Identifier
Created
Classification
Origin
07KINSHASA641
2007-06-11 15:35:00
CONFIDENTIAL//NOFORN
Embassy Kinshasa
Cable title:  

PHELPS DODGE DIGS IN

Tags:  EMIN EINV ECON CG 
pdf how-to read a cable
VZCZCXRO1679
RR RUEHMR RUEHRN
DE RUEHKI #0641/01 1621535
ZNY CCCCC ZZH
R 111535Z JUN 07
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 6279
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY
RUEAIIA/CIA WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 000641 

SIPDIS

SENSITIVE
SIPDIS

DEPT PASS TO OPIC (TWEBB)

E.O. 12958: DECL: 06/05/2017
TAGS: EMIN EINV ECON CG
SUBJECT: PHELPS DODGE DIGS IN

REF: A. KINSHASA 533

B. KINSHASA 403

Classified By: EconOff W. Brafman for reasons 1.4 b/d.

C O N F I D E N T I A L SECTION 01 OF 02 KINSHASA 000641

SIPDIS

SENSITIVE
SIPDIS

DEPT PASS TO OPIC (TWEBB)

E.O. 12958: DECL: 06/05/2017
TAGS: EMIN EINV ECON CG
SUBJECT: PHELPS DODGE DIGS IN

REF: A. KINSHASA 533

B. KINSHASA 403

Classified By: EconOff W. Brafman for reasons 1.4 b/d.


1. (SBU) Summary. American company Phelps Dodge is making
steady progress on its Tenke Fungurume copper/cobalt mine
development, despite a wide range of obstacles. Phelps Dodge
has twice increased its first-year copper production estimate
since it entered into the joint venture and plans to begin
mining operations in October 2008. Mining company officials
say they are keen to be innovators in the technological,
infrastructural and social development of the project. End
summary.


2. (SBU) Ambassador and EconOff toured the Tenke Fungurume
Mining (TFM) concession on May 24, during a May 23-26 visit
to Katanga province. U.S. company Phelps Dodge (PD),
acquired in April by New Orleans-based Freeport McMoran, is
the majority shareholder in the TFM joint venture, approved
by the GDRC in July 2005. PD officials said that because
their current name is already well-known in the DRC and they
will not likely change it for the purposes of the TFM
project.

PROJECT DEVELOPMENT - OVERCOMING OBSTACLES
--------------


3. (C) TFM is developing its copper/cobalt joint-venture
mining project as quickly as conditions allow, and is
expanding production estimates as the work advances. EconOff
observed steady progress in construction projects and
staffing levels since a February 2007 visit. TFM announced in
May an increase in its first-year production target from
100,000 Metric Tons (MT) of copper to 115,000 tons of copper.
It aims to begin mining in October 2008, although during the
concession tour PD officials said the operations could
perhaps start even sooner. Once constructed, the processing
plant should produce 7,000 to 8,000 MT of 99.99 percent
copper metal daily. With current technology, its above-ground
minerals will last an estimated 19 years, and there are
additional 22 years of known reserves.


4. (SBU) TFM is pouring hundreds of millions of dollars into
project development, including in infrastructure, equipment
and social investments. Company officials say they want to be

the innovator in the DRC mining sector on all these fronts.
For example, TFM has imported some high-tech mining equipment
that is the first of its kind to be used in the DRC,
according to one PD official. TFM is also pursuing some
innovative environmental initiatives, such as the development
of a small botanical garden to preserve several rare plants
identified on the property.


5. (SBU) Like other mining companies in Katanga, TFM must
build roads and find additional power and water sources, as
the DRC's current infrastructure is inadequate. The company
is also seeking ways by which the surrounding communities can
benefit from this work. TFM plans to work with SNEL, DRC's
electricity parastatal, to rehabilitate three 65 MW
hydroelectric plants. TFM must also build a 14 KM power
line. The company anticipates a 100 MW electricity
requirement for the first four to five years after the new
electrical source comes on-line, with the balance of the
power produced made available to the public. TFM is
determining what export and import paths it will regularly
use. Currently it expects to work with six different ports
in Southern and Eastern Africa, depending upon the content
and source or destination of the goods and materials. One of
the ports TFM plans to use is in Namibia, because a
customs-free border crossing between Namibia and Zambia
facilitates relatively rapid transport. (Katanga province
borders Zambia.)


6. (C) TFM officials also outlined several factors that
hamper more rapid project development. One impediment is the
endemic culture of corruption and the resulting difficult
business conditions. The company reports it has made progress
in disseminating the message it will not engage in corrupt
activity to accomplish its goals, but some resistance
remains.


7. (SBU) The importation of goods and equipment continues to
drag, caused in part by the GDRC's delay in approving the
list of equipment entitled to duty-free import. Further, the
quantity of goods awaiting import often exceeds the capacity

KINSHASA 00000641 002 OF 002


of the staff of BIVAC, GDRC's customs inspection and clearing
agent, according to a TFM official. TFM cannot import
directly into Fungurume because the immigration (DGM) and
customs service (OFIDA) have no presence there, and goods
must first clear customs in other towns before transport to
TFM's site. To resolve this issue, the GDRC has agreed to
open offices at the Fungurume airstrip once TFM constructs
buildings to house the operations. A commercial bank intends
to open an office near TFM's airstrip to facilitate the
import transactions, and also to reduce TFM's need to bring
in large sums of cash to pay employees' salaries.

SOCIAL DEVELOPMENT ON TRACK
--------------


8. (U) TFM continues to work with surrounding communities and
NGO partners to develop sustainable projects that give the
company its "social license" to operate. (Note: Reftels A and
B provide a more detailed accounting of TFM's social sector
activities, which include the development of health
facilities and micro-enterprises. End note.) The Ambassador
toured two of TFM's social projects - a school and the site
of independently-owned and operated brick-making businesses
with about 370 workers. The micro-enterprises are designed
directly or indirectly to support and benefit from TFM's
operations. For example, TFM is purchasing the bricks to
build homes for villagers who must move from their current
locations on the concession. TFM's managers view the income
generating activities as particularly important, because they
create livelihoods for at least some of the thousands of
job-seekers the company is unable to hire. TFM's mining
operations will directly employ about 1100 expatriates and
Congolese during full operation.

SECURITY
--------------


9. (SBU) TFM continues to maintain fairly tight security on
its concession, primarily by its private security and by
unarmed government Mining Police. TFM has an agreement with
the GDRC to support the salaries of the Mining Police, but
hopes eventually not to need that security force.

COMMENT
--------------


10. (U) The currently high copper and cobalt prices create a
temptation to take shortcuts to speed to the mining stage,
but TFM does not appear to have chosen this route. Despite
the daunting obstacles they face, we see TFM and Phelps Dodge
as setting a positive example for other investors. End
comment.
MEECE