Banro Teams With Kinshasa To Rob Congo

They won't begin opening the presents until Christmas 2011, but the shareholders of Canadian mining concern Banro received a whopping gift from the government of the Democratic Republic of Congo this year. It was final agreement allowing the company to develop gold mines worth some $13 billion in return for a token royalty of one percent of revenues. The agreement has to go down as one of the worst ever for the DRC, where the bankrupt government of a nation the size of Western Europe can't provide even basic services to its 65 million citizens.

Banro has been granted a 25 year license (with rights to renew for another 25 years) to develop four gold mining concessions on 2600 square kilometers of land along the Twangiza-Namoya gold belt in the South Kivu and Maniema provinces of the DRC. They also have the right to explore on another 3,100 sq km. The company crows that the four properties hold over 11 million ounces of gold, worth over $13 billion at current prices.

The most advanced of the four is Twangiza, a 1,164 sq km concession which Banro has owned under one agreement or another since 1996. The company expects to begin shipping gold from there in the fourth quarter of 2011. The other three concessions, Kanituga, Lagushwa,and Namoya, have been essentially inactive for over a decade.

The agreement with Joseph Kabila's government would be laughable if it weren't such a crime. The company is to pay a one percent royalty on revenues, which, if amortized over the 25 year term at current spot gold prices, will amount to a much-less-than-whopping $5 million per year. That's also assuming the company reports all revenue--a big assumption given the recent estimate by the DRC Senate that 80% of mineral exports from the eastern provinces of the country are never reported.

An additional four percent of net profits (after the company recoups its total investment) are to be funneled through Kinshasa for local development projects. The key term in the latter clause, of course, is "net profits" which will probably amount to zero if the company's accountants are even minimally competent.

What about taxes? Banro will pay none for a good long time. The agreement gives the company a ten-year tax holiday.

The final kicker is that the parastatal mining company Gecamines has no stake in the operation. Banro owns 100% of the equity in the concessions, so if the company decides to flip the deal to another operator, the DRC gets nothing.

So what does the DRC get in return? The company estimates that it has created approximately 1,300 jobs in the DRC in the last three years. It has also funded several schools, hospitals, water projects, and other humanitarian efforts. It is unclear how much of that is funded by royalties or other payments that are required under previous agreements.

I find it astounding that Kinshasa essentially gave away this lucrative mining concession. Many of the other deals I've examined have not been good ones--Freeport's Tenke project and the recent China copper-for-infrastructure deal come to mind--but the Banro concession is far beyond the pale. The company made a great deal for its shareholders at the expense of the people of the Congo. There are two parties to the contract, however, and the other one is the government of the DRC that agreed to it.

Dave Donelson, author of Heart of Diamonds a romantic thriller about blood diamonds in the Congo.