Congo mining revenues rise, but so do miners' costs

By Joe Bavier

KINSHASA, July 29 (Reuters) - Measures to fight mineral export fraud have boosted Congo's income from copper and cobalt mining this year, but red tape and higher local taxes are driving up costs for companies, industry officials said.

Having held historic post-war elections in 2006, Democratic Republic of Congo is one of the most attractive mining areas in Africa. But analysts say the sector is still rife with corruption, and its potential not fully realised.

Beginning last year, the southeastern province of Katanga, which lies in the heart of the copper-belt, banned exports of raw minerals, tightened controls on processed ore and cracked down on customs agents involved in fraud.

Combined with an overall rise in production, the measures dramatically increased the flow of revenue into government coffers, said Katanga Mines Minister Bartelemy Mumba Gama.

"If you see that we have already surpassed our revenues from the whole of last year, it's a fairly serious indicator," he said in a recent interview in Katanga.

A tax of 2 percent on the assessed value of exported minerals generated $19.9 million between January and June this year, compared with $15.8 million for the whole of last year and $5.7 million for 2006.

Currently companies must produce copper and cobalt concentrate as a minimum exportable commodity.

Earlier this year, Katanga's governement brought in foreign engineers to ensure companies had the proper facilities to treat their ore, and laboratory controls have been tightened to ensure that the concentrate exported is not undervalued.

"Before the analysis was either not done at all, or not done seriously," Mumba Gama said.

RISING TRANSPORT COSTS

Interest in Congo's once mighty mining sector has boomed since successful 2006 elections meant to draw a line under decades of mismanagement and a 1998-2003 war that left infrastructure in ruins.

Companies operating in Congo include the world's largest diversified miner, BHP Billiton (BLT.L), and Freeport McMoRan (FCX.N), which has invested heavily in its Tenke Fungurume project in Katanga.

While miners and exporters largely support the new controls as a vast improvement over past anarchy, they say authorities' capacity to process exports under the new system is lagging.

"From the start of the clearing process to crossing the border, it can take up to 10 days," said Ritchie Callaghan, managing director of Katanga-based mineral transporter Malabar Logistics. "If there's a problem, it can take up to 21 days."

The result has been an overall increase in the cost of shipping minerals out of Katanga.

Mumba Gama said local government is seeking ways to shorten the process, including testing outgoing minerals in company warehouses, but it would take time to implement new measures.

"The system is not yet perfect. It still needs improvement."

As well as rising shipping costs, on July 12 Katanga's provincial government began levying a $30 per tonne export tax on minerals, the proceeds to be used for road improvements.

The further increase in costs has left some companies searching for new ways to transport more minerals for less.

"Yes, the costs are a concern. We're now trying to move more tonnage onto the rail system. So that should bring us back to reasonable costs again," said Grant Dempsey, manager of Ruashi Mining, a subsidiary of Johnannesburg-listed Metorex (MTXJ.J).

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(Editing by Daniel Magnowski and Peter Blackburn)