Ore and Peace

By ANN M. SIMMONS and MARY WILLIAMS WALSH

May 31, 1997 12 AM PT

TIMES STAFF WRITERS

KINSHASA, Congo — Dirk Vanhooymissen’s eyes sparkle as he describes the agreement that his company, Tenke Fungurume Mining, has signed with this nation’s new government. It covers a parcel--near the southeastern city of Lubumbashi, amid miles of temperate highland savannas--that contains some of the richest copper and cobalt deposits in the world.

Annual copper production at the site is expected to reach 400,000 tons; the company hopes to pull out close to 30,000 tons of cobalt. Drilling has already begun on the venture, for which the company outbid 30 other competitors and which could net it an estimated $1.5 billion.

“The project has enormous potential,” says Vanhooymissen, managing director of the Toronto-based firm. “We are holding 60% to 65% of the total cobalt reserves in the world, which are not yet exploited.”

Since Laurent Kabila, self-proclaimed president of the Democratic Republic of Congo (formerly Zaire), started to wave his country’s “open for business” signs, scores of interested foreign investors have flooded in. Among those bidding to make politically controversial and risky deals are Canadian mining executives, American manufacturers, South African steelmakers and Zimbabwean importers.

“A change of government is the first element for any kind of change to occur,” said Ken Macleod, president of the Canadian International Panorama Resource Corp., whose subsidiary PTM is exploring mineral production and treatment here. “The feeling . . . is that the Kabila regime will undoubtedly offer foreign investment and encourage it.”

Many companies began negotiating with the now-ousted regime of dictator Mobutu Sese Seko in the early 1990s after it declared that Gecamines, the ailing state-owned mining giant, would solicit bids for joint ventures. Decades of mismanagement had led the monopoly to the brink. But investors were held at bay by inefficiencies, bureaucracy and demands for bribes.

Copper and cobalt production at Gecamines plummeted between 1990 and 1995 after Mobutu siphoned off mining profits rather than reinvesting back into state-owned facilities for maintenance and salaries, mining experts say.

Before its mining facilities deteriorated, Congo was the world’s largest cobalt producer and its sixth-largest copper producer.

“In the beginning, we were naive by thinking we could work with the Mobutu government,” said Francois Colette, president of American Mineral Fields Inc. The Hope, Ark.-based venture capital company has signed a $1-billion deal to modernize a zinc mine in the southeast, near the border with Zambia. “They wanted us to pay bribes, but that is not our philosophy.”

As Kabila’s forces began to capture most of the country, AMF decided it needed to talk with his Alliance. That quick decision has given the 2-year-old company the inside track on copper, cobalt and diamonds across the country.

“Their timing was exquisite,” says one Western diplomat in Kinshasa. “They came up with a really good deal, and I think the Alliance took it mainly for political effect. Government officials here were really stunned.”

AMF has agreed to pay the new state more than $7 million after studies show that mineral deposits here are as rich as the government’s new mining officials claim. If the deal proceeds as planned, excavations will begin by the end of 1999.

But not all the foreign investors have had such friendly relations with the new regime. Sizarail--a consortium of South African, Belgian and Zairian interests--had been restoring the decrepit Lubumbashi train system and providing the main transport link between this country’s central and southern regions. Earlier this month, it had what it estimates to be $70 million in assets “nationalized,” and its managers were told to leave.

Critics of Kabila’s regime, who say businessmen should take the Sizarail case as a warning that dictatorial conduct has not ended here, have nothing but harsh words for investors who signed contracts with the then-rebel leader.

The investment deals were assumed to be a crucial source of financing for Kabila’s war effort, providing his thinly spread guerrilla movement with needed cash at a critical moment in its confrontation with the Mobutu government. And many worry that foreign investment will strengthen a leader whose democratic and economic credentials are far from well-established.

“In no country in the world does a serious businessman sign deals with guerrillas,” argued Luboya Diyoka, administrative director of this nation’s largest employer federation.

But few foreign businessmen are ready to discuss the implications of their deals. Investment brings cash, development and jobs, they say, and this will ultimately bring satisfaction.

“The whole process of privatization [in the mining sector] is going to be nothing but beneficial to Zaire,” said Sophia Shane, Tenke’s director of development. “We’ve already constructed 110 kilometers [72 miles] of access roads and built six bridges.”

If the project prospers, the company will pay the new government a total of $250 million over the next six years. Other companies plan to build new houses, refurbish schools and hire large numbers of local staff.

“Foreign investment is great,” says Emmanuel Gbaligaza, general director of Comcell, a cellular phone company. “It means [this country] will finally have a chance to become a serious participant in the global marketplace. This is what will help our country thrive.”

Times researcher Jennifer Oldham in Los Angeles contributed to this report.

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Mine Altering

Africa has witnessed a resurgence of mineral exploration, in part because of changes in the political climate in several sub-Saharan countries such as Congo (formerly Zaire), where mineral deposits have been under-exploited. Mining of copper and cobalt in Congo plummeted after former dictator Mobutu Sese Seko siphoned profits from the government’s mining operation. Mining of both industrial and gem diamonds, however, has been on the upswing in the country.

Copper production (In thousands of metric tons*)

1995: 28.8

Cobalt production (In thousands of metric tons*)

1995: 1.65

Diamond production (In millions of carats)

1995: 17.0

* A metric ton equals 2,204 pounds.

Sources: Mining Journal, U.S. Geological Survey

Researched by JENNIFER OLDHAM/Los Angeles Times