mine (about 200 km north of a large UN base at Bunia) is known more for its peaceful cohabitation of various agrarian tribes than for gunplay.
Moto and OKIMO have made an effort to hire as many Congolese workers as experience in the country permits; Moto currently employs roughly 150 people from the region.
Smith says the level of pride and ability that the workers have shown has been impressive.
“You have to develop the talent (in the region),” Smith says, “But there’s talent in any community.”
One analyst warned that community relations could be an issue in the Congo:
Eckhof says while that may be the case in the more developed southern Copperbelt region, it is a “completely different ball game” in the northeast Congo.
Moto will have to ensure the ball game is played well, as two villages will have to be moved for open-pit mines to be built in the future. Moto says it has a big advantage in dealing with communities due to its affiliation with OKIMO.
“If you have a problem, you speak to OKIMO and they have to sort it out,” says Eckhof.
Smith says many of the people in the villages are OKIMO employees, and he doesn’t anticipate having difficulties convincing them to move to newer, b
etter-equipped housing.
Any movement of communities is still a ways off and whether Moto is still around to oversee it, or whether a major mining company takes over operations, remains to be seen.
In the interim, Moto is doing all it can to ready itself for the transition from junior exploration company to producer.
The past year has seen Reg Gillard and Patrick Flint — who continues as Moto’s CFO — step aside to allow David Hodgson, Jeff O’Leary and Walter Kansteiner to join the board. The three veterans have extensive operational, financial and political experience, respectively.
“Everyone was aware that once we came to this stage that there would have to be a change,” Eckhof says. Eckhof himself isn’t immune to such changes. Moto is currently looking for a new president and chief executive with production experience.
“I’m an exploration geologist: I’m not good at production,” Eckhof says. “It’d be hard to sell myself as the guy who brings this to production.”
The other players
If the recent run-up of the market of fellow junior
Moto has yet to win the same market recognition as its shares have traded between $2.20 and $3.50 over the same period and currently stand at $3 per share.
Clearly, the success of the new mining code — which was implemented with the support of the World Bank — will play a large role in building investor confidence.
Tenke President Paul Conibear says copper production will begin in the first quarter of 2008. Conibear disputes the contention that the code has not been tested. He says in spite of the administrative inefficiencies associated with the relative newness of the code, it is being tested at the exploration level and is holding up.
In contrast to the war years of the late 1990s and early 2000s, the DRC is now attracting a strong international presence.
In a document entitled “Why the DRC matters,” the UN security council wrote: “A successful transition in the Democratic Republic of the Congo offers more to Africa as a whole, than success in any other African conflict zone.”
There are currently 16,700 UN troops in the Congo, operating under the United Nations Mission in Congo (MONUC) banner, making the Congo the largest single UN mission in the world. Still, reports of militia violence are surfacing. The most recent being the slaying of 15 civilians by the Hutu Interahamwe which has been operating near the Rwandan border — a distant 600 km south of Moto, given the poor condition of roads.
‘Peaceful and quiet’
Perched halfway up Mengu Hill, looking out over the vast green valley, Smith, who has now been at the Moto project for over a year, says there is a large difference between the average westerner’s perception of the Congo and the reality he sees day to day.
“It’s so peaceful and quiet now, who would spoil such a good thing?” Smith says. “I just want to hear the mill going around and the sound of trucks backing up and beeping.”
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