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.

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The Concessionaires
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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.

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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.

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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

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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.

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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.

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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

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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.

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Comment
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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