A Storm in a TeacupThe impact of the tax changes are immaterial at current prices, but the super profits tax will be material at higher prices, which are definitely coming. The reality is it's a cash grab so the boys in Kinshasa can stuff their offshore bank accounts full of filthy lucre, even more than before, with which they should be building infrastructure for the good people of the Congo. The DRC ranks consistently in the bottom 10 countries in GDP per capita and the human development index, yet the nation is one of the most well endowed in the world in mineral riches, forests, and agricultural land. It's time to put an end to all this money laundering through Gecamines, Fleurette, ENRC, and all the other pay-for-play tunnelling vehicles to keep these guys armed to the teeth. It's time to put the tax dollars to good use and grow this economy so the people can have a decent standard of living. Power lines, roads, aqueducts, schools, hospitals, social programmes, and cultural institutions for the harmonious society. Technology and industrial development so people can live better and be more productive and pay more tax.
Fortunately or unfortunately, depending on how you look at it, this rapacious governance cannot continue without the support or tacit approval of foreign governments and multinationals, which only care about power and money. Well, recently the regime has fallen into disfavour with Western governments, and their puppetmasters, the Chinese, are probably fed up with an increasingly less cooperative tinpot dictatorship. Now, they are alienating their only friends and paymasters, the multinational mining companies. And we have a cartel forming, Glencore, Randgold, Anglo, MMG, China Moly, Zijin, and Ivanhoe, who can go to arbitration or just walk. Take your money and go home. These are the only companies in the world with the rocks to invest in this kleptocracy, and if they walk, the treasury runs dry. The elites will be run out of town and a coup d'etat will sweep the nation and usher in a new era of chaos. The mining companies will be reinstated with some lost time. Usually the state gets whatever it wants, but this regime looks like it is hanging by a thread. And despite the home field advantage, it is a fiscal minnow. The annual revenue of Glencore alone is nearly five times the GDP of the Congo. The firm which stands to lose the most is a global diversified mining superpower, with tremendous market clout and bargaining power. It is not as if these guys have to take this 10% cobalt royalty which would carve a gaping hole in their profits, and roll over and say "yes sir, yes sir, three bags full." They can take a hard line, or just take their picks and shovels home to Zug and count their billions of francs.
There is nothing so unusual about the situation. There are so many examples, including almost every African dictator including Zuma, Mobuto, Obiang, Goddafi, Buhari, Mugabe, and on and on. Marcos in the Philippines. Suharto in Indonesia. Or poster boy for kleptocracy, Sarawak governor Taib, the richest and most powerful man in Malaysia, who is now facing charges for money laundering with the help of the good ol' Canadian banks from raping the Bornean rainforest, the number two treasure of biodiversity on earth, 80% of which went up in a plume of smoke inside three decades when he sold it out to foreign Indonesian logging companies for the benefit of his own private account, and who knocks off his enemies like Bruno Manser who oppose or expose his corrupt dealings. That just scratches the surface of Asia. We could add Pinochet but that takes us to South America, with Brazil not far behind, which is topical, but let's not even go there. Let alone Central America which is a hot spot for money laundering, narcotics, war crimes and the odd genocide. Now, we have scarcely even started, because we've really only covered the Southern hemisphere. Suffice to say it would be easier to name enlightened despots or benevolent dictators, because the above are the rule, not the exception.
Sadly, nothing changes fast. These guys just play ball to keep the wheels greased. So we get a tax deal, and it will be more or less workable. Still, transparency is increasing gradually, and it is harder to get away with the same nonsense that used to pass. The world is living better, even the bottom decile of prosperity.
Now to the market manipulation. Yes, the Canadian financial institutions and friends of Taib, as many here will be quick to assent, smell blood. They know we need money, or want it, so they sell short to cover their bought deal or whatnot, and load up on cheap shares for their own and best client accounts. Because they know how undervalued this company is, and they just want to get a little more bang for their buck. A pig's belly is never full. Reality is if we do 200M shares and a whack of debt we put these monsters into production and will be spitting out billions in free cash in a few years' time. But if Mr Friedland pulls another rabbit out of his hat, we'll get a better deal than many expect, just like every time before.
Copper is going into deficit and in a few years' time will be six dollars a pound. All the copper stocks will be sitting on gobs of cash and skyrocketing in price, but Ivanhoe, which is the best copper stock in the world, will have reams of cash coming out of its ears, it will hearken to the heyday of the Zimbabwean mint. The only problem is all the heaps of debt in various corners of the world, ticking like time bombs, and how ridiculously overpriced almost every asset market is, with the notable exception of commodities, and the fact that the Federal Reserve is tightening. If there is a liquidity panic and an asset price deflation, then you may be able to pick more shares up on the cheap. But for my part, I cannot resist owning at 3 dollars a share, what will be one of the great mining companies in the coming age of scarcity in industrial metals. Hold on to your hats.