DISPUTE EMERGING OVER GOLD MINING DEAL

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 001737

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/13/2016
TAGS: EMIN ECON KCOR PGOV CG
SUBJECT: DISPUTE EMERGING OVER GOLD MINING DEAL

REF: KINSHASA 1234

Classified By: ECONOFF W.BRAFMAN FOR REASONS 1.4 B/D.


1. (C) Summary. The CEO of OKIMO, the DRC's gold-mining
parastatal, is publicly disputing the validity of a
concession contract with the Australian-based company Moto
Goldmines Limited (Moto) and a Congolese company, Orgaman,
claiming that members of OKIMO's management illegally signed
it. If the agreement is approved, OKIMO's CEO says the
parastatal will no longer have sole control over any known
gold reserves in OKIMO's concessions. Its CEO's goals include
not only nullifying this new agreement and retaining sole
rights to some gold mining areas, but also modernizing the
company through staff reduction and a public tender of
shares. End summary.


2. (U) October 17, Australian-based Moto Goldmines Limited
(Moto) and Congolese company Orgaman entered into a joint
venture agreement with OKIMO for the Moto Gold Project
concession in Haut-Uele District, Orientale province,
following months of negotiations (reftel). The accord would
replace seven different lease agreements between OKIMO and
Orgaman. OKIMO's CEO, Victor Kasongo, told EconOff that the
parties made the first agreement when Orgaman loaned OKIMO
USD 1.5 million at a 10 percent annual interest rate. The
subsequent contracts resulted from OKIMO's debt rescheduling
and partial repayments; some of the agreements granted
Orgaman concession rights. (Note: Moto acquired an interest
in the project in April 2003. End note.)


3. (U) According to the consolidating agreement, OKIMO will
have a 30 percent interest in the joint venture, Moto will
have 60 percent, and Orgaman will hold 10 percent. The terms
also include Moto's purchasing OKIMO's debt to Orgaman and
Moto's paying to OKIMO USD 5 million plus monthly rent of USD
350,000. The geographic size of the concession is unclear.


4. (C) OKIMO's CEO says the agreement is illegal, and its
employees' union issued a statement objecting to it. OKIMO's
CEO, Kasongo, told EconOff he did not sign the contract (the
Board Chairman signed it while Kasongo was out of the
country) and that OKIMO's contracts are not legal without his
signature. His primary substantive objection to the
agreement is that it grants Moto and Orgaman rights to the
entire Moto concession area, instead of reserving certain
portions solely for OKIMO. Kasongo says that the portions
over which he believes OKIMO should retain control have
confirmed reserves valued at over USD 1 billion. Kasongo and
a Bunia-based OKIMO project director told EconOff that if the
agreement with Moto and Orgaman is approved, OKIMO will no
longer maintain sole control over any of the known gold
reserves in its concession area. The Bunia project director
also said that employees fear that OKIMO would then become an
empty shell.


5. (C) Kasongo said although the new Ministers of Mines and
Portfolio (who are from different transitional government
factions than President Kabila's) have signed the agreement,
President Kabila will not do so. Kasongo claims that Kabila
does not think such a deal should be considered until after
the installation of the new government.

OTHER PLANS
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6. (C) Kasongo's other plans for OKIMO include reducing staff
size, launching a public share offering, and in general
making OKIMO a more valuable asset for the GDRC. He says
that OKIMO has an aging, ineffective workforce, many of whom
would retire if OKIMO could pay their severance packages. He
said that about 100 persons could easily do the work of the
current staff of nearly 2,000. He acknowledged that many
OKIMO employees likely take bribes and engage in other
corruption to supplement their small salaries.


7. (C) Publicly offering twenty percent of OKIMO's shares is
another of Kasongo's goals, and he told EconOff he estimates
OKIMO could now be worth as much as USD 300 million. While
he did not articulate his vision of OKIMO's specific future
role, he says it is an important part of the DRC's patrimony
and should remain alive as a "mining company." He also
complained (perhaps disingenuously) that OKIMO is not
currently very important to the GDRC because it generates
little official income, as opposed to other natural resource
sub-sectors such as diamonds and petroleum, which are
responsible for over half of the GDRC's export revenue.

COMMENT

KINSHASA 00001737 002 OF 002


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8. (C) The OKIMO dispute demonstrates both the lack of
transparency in the DRC's extractive industries'
transactions, and the extent to which various factions in the
transitional goernment often work against each other.
Industrialization and the installation of a more coherent and
accountable government will probably slow the illegal export
of natural resources and increase GDRC revenues, but the
international community should be careful not to embrace
sizable deals before raising questions about key players,
especially given the large revenues at stake. Gold mining
will remain a sub-sector that merits particularly close
monitoring because of its pivotal role in cross-border
economic and political stability. End comment.
MEECE