From: Issue 16 Categories: business

Canadian Companies in the Congo and the OECD Guidelines

The OECD Guidelines for Multinational Enterprises are a widely recognized corporate responsibility yardstick meant to apply to multinational companies operating around the world.

Written by Toby A.A. Heaps, President

Image via Flckr user Brooks Elliot

Over the course of February and March 2006, Corporate Knights examined six Toronto Stock Exchange-listed mining companies with substantial interests in the Democratic Republic of the Congo to determine how closely their operations suggested adherence to the OECD Guidelines.

Anvil Mining Limited
Banro Corporation (content not available)
First Quantum Minerals Limited
Katanga Mining Limited
Moto Goldmines Ltd.
Tenke Mining Corp.

The investigation took Corporate Knights’ Toby Heaps to all corners of the country, involving 11 planes, 5 helicopters, and many jeeps. Heaps interviewed over 130 people ranging from the President of the country and presidents of the mining operations, to children working as informal miners on company property and local chiefs living in huts near mining operations. Local and international NGOs, media, professors, members of the clergy, lawyers, economists, union leaders, diplomats, UN, IMF, IFC and World Bank officials also provided invaluable insight for this article.

In the course of this investigation, Corporate Knights compiled a report evaluating the operations of these six companies in respect to the General Policies of the OECD Guidelines for Multinational Enterprises, assessing each company with a green/yellow/red score in nine different areas on the basis of their conformance with OECD guidelines.

OECD Guidelines for Multinational Enterprises
II. General Policies
1. Contribute to economic, social and environmental progress with a view to achieving sustainable development.
2. Respect the human rights of those affected by their activities consistent with the host government’s international obligations and commitments.
3. Encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the enterprise’s activities in domestic and foreign markets, consistent with the need for sound commercial practice.
4. Encourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.
5. Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labour, taxation, financial incentives, or other issues.
6. Support and uphold, develop and apply good corporate governance principles.
7. Develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in which they operate.
8. Promote employee awareness of, and compliance with, company policies through appropriate dissemination of these policies, including through training programs.
9. Refrain from discriminatory or disciplinary action against employees who make bona fide reports to management or, as appropriate, to the competent public authorities, on practices that contravene the law, the Guidelines or the enterprise’s policies.
10. Encourage, where practicable, business partners, including suppliers and subcontractors, to apply principles of corporate conduct compatible with the Guidelines.
11. Abstain from any improper involvement in local political activities.

*Of the eleven General Policies, 8,9,and 10 were not included in this assessment, as only limited relevant information was gathered on these topics.

Company Profiles

Anvil Mining Limited

Minerals: Copper, Silver
Market Cap: $367 million (March, 2006)
Ticker: TSX-AVM
Location(s) in DRC: Katanga Province: Dikulushi, Kulu, Kinsevere
Production: 19,177 tonnes of copper and 1.7 million ounces of silver at Dikulushi & Kulu Mine in 2005
Stake: 90 per cent Dikulushi mine, 70 per cent of Kulu and Kensevere mines
Projected Production : 100,000 tonnes of copper/annum by 2010
Mining Code: Exempt for Dikulushi because of previous mining convention with the DRC. Other mining sites are ruled by the Mining Code.

Sustainable Development
Created value where potential was not known. The company took a real risk and made a productive mine out of a relatively unexplored area, but has a five-year tax holiday, so not much of that value accrues to the Congo treasury. The company’s 90 per cent stake in the Dikulushi mine is high by local joint venture standards, which usually have a 70-30 split, with the international investor taking 70. Ten per cent of the company’s shares are set aside in an informal trust structure, which is meant to be directed toward social development, though it is still being fleshed out and is not yet transparent. The company has improved roads, built a 12-room school, and improved local access to water.

Human Rights
When a band of 10 rag-tag insurrectionists took over the company’s Kilwa mine in mid-October 2004, the company admitted to providing air and ground transport to the Congolese army (FARDC) 62nd brigade led by Colonel Ilunga Ademars, for an operation that resulted in a massacre of 100 people, including up to 28 summary executions according to the conclusions of a October 2005 UN Special Investigation. In October 2004, the commander of the 6th military region in Lubumbashi informed the UN that the military's intervention, which was conducted to re-establish safety in Kilwa, had been made possible thanks to the logistical efforts provided by Anvil Mining. The company claims it had no choice.

On Monday April 24, 2006, Anvil’s security company, Securicor and the Congolese police chased away some of the 2000 informal miners at Anvil’s Kilu mine. During the chase, an informal miner fell into the river and drowned. The informal miners then organized a demonstration and set fire to one of Anvil’s houses, prompting a police intervention, which resulted in one of the demonstrators being shot and killed. Two Anvil employees who had taken refuge in the attic were burnt alive.

Local Capacity Building
Most of the minerals from Dikulushi processing is done in Zambia, limiting local value-add, and creating inconsistency with the historical situation in this Congo area (Katanga) in which all minerals had been processed locally. The Dikulushi site is a remote area where Anvil pioneered operations, but the new sites are located in the Kolwezi area where Gécamines, the state mining company, operates giant metal refineries.

Human Capital Formation
The company has 1000 employees, but 95 per cent of management positions are held by foreigners.

Tax and Other Regulatory Exemptions
The company has a 5-year tax holiday and is outside the new Mining Code developed with assistance from the World Bank.

Corporate Governance
Katumba Mwanke, a close assistant of President Joseph Kabila, who was disgraced in the Third UN Expert Panel Report, served on the company’s board until the Kilwa incident. He is still involved with the company; however, through his own assistants, such as Mr. Charles Kyona (Anvil’s administration manager). Anvil Mining has not signed or implemented the Extractive Industries Transparency Initiative (EITI) to provide clear accounting of its in-country expenditures.

Self Regulation and Trust in Community
The company’s policies have improved substantially since the Kilwa massacre, though its installations in Kilu were recently shut down because of rioting by local informal miners. After the Kilwa incident, Anvil committed itself to stricter transparency procedures when these types of incidents arise. The Kilu mine incident was quickly notified by the UN mission in the Congo--MONUC--as well as the Congo government and the International Press.

The issue of illegal miners is growing because of the high unemployment rate in the region. All mining operators are threatened with massive and repetitive invasions.

Political Involvement
Not assessed. But there may be some through Mr. Katumba Mwanke and Mr. Charles Kyona. Mr. Mwanke is running for the next elected Congolese Parliament under the banner of President Kabila’s Party, the PPRD.

First Quantum Minerals Limited

Minerals: Copper and Cobalt
Market Cap: $2.3 billion (March, 2006)
Ticker: TSX-FM
Location(s) in DRC: Katanga Province: Kipushi, Kolwezi, Lufua, Bwana Mkubwa, Lonshi
Production: 49,000 tonnes of Copper out of Lonshi in 2005.
Stake: 100 per cent of Lonshi and Frontier
Projected Production : Lonshi flattening out at 45,000 tonnes in 2006; Frontier hitting 70,000 tonnes in 2007 and then 90,000 tonnes after that.
Mining Code: Yes.

Sustainable Development
The company is considered a “doer” for the extensive operations it has already launched in the Congo. However, most of the processing is done in Zambia, leaving little value-add in the country. The Lonshi deposit was transferred by State authorities on Feb. 25, 2000 to the company without any compensation, according to the Lutundula Report. The company recently raised a hostile bid for ADASTRA, which also seems to have acquired most of its lucrative mineral assets for free—at least on official books. The company has developed a 45-km long road (Lonshi-Ndola), has built a health centre, and 80 houses. The company claimed a global taxation expense of $45,612,000 in 2005, reporting that over 40 per cent of its 119 million tonnes of copper production came from the Lonshi deposit in the Congo. In recent years, international mining companies have paid a combined income tax of less than $1 million to the Congo State. There has been recent violent strike by Congolese workers who complained about their social situation and employment standards, which they said are not in compliance with Congolese standards. The Canadian representative, Mr. Jean Luc Roy, who was the company head in the Congo, recently resigned.

Human Rights
Not assessed.

Local Capacity Building
The company directs most of its value-add to Zambia, although it has plans to increase processing capacity in the Congo.

Human Capital Formation
The company has 475 employees in total, including 15 expatriates. The company also employs 100 day labourers.

Tax and Other Regulatory Exemptions
The company is subject to the new Mining Code, although it has not yet handed over its five per cent of the company to the Congo State (in conformity with Article 71 of the Mining Code), claiming that it obtained the deposit under the common law regime, before the Mining Code was enforced.

Corporate Governance
The company has not signed or implemented the Extractive Industries Transparency Initiative (EITI) to provide clear accounting of its in-country expenditures. Anglo American Corporation of South Africa, which had been a partner with Adastra’s predecessor, American Mineral Fields, since 1998, exited the partnership in 2002. In 2004, the Company entered into a $30 million credit facility with Banque Belgolaise and Export Development Bank of Canada.

Self Regulation and Trust in Community
Because the Congo State does not have customs or sampling capacity, the company runs a customs point with Zambia and also samples minerals to assess copper concentrations on which taxes are based.

Political Involvement
At the First Quantum Minerals (FQM) branch, Bwana Mkubwa received mining authorizations from Laurent Kabila at a time when he was seeking funding for the Congo civil war. The company’s pending acquisition target, Adastra (then named American Mineral Fields), acquired the Kolwezi copper-cobalt tailings deposit (valued at $16 billion) by financing and making a deal with Laurent Kabila before he seized power in 1997.

Katanga Mining Limited

Minerals: Copper and cobalt
Market Cap: $75 million (March, 2006)
Ticker: TSX-KAT
Location(s) in DRC: Kamoto
Production: None
Stake: 23.3% of 75% of outstanding shares of Kinross Forrest Limited (KFL), with an option to purchase the outstanding shares of KFL in the Kamoto Joint Venture. The other 25% is owned by the Congolese State company GECAMINES.

A feasibility study conducted by HATCH demonstrates that the project achieves positive cash flow after year 3 and is capable of returning all development capital after year 7.

Sustainable Development
In an analysis of the company’s contract, Fasken Martineau found it reasonable to assume that the benefit to the State entity in the Joint Venture will “will be minimal, if any.” The company will pay a two per cent royalty on net sales for the first three years and then 1.5 per cent on net sales thereafter. Generally, royalties based on net sales in the region are between 10 and 15 per cent.

Human Rights
Not assessed.

Local Capacity Building
The company is planning to refurbish existing processing assets to allow for in-country processing.

Human Capital Formation
Not assessed.

Tax and Other Regulatory Exemptions
The Joint Venture agreement allows a tax regime that appears to offer little benefit to the Congolese State.

Corporate Governance
George Forrest International—which the Third UN Expert Panel recommended be strapped with financial restrictions in 2002—is the largest shareholder in the project, controlling over 30 per cent of Katanga Mining. According to the Report, Kinross Gold Corporation had initially sought to invest up to $1 billion in copper and cobalt mining operations in the Congo, but was thwarted by interventions from Mr. Forrest and senior government officials. The company returned to the Congo late in 2001 as part of Kinross-Forrest Ltd., a company registered in the British Virgin Islands that has since been restructured to become Katanga Mining Ltd. The company has not signed or implemented the Extractive Industries Transparency Initiative (EITI) to provide clear accounting of its in-country expenditures.

Self Regulation and Trust in Community
Because royalties are calculated on the basis of net sales, and operations are controlled by the company, there is a risk that accounting strategies could substantially minimize payments to the State entity in the Joint Venture.

Political Involvement
Although Katanga Mining principal George Forrest is the leader of KFL project, he claims to not be politically involved. A letter from the president of Kabila’s local PPRD party identified Mr. Forrest as an important supporter of the party, which Mr. Forrest later acknowledged, but added that he is also funding other political groups.

Moto Goldmines Ltd.

Minerals: Gold
Market Cap: $375 million (March, 2006)
Ticker: TSX-MGL
Location(s) in DRC: Haut-Congo Province: Durba Moto Goldbelt
Production: None
Stake: Border Energy is fully owned subsidiary of Moto-Goldmines which owns 60-68.5 per cent of the gold assets. Orgaman owns 10 per cent. State Gold company, Okimo, owns 21.5-30 per cent.
Projected Production: Could be 240,000 ounces per year
Mining Code: Exempt.

Sustainable Development
This project could be a stabilizing influence on one of Congo's most unstable regions. The only royalty payable in respect of the Moto Gold Project is a 2.5 per cent royalty based on gold sales imposed by the Congo government under the provisions of the Congo Mining Code. Because of an outstanding debt to an import trader that is a partner in the project, State entity OKIMO will have to forgo its first $29 million in revenue, which will substantially reduce its overall benefits.

Human Rights
The Company entered into an agreement to acquire its interests in the Moto Gold Project in April 2003. Prior to that period, the area was under the control of rebel groups, including Jérôme Kakwavu Bukande (“Commader Jerome”), who is accused of committing war crimes in his capacity as head of the People’s Armed Forces of Congo (FAPC).

Local Capacity Building
Not assessed.

Human Capital Formation
The company employs 150 Congolese staff at its Doko site.

Tax and Other Regulatory Exemptions
Not subject to new mining code.

Corporate Governance
The company has not signed or implemented the Extractive Industries Transparency Initiative (EITI) to provide clear accounting of its in-country expenditures. Barrick Gold Corporation had acquired exploration rights over most of the Kilo-Moto belts in 1996 and drilled a number of targets. In 1998, Barrick entered into a joint venture with Anglo American Corporation (AAC), and AAC became the operator of the project. In late 1998, both withdrew from the project due to local unrest and civil war. Rebels with ties to Uganda smuggled gold to Uganda, which, despite the fact it has almost no gold production, reported $46 million of exports in 2004



while producing less than one per cent of that.

Self Regulation and Trust in Community
Not assessed.

Political Involvement
The company’s board includes Wally Kansteiner (former representative of the US President to the G-8 Africa Process and Director of African Affairs on the National Security Council).

Tenke Mining Corp.

Minerals: Copper and Cobalt.
Market Cap: $652 million (March, 2006)
Ticker: TSX-TNK
Location(s) in DRC: Katanga Province: Tenke Fugurame
Production: None.
Stake: 24.75 per cent of Tenke Fugurame asset through its 30 per cent stake in Lundin Holdings, which owns 82.5 per cent of the main asset. Gecamines owns 17.5 per cent of the main asset. Phelps Dodge owns 70 per cent of Lundin Holdings.
Projected Production: Starting at 50,000 tonnes of copper per year and flattening out at 400,000 tonnes in year 11
Mining Code: Yes.

Sustainable Development
The company’s registration in Bermuda has raised the concern of Congo State politicians because of the possibility of tax avoidance.
For just $15 million dollars, the company acquired the Tenke Fungurume, which, valued at $60-billion, is the largest and highest grade undeveloped copper cobalt mine in the world today. The State entity’s share in the project has been scaled back from 45 per cent to 17.5 per cent.
The company declared a force majeure in 1999 because of the civil war. But all around, other mining companies were operating. The company claims to have kept on paying salaries throughout the duration, has upgraded the area’s agricultural capacity, provided fresh water supply assistance, and constructed two schools accommodating 600 children.

Because of such slow progress on the project, the company has been accused by many Congolese of reserve management, a practice wherein a company acquires mineral rights for the main purpose of boosting its reserves (a key component of stock valuation), but has little intention of developing the resource.

Human Rights
The company has 1000 guards to keep informal miners (les Creuseurs) away.

Local Capacity Building
The company plans to truck out minerals during the initial phases of the project, prior to a rail option being made available.

Human Capital Formation
The company has 150 direct employees and provides employment with 500 additional indirect jobs.

Tax and Other Regulatory Exemptions
Not assessed.

Corporate Governance
The company has signed the Extractive Industries Transparency Initiative (EITI) to provide clear accounting of its in-country expenditures, but has not yet implemented it.

Self Regulation and Trust in Community
Not assessed.

Political Involvement
At the project’s opening, popping champagne with Katumba Mwanke, the US Ambassador made a speech saying, “If I did anything in the Congo, I did this.”


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