Katanga Mining (
TSX: KAT,
Forum) provided an update today regarding the recent geotech failure at the KOV open pit mine located in the Democratic Republic of Congo where the company carried out search and rescue efforts for seven missing employees who were at the mine when the north wall of the mine failed.
According to the
news release, since rescue efforts began ten days ago, the company has only been able to uncover three bodies in its search for the missing crew members. The remaining four have been assumed dead and Katanga is now focusing on the recovery phase of the operation as weather and ground conditions will allow.
The company will continue to work alongside the relevant authorities. An investigation has been launched to determine the cause of the geotechnical failure and the company will provide updates on its progress as appropriate.
MARKET REACTION:
Shares edged down 2.56% to $0.19 per share.
OUR TAKE:
Katanaga Mining (“KML”) has a history of criticism being brought against it over the company’s operations in the DRC. In a study conducted in March 2011, NGOs Bread For All, the Swiss Catholic Lenten Fund and the Bench Mark Foundation, unearthed what they felt to be troubling issues with Katanga.
In the report, Katanga is accused of unfair contract negotiations, human rights violations and tax evading practices. It contended that KML’s mines in Katanga were the results of concessions negotiated in the vacuum after Mobutu Sese Seko’s despotic “kleptcracy” and the resulting civil unrest which left the country in shambles and rife with corruption.
Global audit companies, given authority by the World Bank, the DRC government and parliament went through these contracts between 2002 and 2005, and pronounced all of them unbalanced and not in the best interests of the Congolese people. Despite this in 2005, Katanga was given approval by DRC President Joseph Kabila to form two joint venture companies: Kamoto Copper Company (KCC) and Copper and Cobalt Project (CCP). State-run La Générale des Carrières et des Mines or Gécamines SA then handed over key resource and manufacturing company assets to the newly-formed JVs and yet only maintained a minority stake (25%) in the resulting projects.
One could argue that the degree of Gécamines’ contribution to KCC and CCP should have afforded it a greater share, possibly even a 50% stake. As it is, KML was garnering a vast majority of profits while sucking what scant electricity was on the region’s grid, punishing the poorly constructed road networks and adding to the problem of pollution in the area without commensurate compensation.
The company fared no better in the eyes of the researchers when it came to artisanal miners, working conditions and adverse impacts on surrounding communities. It was claimed that once the company determined to expand their operations, any remaining artisanal miners in the coveted areas were forcibly removed. Working conditions at KML mines were also deemed by the report to be dangerous with a large portion of employees (approximately 40%) on temporary contracts with no protective clothing to speak of. There were also recorded incidences of villages surrounding the mines being seismically damaged by constant explosions, but never receiving compensation for their claims.
KML was also accused of tax evasive practices. The company’s three subsidiaries are based respectively in Bermuda, Virgin Islands and the Isle of Mann, all known the world-over as tax havens. As such, through the years 2010-2013, KML only paid the minimum US$1.0 million annually in taxes. To put this into perspective, First Quantum Minerals, of approximately the same operational size as KML, paid US$57.0 million in taxes in 2009 alone. The aggregate result of these relatively scot-free tax rides further drain DRC’s coffers, severely restricting its ability to service its citizens and maintain any real standard of living.
Now to the present. Copper went into the toilet and as of January 2015, plunged to a five-year low to $2.51 per pound. Katanga’s operations at the Katanga mine became a losing proposition and back in September, the company confirmed suspending production at the mine for an expected 18-month period. During that time, the Company planned to continue with a US$880.0 million investment into ongoing processing plant upgrades and the waste stripping of the KOV and Mashamba open pits. All this in hopes of reducing costs to $1.65 per pound, which would once again, making the production of copper at KOV feasible at present commodity pricing levels.
Now with the geotechnical failure of the north wall and the resulting deaths at the Katanga mine, the following questions burn even brighter; should the company be ordered to make a greater investment in its workforce in regards to safety, should it be compelled to compensate the surrounding communities for past alleged transgressions and even more importantly, should it be forced to repatriate its revenue so that it pays a truly commensurate tax. Corporate imperialism is a short-term cash grab. I’m all for making a profit, but there is a cost to doing business, that if ignored, leaves a generations-long impact that destroys nations and creates an instability that serves no one, including the corporate interests that perpetuated it in the first place. KML needs to take greater responsibility in the region.
I have no interest in any of the companies mentioned in this article, long or short.
--Gaalen Engen
https://twitter.com/gaalenengen