US embassy cable - 04KINSHASA1866

C O N F I D E N T I A L KINSHASA 001866 
 
SIPDIS 
 
E.O. 12958: DECL: 10/06/2014 
TAGS: EMIN, ETRD, ECON, CG 
SUBJECT: MINISTER OF PLAN AND PHELPS-DODGE MINING PROJECT 
 
 
Classified By: Econoff Peter Newman for reasons 1.4 b/d 
 
1.  (C) Ambassador and econoff met with Minister of Plan 
Alexis Thambwe on September 27 for an introductory meeting 
and to discuss Phelps-Dodge's mining project at Tenke 
Fungurume.  Thambwe told the Ambassador that he was committed 
to getting the project off the ground and was asking the 
government to impose an agreement on Gecamines, the 
copper/cobalt mining parastatal. The Ambassador thanked 
Thambwe for his interest in the case and emphasized the 
importance of closing this deal that has been in the works 
for several years. As a major US company and a leader in the 
field of copper mining, Phelps-Dodge is well positioned to 
relaunch mining activity in Katanga and act as a success 
story that will encourage other companies to consider 
investing in this mineral rich country. 
 
2. (C) Thambwe gave the Ambassador a copy of a Sept 24 letter 
which he submitted to Vice President Bemba, head of the 
Economic and Financial Commission. The key points of the 
letter were that Gecamines' share of the joint venture would 
be reduced from 45 percent to 15 percent in exchange for the 
venture being subject to the tax code.  The 15 percent would 
be the 10 percent that PD was offering plus the 5 percent 
that the mining code reserves to the government ceded to 
Gecamines.  He also included an up-front total payment of USD 
100 million (Note. This does take into account USD 50 million 
already paid by Lundin in 1996/97. Phelps-Dodge would only be 
responsible for the remaining USD 50 million. End Note.) with 
a negotiable payment schedule. He is clearly frustrated with 
Gecamines' stalling, and Thambwe accuses them of changing 
position without good reason. He asks that the Vice President 
recommend to the President that Gecamines be forced to agree 
as it is 100 percent owned by the Congolese state. 
 
3. (C) Thambwe's language regarding Gecamines was very blunt 
and made clear that neither he nor others in the government 
approved of Gecamines' position or recent threats. These 
threats included requesting the reduction of the Tenke 
Fungurume concession, launch a new open tender for the 
project, and to go to international arbitration to resolve 
the payment of the original fees - which reach a total of USD 
250 million - in the original mining convention. Thambwe 
wrote: 
 
Begin Translation: 
 
The leaders of Gecamines, politically supported and 
manipulated, multiply the hindrances as you can note in 
reading their notes in the annex. 
 
My point of view, expressed in a clear manner, is that the 
Government can settle this dossier in little time if the 
political will to push this project to completion is real. 
The current procrastination around this dossier does not 
profit either our country or Katanga. 
 
In my opinion, it is indispensible to bring this project to 
completion by imposing a point of view on Gecamines, which in 
the present context, is perfectly incapable of re-launching 
this project. 
 
End Translation. 
 
4. (C) Phelps-Dodge previously agreed to a maximum lump-sum 
payment of USD 100 million over a duration reaching the first 
production of copper from the project, but not earlier as it 
would distort project financing and the internal rate of 
return. Phelps-Dodge asked to retain a tax exemption (on a 
tax of 15 percent over dividends) present in the initial 
Lundin-Gecamines Mining Convention of 1996 to compensate for 
lost profit due to the USD 100 million lump-sum payment. 
 
5. (C)  Comment. Thambwe's willingness to push this project 
forward is a good thing for both the American firm and the 
economy of Katanga. It is not certain that both sides will 
reach an quick agreement on the lump-sum payment due to 
Phelps-Dodge's previous request for tax relief in 
compensation. Gecamines is the largest employer in Katanga 
and was at one time an important foreign currency earner. As 
the GDRC pushes Gecamines to compromise, they must be careful 
not to appear to disregard the rights of the company or they 
may face popular opposition to the project when it finally 
gets started. End comment. 
MEECE