GOLD SECTOR UPDATE - FOCUS ON ANGLOGOLD

C O N F I D E N T I A L SECTION 01 OF 03 KINSHASA 001234 SIPDIS SIPDIS DEPT. OF INTERIOR FOR USGS E.O. 12958: DECL: 07/27/2016 TAGS: EMIN ETRD ECON PGOV CG SUBJECT: GOLD SECTOR UPDATE - FOCUS ON ANGLOGOLD REF: A. KINSHASA 1082 ¶B. 05 KINSHASA 731 Classified By: EconOff W. Brafman for reasons 1.4 b/d. ¶1. (C) Summary. Industrial gold mining plans are advancing in Ituri district, particularly on the concession of AngloGold Ashanti. Artisanal miners continue to operate illegally on Anglo's concession; the DRC's gold-mining parastatal profits from this mining and thus takes no action to remove the miners. Anglo supports the concept of a certificate of origin system, but has no plans to develop or implement such an approach. End summary. ¶2. (SBU) July 13 EconOff met with a corporate affairs officer and the social development manager of AngloGold Ashanti (Anglo),a South African-based, publicly-held gold mining company; PACT, an NGO partially USAID-supported; plus MONUC and USAID staff. PACT staff said that Victor Kasongo, the CEO of OKIMO (the DRC's gold-mining parastatal declined to attend. -------------- The Concessionaires -------------- ¶3. (SBU) OKIMO has three main concession blocks in Ituri. On one concession, OKIMO holds a 13 percent interest in a joint-venture with Anglo. Of the 6200 square mile concession, Anglo has an exploration license for 1200 square miles, and it is developing about 20 square miles around the town of Mongbwalu. Regarding Australian company Moto's concession, OKIMO has a confusing patchwork of agreements covering the property; according to OKIMO officials, Moto has a roughly 85 percent interest in some portions of the concession, and OKIMO is trying to renegotiate these agreements. (Note: Kasongo told EconOff that OKIMO wants to obtain a 30 percent interest in its joint venture with Moto. End note.) ¶4. (C) Mwana Africa, a publicly-held South African-based company, owns an 80 percent interest in a third concession. According to OKIMO officials, only very tentative exploration has occurred there. (Note: Mwana Africa also holds exploration rights to a southern Katanga concession and in May purchased the shares of Sibeka, the Belgian company that held a 20 percent interest in MIBA, the DRC's diamond mining parastatal. End note.) According to various sources, Mwana's shareholders may include South Africans, Zimbabweans and even former Angolan generals. -------------- The Miners -------------- ¶5. (C) Currently all gold in the DRC is mined artisanally. Thousands of artisanal gold miners ("orpailleurs") illegally occupy the three Ituri gold concessions. PACT staff recently toured the Anglo and Moto mining concessions and estimate that at least 35,000 artisanal miners work there. Anglo estimates that as many as 200,000 mine the Ituri concessions. The DRC's mining law prohibits artisanal miners from digging on concessions that the GDRC has granted to mining companies, but neither OKIMO nor other GDRC officials attempt to enforce the law by removing the diggers. ¶6. (C) Nearly all the gold mined is illegally exported from the DRC. The Central Bank last reported gold export revenue in 2002, although gold mining has continued since then. The CEEC, the GDRC agency which evaluates and certifies the export of diamonds and precious metals, rarely publishes any gold export statistics. In May, it reported that three trading houses exported a total of about 30 kilos (66 pounds),valued at USD 535,000. The majority of this gold came from a comptoir in Bunia, Ituri district that a Ministry of Mines counselor said is Indian-owned. -------------- The Rewards -------------- ¶7. (C) According to a USAID officer and PACT representatives who visited the Ashanti and Moto concessions in May, persons claiming to be OKIMO and Ministry of Mines agents impose and KINSHASA 00001234 002 OF 003 collect a variety of arbitrary taxes. The "taxes" include a USD 100 "license fee" and an estimated 30 percent, by weight, of the gold the artisanals mine. ¶8. (C) Despite this heavy taxation, a handful of artisanal miners can earn a relatively good living. PACT estimates that a few miners' incomes can reach USD 600 per month during the dry season, although thousands of others earn less than one dollar per day. Those who can afford water pumps can also mine during the rainy season. PACT estimates that several million dollars flows through the local economy as a result of this gold mining activity, although much of this money eventually ends up in Uganda (reftel A). ¶9. (SBU) Anglo also stands to earn substantial profits, since world gold prices have more than doubled, from less than USD 300 per ounce to about USD 620 per ounce, since January 2002. Anglo hopes to begin mining operations in 2009 or 2010, with a total extraction target of 3.5 million ounces from above-ground mining, at a concentration of as much as 30 grams (a little over an ounce) of gold per ton of soil moved. Its corporate affairs officer said that Anglo is now doing baseline surveys on environmental, health and safety conditions. -------------- The Risks -------------- ¶10. (C) Both the artisanal miners and the mining companies, including Anglo, confront multiple problems. The presence of mine police, national police, FARDC (4th brigade at Mongbwalu),plus the "Industrial Guard" and "Disciplinary Brigade", many of them trying to exact payments from the diggers, creates insecurity. EconOff was not told of any militia on the concessions (reftel A). ¶11. (SBU) Physical security is the foremost concern for the artisanal miners. The media and NGOs regularly report mine cave-ins that cause death and serious injury. Further, the mercury (quicksilver) that the miners use to extract the gold pollutes the air and water, even in residential areas, and thus creates health risks for diggers and others. Prostitution and substance abuse are reportedly rampant. The GDRC agency ostensibly created to protect artisanal miners, SAESCAM, has no agents on these concessions. According to Steve Lenehan, the Anglo corporate affairs officer with whom EconOff spoke, a digger can expect to work 12-20 years with no pension in the end. ¶12. (C) According to Anglo representatives, the artisanal miners' presence poses Anglo's greatest challenge. Anglo estimates that it will only need to hire a small percentage of the artisanal miners (2,000 - 3,000 for an open pit operation),leaving thousands of diggers that Anglo must remove from its concession, and thereby posing logistical, financial and public relations quandaries. Anglo already has a tarnished image from the 2005 Human Rights Watch report referenced above, which asserted that Anglo gave support to local militia in exchange for access to the mining concession. ¶13. (C) According to Lenehan, government and OKIMO officials create some of Anglo's problems. Lenahan told EconOff that OKIMO has re-sold Anglo's concession to other persons or entities, pocketed the fees and left Anglo to resolve the matter with the other parties. Lenehan, like others in the extractive industries sector, stated that the DRC's mining code is satisfactory, even progressive, but not enforced, as evidenced by the presence of the illegal miners. -------------- The Solutions? -------------- ¶14. (C) The humanitarian community and mining companies, including Anglo, state that providing artisanal miners with alternative livelihoods and social infrastructure is a precondition for economic and physical security on these concessions and others throughout the DRC. Anglo recognizes that socioeconomic development programs would create positive community relations and good publicity; Lenehan touted Anglo's current USD 75,000 social investment at Mongbwalu, which he said would soon double. Anglo and PACT KINSHASA 00001234 003 OF 003 seem to agree that social investment must occur in tandem with gradual attempts to remove the miners. (Note: A MONUC source told EconOff that around Mongbwalu Anglo's "social investment" includes paying DRC military and other security forces, as well as OKIMO employees, all of whom receive their salaries irregularly. End note.) Numerous other Econ contacts agree that hasty evictions of artisanal miners would cause civil unrest, since such actions would immediately deny thousands their only means to earn a living. (Note: Lenehan claims that Anglo will abide the artisanal miners' presence outside of Anglo's active mining areas and that Anglo is even willing to give up rights to mine certain parts of its concession in order to let artisanals control them. End note.) ¶15. (SBU) Securing the mines from both internal and external hazards, including attempted smuggling and militia, is also important. The GDRC, however, does not have the capacity to provide security, and Anglo does not appear to have developed a complete security plan. Kasongo, OKIMO's CEO, told EconOff that he proposes that MONUC help to secure the gold concessions. (Comment: Such a role is not within MONUC's mandate. End comment.) ¶16. (SBU) Lenehan said that Anglo supports the idea of a certificate of origin scheme to prevent gold smuggling, but that Anglo does not foresee participating in discussions on how to implement this. He was not sure whether it would be economically feasible to include existing tracing technology within such an approach. -------------- Comment -------------- ¶17. (C) If carefully handled, the formalization of the gold sector in Ituri district may yield economic benefits to the region, primarily by stemming some of the gold smuggling to Uganda and elsewhere. In addition, gold sector industrialization would bring revenue to the GDRC through official, legal channels, rather than losing it to the largely undocumented, illegal avenues through which gold passes now. It does not seem advisable for the USG to engage with Anglo directly at this point, because of its controversial conduct thus far in the DRC. However, the company now has the opportunity to demonstrate that it can play an ethical, responsible role in the stabilization and development of eastern Congo. In addition, Anglo and OKIMO should be encouraged to join international efforts to stem the gold smuggling. End comment. MEECE