Democratic Republic of Congo
Growth with Governance in the Mining Sector
(a World Bank document)

My reading notes on the document

My first attention is to the price outlook and the risk of price decreases compared to 2005-2005. This graph found in the WB data, shows the outlook that they envisage. The future price is about 2500$/mt ie circa 1.1$/lb. This is in constant 1990 $ values deflated by the Manufactures Unit Value Index (MUV). In 2007, this index (for all products) is 111.24, which give a price outlook of 1.26$/lb Cu in 2007 $. The figures of this graph are not contradictory with my own calculations based on historical values, deflated and averaged; mine is a simple approach, very far from economists of the WB (with all respect); but I'm not sufficiently mathematician anymore to understand them. See the first links above.

Now if you look at the MUV index on raw materials, you will see that copper price is not decreasing as forecast in the Copper Review, but still increasing; and that the MUV index in 2007 compared to 1990 is 247.9 in November 2007. So with this index copper price outlook of 1.1$/lb is 2.72$/lb.

See this excel sheet on commodity prices.

So the prices considered by me of 1.1, 1.25, 1.52$/lb Cu are not inconsistent with WB data. With the 1.25$, I am in full agreement with the WB outlook. Is the 1.52$/lb unrealistic. I do not think so. In this crystal ball exercise, nobody can be sure. Increased demand calls for increased production to balance supply/demand, but this requires tapping resources with lower grades of Cu and higher costs. The DRC resources are higher grade than average and therefore their costs of production will be more favorable. So a combination of prices/costs can only be favorable to DRC.

Second, I am all impressed with what is said about the situation of DRC, the necessity of good governance etc. as given in pages .. This I will use in my other work in Uganda. This para page 10-11 is particularly noteworthy. "Private sector companies are very active in exploration and exploitation operations, with or without partnership agreements with state-owned companies. It is estimated that private companies and partnerships are spending a total of US$60 million per year on exploration, which is essential to discover new ore reserves. Many of the partnership contracts, however, were entered into when the state-owned company was under financial distress, and agreed to terms that may not have reflected the fair market value of the mineral assets. In addition, some of the contracting procedures may not have been proper under Congolese law. Finally, some of the contracts provide for transfer of the mineral right which puts into question the state enterprise’s ability to recover the right in the event of default by joint venture."

Gécamines has transferred to KML a reserve base which is so good in terms of degree of certainty, that KML increased their outlook for their prospective investors. The degree of certainty of reserves in an underground mines is the result of a very costly process. It requires a lot of close drilling and the exploration process is in fact a significant part of the exploitation. Reserves are classified according to their degree of certainty. All mining companies adopt the same procedure which is best explained in the SAMREC Code of reserves of South Africa.

The next para of page 11 is also applicable to KML.

The rest of the document is a source of extremely valuable information for all those who are involved in mineral development. It will serve me particularly for Uganda. It is not specific to KML/Gécamines.


Mis en ligne le 12/11/2007 par Pierre Ratcliffe. Contact: (pratclif@free.fr) sites web http://paysdefayence.blogspot.com et http://pierreratcliffe.blogspot.com