Ivanhoe pleads for calm on Congo tax hike

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Canadian mining billionaire Robert Friedland has pleaded with investors not to "freak out" over a Congolese plan to hike mining taxes, despite the heavy damage that the plan has already inflicted on the stock prices of miners in the country.

Mr. Friedland, founder and executive chairman of Ivanhoe Mines, says the international miners have been "gored" but they are like "a herd of antelopes with our horns pointing out" as they co-operate on a united campaign against the sharp tax increases in the Democratic Republic of the Congo.

Ivanhoe's stock price has fallen by 24 per cent since the new mining code was enacted last week. Ivanhoe is developing the huge Kamoa-Kakula copper project in Congo, which Mr. Friedland predicts could eventually become the biggest producing copper mine in the world.

The revised mining law would increase copper royalties from 2 per cent to 3.5 per cent, and would create a 50-per-cent "super-profits" tax if commodity prices rise much faster than expected. It also eliminates a clause that would have protected existing miners from tax increases for 10 years.

Congo's parliament approved the new tax code last week, but the law has not yet been signed by President Joseph Kabila.

Congo's Minister of Mines, Martin Kabwelulu, is at the Africa Mining Indaba conference this week in Cape Town, where he met Mr. Friedland and other investors at a breakfast on Wednesday morning, but the minister declined to say whether Mr. Kabila has signed the new code into law. "The code is with the President," he told journalists and investors.

Mr. Friedland said the minister's comments to him were "very positive." In a speech to the Indaba conference on Wednesday morning, he added: "I am highly confident there will be a dialogue, and I'm highly confident we will reach a sustainable, mutually beneficial long-term solution."

He said he would be happy to pay higher royalties if there is stability in Congo's rules. "I'm not concerned about the level of taxation. That's not the fundamental issue. The issue is that the mining industry absolutely requires stability. We just can't get there from here without stability."

He also demanded "transparency" in the accounting of the Congolese royalties, so that miners can be assured that their taxes are helping ordinary people, rather than officials. "It has to absolutely help the people around the mines. If it doesn't, then of course we don't want to pay it."

Ivanhoe's copper project in Congo will be the fourth-biggest copper mine in the world within nine years of starting production, and in the longer term it could become "the greatest on the surface of the Earth," Mr. Friedland said.

The company is also developing the Kipushi zinc project in Congo's Katanga province.

Mr. Friedland said he has had telephone discussions with the heads of major international miners Glencore and Randgold Resources, as well as Chinese mining investors, and they have agreed to be "absolutely united" on the tax issue.

He recalled a similar dispute in Mongolia, where Ivanhoe discovered and developed the Oyu Tolgoi copper-gold project. "The Mongolian parliament, under the influence of vodka apparently, and a full moon, suddenly passed a windfall profits tax of 50 per cent and demanded a 34-per-cent participation. The World Bank came to them, they came to their senses, and a more realistic long-term arrangement was reached."

Mark Bristow, chief executive of Randgold Resources, which gets 45 per cent of its gold production from Congo, was even more scathing in his comments on the Congo tax increases. "It seems to be based on the entirely irrational premise that the state is somehow entitled to the entire cash flow from the mines," Mr. Bristow told the Indaba conference on Tuesday. "In other words, investors have to take all the risk, but will receive no return."

This was an "extreme" example of a broader trend of tax increases across Africa, he said. "Unfortunately, all that we and other mining companies have built here has been put at risk by recent developments that amount to no less than an abuse of the partnership concept by one side," he told investors at the conference.