AMD Changes "Congo" In Response To Letter

The open letter I published here and on Daily Kos last week convinced computer chip giant AMD Corporation to change a product code name, according to an online report on technology site CNET News. I had complained about the company’s recent decision to name a new computer chip “Congo” because of the connection between conflict minerals used in electronic devices and the brutal war in the Democratic Republic of Congo.

In the letter, I pointed out that nearly six million people have died in the Democratic Republic of Congo since 1998 and the death toll continues to mount as fighting over the country's mineral resources continues. Currently, more than a million Congolese have been driven from their homes and farms by the fighting in the Eastern provinces. It is estimated that 250,000 women have been brutally raped and mutilated by armed groups seeking to control communities where mines are located.

While use of the term "Congo" was certainly inadvertent and many, especially in the tech world, felt I was making a mountain out of a mole hill, the company recognized that the code name was ill-chosen. Here's what they told CNET News reporter Elinor Mills:

Contacted for comment this week, AMD spokesman John Taylor said the company "truly regrets" causing any offense, even unintentionally. "It was an oversight not to see that (the code name) could be viewed in an entirely different context," he said.

AMD began using the name "2nd Generation Ultrathin Platform" instead of Congo as part of a natural pre-launch naming transition, Taylor said. "The Daily Kos blog helped finalize and expedite a process that was already in motion," he added. "We're striving for that codename to be retired."

I appreciate AMD’s response to the naming issue. What’s equally important is their statement that AMD adheres to the Electronics Industry Citizenship Coalition (EICC) Code of Conduct, which is researching extractive metals supply chains for tin, tantalum, and cobalt.

Thanks to all who joined in the complaint to AMD by communicating with the company in response to the original post.

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

China Gains, Congo Loses, In Mine Deal

The recently-announced copper/cobalt mining contract between the Democratic Republic of Congo and China--widely proclaimed as bringing $9 billion in development aid to the DRC--looks like another unfortunate deal for Congo. According to my back-of-the-envelope calculations, it is probably even more one-sided than American multinational Freeport McMoRan’s arrangement for Tenke Fugurume that I examined recently.

Last year, the Congolese Ministry of Mines announced that it had signed an agreement between China's Exim Bank, the Kinshasa government, Congolese state mining company Gecamines, China's Sinohydro Corp, and China Railway Engineering Corp forming a joint venture to develop the Mashamba West and Dikuluwe copper and cobalt deposits, concessions originally scheduled to be developed by Katanga Mining Ltd through a joint venture with Gecamines. The deposits are believed to hold ten million tons of copper and two million tons of cobalt.

While complete details of the contract are yet to be announced, what is known doesn’t look particularly profitable for the Congolese. On the surface, the deal sounds fine, with the Chinese agreeing to build $6 billion worth of roads and railroads and another $3 billion in mining infrastructure in return for rights to operate the mines. Gecamines is to own 32% of the venture, too, or nearly twice as large as the share it has in Tenke.

Using recent prices for copper ($4500/ton) and cobalt ($30,000/ton) and spreading production over the 25 year term of the deal, annual gross revenues of the mine will be $4.2 billion. Using the same operating cost assumptions as at Tenke, profits will be approximately $2.6 billion annually. Gecamines share could be $832 million.

The devil, though, is in the details. First, the $9 billion from the Chinese is not a gift—it’s a loan secured by the mines and to be repaid from the Congolese share of the operation’s profits. Generously assuming that the loan will be for the 25-year life of the project and carry an interest rate of only two percent (much less than I expect it will be), Gecamines will be on the hook for $540 million in annual debt service. That leaves only $292 million as the Congo’s share of the mine’s profits. By comparison, Gecamines’s deal with Freeport annually yields $100 million more.

Additionally, Gecamines has agreed to either give Katanga Mining deposits carrying nearly four million tons of copper and 200,000 tons of cobalt or pay the company $825 million as compensation for giving up the Mashamba West and Dikuluwe concessions. This additional cost, of course, further reduces the DRC’s take from the deal with China.

The IMF has objected to the deal on the basis that Congo is simply trading $11 billion in current debt (which the DRC hopes to have canceled) for $9 billion to the Chinese, and that the state guarantees of those loans are ill-advised at a time when the government can’t fund basic services, much less invest in the country’s growth. The IMF has said it might go along with the deal pending a study to make sure the mine’s reserves cover the cost of the infrastructure and if the terms are renegotiated.

The Chinese stand to gain in several ways from the deal as announced. In addition to their nearly $1.8 billion in annual profit from the mine, they’ll earn perhaps $4.5 billion in interest on the development loans—more if they carry an interest rate higher than two percent. There also looms the very large question of who will get the profits from the contracts to build the promised infrastructure. My assumption is that China's Sinohydro Corp and China Railway Engineering Corp will be awarded those contracts on a no-bid basis, which means they’ll take home another billion or so in profits on the project.

It would seem to me that a better deal for Congo would be a straight-forward mining concession with the Chinese along the lines of those typically negotiated by Zambia and South Africa, where the parastatal companies get 51% of the operation. The infrastructure could be financed from those revenues, open-bid contracts for the roads, railroads, and power facilities let to the lowest bidders (maybe even Congolese companies), and funds would still be left over for the state general revenue coffers.

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

Freeport Trucks Billions From Congo Mine

While the eyes of the world are drawn to the brutal war over an estimated $200 million in annual illegal mineral revenues in the eastern provinces of the Democratic Republic of Congo, negotiators for American and Chinese corporations are angling to control ten times that amount in mining contracts in Katanga Province.

Two multi-billion-dollar copper and cobalt contracts are currently being negotiated by the DRC Ministry of Mines. One is for Tenke Fungurume, which is managed by American mining goliath Freeport MacMorAn. It’s one of six existing contracts the DRC wants to renegotiate. The other is with two Chinese firms, Sinohydro Corp and China Railway Engineering Corp, and deals with two under-developed mines being transferred from Katanga Mining Corp. Neither one is finalized as of this writing, but both are problematic from the standpoint of what they actually mean for the economic health of the DRC. I’ll cover the Chinese deal in a subsequent post.

Freeport began shipping copper from Tenke Fungurume this year. The company expects the mine to produce 250 million lbs. of copper and 18 million lbs. of cobalt annually during the initial phase, with more than 400,000 tons of copper per year within five to seven years. At recently posted prices for copper ($4500 per ton) and cobalt ($30,000 per ton), this will generate some $2.7 billion in annual gross revenue at full production. When prices for the commodities rise—-as they surely will from today’s depressed levels—-this operation could easily gross $5 billion per year.

That’s not all profit, of course, but the margin is very high since production costs in the DRC are extremely low. Freeport projects that the net revenue generated by cobalt—-even at prices substantially below those achieved in the current market—-will more than cover the cost of recovering and shipping copper from Tenke. In fact, at $10 per pound (two-thirds the current price level) for cobalt, a 2007 feasibility study published in the African Review of Business and Technology says Tenke operating costs are actually negative $380 per ton for copper. At current price levels, in other words, Tenke can generate a minimum annual profit of $2.2 billion once the project reaches full production.

It should be noted that not all of that will flow to Freeport’s bottom line. The company owns a 57.75% stake in Tenke it acquired in 2008 when it bought Phelps Dodge. Another 24.75% of the project is owned by Lundin Mining, which had the original concession. The remaining 17.5% is owned by Gecamines, the DRC’s state-owned mining company. Freeport and Lundin are responsible for the total $1.75 billion cost of developing the mine. Subtracting Gecamine’s share of the profits (a not-inconsiderable $400 million), however, still gives Freeport and Lundin a nifty 100% annual return on that investment.

It’s no wonder that the DRC Ministry of Mines is asking for the contract to be renegotiated. The DRC wants to increase its share of the project to 45%, the level at which the deal was struck with Lundin in 1996. It also seeks to increase the signing bonus from $100 million to $250 million. The original agreement with the DRC was amended in 2005 to the current terms. The official line is that the new terms were necessary to provide the company a return commensurate with the risk it was assuming at the time, even though the agreement ending the Second Congo War had been signed in 2003 and the country’s first national elections were scheduled for 2006. The transitional period still saw substantial unrest, however, which supposedly justified the greater return.

The Carter Center says, though, that there were other factors at work:

“There are several reports that the political officer and temporary Chargé d’Affairs of the embassy was personally engaged in urging the President’s office to sign....The same official that is said to have actively lobbied for Phelps Dodge retired from the State Department in 2006. In September of that same year, she became Vice-President for Government Relations, Africa for Phelps Dodge, whose only major African interest is Tenke Fungurume. This official’s important role at the US embassy and the timing of the move have fueled suspicion on the part of DRC government officials and others regarding the interests of Western governments. At the very least it indicates obliviousness to the appearance of impropriety.”

As I mentioned earlier, Freeport acquired its stake in the project when it absorbed Phelps Dodge.

When the DRC requested a reversion to the old contract terms last year, Freeport responded with a simple “no.” In a 2008 SEC filing, it said

“The Restated Agreements were negotiated transparently and approved by the Government of the DRC following extended negotiations, and we believe they comply with Congolese law and are enforceable without modifications. We are currently working cooperatively with the Ministry of Mines to resolve these matters while continuing with our project development activities.”

The hypocrisy is glaringly obvious: a “contract is a contract” and can never be changed—-unless it is in the company’s interests to do so as it was in 2005. Subsequent statements have stuck to that position, although negotiations supposedly continue while Freeport ships copper and completes construction of the cobalt processing operation.

Also used to justify the one-sided contract are the expenditures made (mostly under terms of the 2002 Mining Code) for community support and infrastructure development in the region. There is no question that considerable economic benefit accrues to the DRC from Tenke, although nowhere near what the company claims. About 1,000 employees will be hired, with another 4,000 jobs indirectly created. Freeport is also spending on social programs for the local community as well as investing in the region's infrastructure by upgrading roads, railways and a hydropower facility—-all items needed to make the operation successful. The DRC collects royalties, taxes, and other fees, too. It should be kept in mind, though, that all these expenditures—as helpful as they may be—are required by law. They’re also considered part of the project expenses, so are already included in the calculations for net profit.

If past is prologue, the Tenke Fugurame contract will eventually be revised. The DRC will get a higher stake (although nowhere near the 45% it’s requesting, much less the 51% that is fairly standard for similar contracts in South Africa and Zambia) in the project. Don’t expect Freeport to give without receiving, however. Watch for the Ministry of Mines to grant rights to another deposit in the region, agree to reimburse the company for its capital investment, or make some other major concession to get the deal done.

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

Fighting Illicit Congo Mineral Industry

Journalist Rima Abdelkader wrote a well-informed piece about the role of illicit minerals in fueling the conflict in Congo. I added these comments to her article on the Huffington Post:

While demanding that electronics manufacturers take responsibility for their supply chain is a commendable approach, there are other culprits whose actions contribute more directly to the atrocities in eastern Congo. One is Rwanda, which exports coltan even though it has no known mines within its borders. Paul Kagame's government says it is working on source accreditation that will show where it gets the mineral and provide the type of supply chain audit demanded by the Enough Project and others (as is the DRC), but so far the promises are mere words.

Another pressure point are business interests within the DRC itself. Not every villain in this story is a western multinational conglomerate--much of the illicit revenue from cassiterite, gold, and coltan flows right to Congolese individuals who back the rogue militias (and even units of the FARDC) who control many of the mines.

Then there are the leaders of the FDLR, the remnants of the Hutu Interahamwe vilified for their role in ongoing conflict in the Kivus. Those criminals live a life of ease in Germany, France, and Belgium enjoying the profits from the mines their troops control in the Congo.

As attorney and activist Joseph Mbangu pointed out, the fight against violence in the DRC is one that must be fought on many fronts.

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

Chicago Reader Asks About Congo Rainforest

Recent correspondence with a reader in Chicago raises a delicate quandary:

"...from what I understand, the DRC has the most biodiverse ecosystem outside of the Amazon River Basin and if the DRC ever gets its act together and is able to extract and control those resources, that ecosystem would inevitably be threatened. Could it be that, environmentally, the DRC is better off now than it would be if the natural resources were exploited?"

Here was my response:

The DRC does indeed have the second-largest tropical rainforest in the world. It is a treasured resource for everyone on the planet. That doesn't mean, however, than it cannot be of great economic benefit to the country. In fact, if the timber resources were properly managed, the ecosystem's future could be enhanced.

I've written about this before in Congo Rainforest Irony, which talks about some of the pluses and minuses of timber development activities in the DRC. The full benefits of this renewable resource, though, won't be realized until there is stronger oversight of contracts and monitoring of logging activities, both of which are expensive undertakings when so many other needs are crying to be met.

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

Women Voices Raised Against Congo Rape

Yesterday's Break The Silence Forum provided an excellent overview of the rape epidemic that continues unabated in the Democratic Republic of Congo. The program at the New School in Manhattan featured a screening of "The Greatest Silence: Rape In The Congo" followed by an informative panel discussion. Many eyes were opened by the presentations.

Jennifer Thomas-Boateng, the Program Coordinator for the Women's International League for Peace and Freedom, NY Metro Chapter, began the program with a powerful discussion of how corporate interests around the world are fueling the war in Congo. She termed several firms "corporate rapists," including Cabot Corporation and OMG Group, who process minerals that are illegally mined in the DRC, as well as contractors Bechtel, Brown & Root, and MPRI, who are major suppliers to the armed forces of Uganda and Rwanda, nations that have played significant roles in the violence in the DRC.

Actor Vinie Burrows gave a brief history of Congo from King Leopold II to the present, highlighting the continuing theme of exploitation that has marked the nation's history.

Misengabo E. Kapuadi, a founding member of the Georges Malaika Foundation, spoke about the growing role of the Congolese diaspora in breaking the silence. She quite eloquently pointed out that we were gathered not just to celebrate International Women's Day, but to make sure women in the Congo are not forgotten.

"The stop the rape, we have to stop the conflict," she said. "To stop the conflict, we have to stop the economic exploitation of the Congo."

Nita Evele, representing the Friends of the Congo and Congo Global Action, gave an impassioned explanation of how terror rape has grown to epidemic proportions in the DRC. The Congolese army, she pointed out, is made up of former rebel groups--the same people who victimized the civilian population for years. Many of the soldiers were children when the fighting started in 1996, and were themselves traumatized.

The rebel forces use terror rape to control villages near the mineral deposits and rich farmlands they covet. The idea, as Nita put it, is to "kill the soul and spirit of the people by inflicting harm that hurts forever." Raping and killing children in front of their mothers, forcing children to rape their own mothers, humiliating men and boys by raping them, and using guns, sticks, knives, and other foreign objects to destroy a woman's ability to reproduce are some of the abominable tactics these criminals use.

The event was sponsored by Women's International League for Peace and Freedom and Friends of the Congo, as well as Project Africa at the New School, Black Radical Congress, Granny Peace Brigade, Barnard Center for Research on Women, and Medgar Evers College.

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

NY Times Explains Congo Perfectly

For an excellent explanation of the cause behind the unending war in the Democratic Republic of Congo, see the New York Times article that ran Sunday, November 17, 2008.

Reporter Lydia Polgreen tells how Colonel Samy Matumo and his renegade brigade collects an outlandish $80,000,000 annually from the mining region he controls in North Kivu. She also describes the living and working conditions faced by the people of the region, which could have been lifted unchanged from accounts of King Leopold's reign over the Congo.

Polgreen's explanation of how a private army can operate unfettered in today's Congo is spot-on, too. She explores the quandaries faced by the UN, the Congolese government to whom Colonel Matumo technically reports, and the South African mining company that has the legal right to mine the area.

The situation described in this article is emblematic of the struggle to control the Congo's riches, a struggle that has cost nearly six million lives in the last ten years.

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