UPDATE 1-China Railway to fund $2.9 bln Congo mining project

(Adds details, background)

SHANGHAI, April 23 (Reuters) - China Railway Group 601390.SS0390.HK plans to set up a joint venture to invest in a $2.9 billion copper and cobalt mining project in Democratic Republic of Congo.

China, stepping up its investment drive in Africa, is pursuing new infrastructure deals in the continent, especially in resource-rich countries, with the signing of multi-billion dollar accords that give Chinese companies major mining rights.

China Railway Group would be responsible for providing loans and other financing amounting to $1.833 billion, including $550 million zero interest loans, for the project, it said in a filing with the Shanghai stock exchange on Wednesday .

The company also plans to fund more than 40 percent of the first phrase of infrastructure construction related to the project, which is estimated to cost up to $3 billion.

The investment requires approval from authorities in China and Congo, it said.

China Railway would own 43 percent and Sinohydro Corp 25 percent of the joint venture, Sino-Congo Mining SARL or Socomin, which would have a registered capital of $100 million.

State-owned Gecamines and Gilbert Kalamba Banika, identified only as a Congolese citizen, would hold the remaining 32 percent.

The Congolese government has promised to supply no less than 10 million tonnes of copper in addition to cobalt associated with the copper production from the project to the Chinese parties involved in the venture.

The project has a proven copper reserve of 6.8 million tonnes and cobalt reserve of 420,000 tonnes, it said. The Democratic Republic of Congo is home to 10 percent of the world’s copper reserves, and a third of the world’s cobalt.

Chinese Railway Group said it would use its own funds to invest in the project.

China Railway raised $5.5 billion in a dual Shanghai and Hong Kong listing late last year, attracting strong investor interest as it benefits from massive infrastructure spending in China and expansion overseas.

The company's Hong Kong-listed shares were up nearly 2 percent on Wednesday, outpacing a 0.9 percent gain on the benchmark index .HSI.


The mining concessions China is getting in return will help guarantee its industrial companies a stable supply of key energy and mineral resources, in order to meet the huge appetite of the world’s fastest-growing major economy.

International prices of copper MCU3, seen as a key industrial metal, have surged nearly 30 percent in 2008, while international prices of cobalt COB-CATH-LON hit a record high in March.

Rising commodities prices, partly due to global inflation, increased Chinese consumption and mounting costs, have been pushing the world’s top metals consumer to find alternative sourcing countries in Africa, where it has built up a friendly relationship since the Mao Zedong era.

The Chinese partners will pay a $530 million “entry fee” under the terms of the agreement, while Congo will offer tax holidays.

The Chinese partners will also provide a $50 million interest-free loan to Congo Mining for equipment and a $32 million loan at Libor six month plus 100 bps to the Congolese partners to facilitate their participation, the statement said.

“The loan details that have been made available suggest that the Socomin Agreement is not unreasonable -- indeed it could be argued that it provides a useful model for future African resource development, even those involving Western companies,” industry consultant Michael Komesaroff, of Urandaline Investments, wrote in a recent article.

The partners have agreed to limit the Chinese workforce to 20 percent of the total, Komesaroff said, thereby addressing a significant cause of African resentment over Chinese investment.

China will pump $9 billion into Congo’s war-ravaged mines and infrastructure in a partnership signed early this year that could propel the African country’s growth into double digits, a Congo government minister has said. As part of the agreement, it will refurbish power plants, hospitals, and roads.

Late last year, Chinese policy banks agreed to provide hefty loans for infrastructure to support the country’s mining industry. In return China was granted rights to copper and cobalt reserves said to be worth $14 billion.

Socomin will primarily invest in new mines, near Likasi in the southeastern part of the country. (Additional reporting by Charlie Zhu in Shanghai and Lucy Hornby in Beijing; Editing by Anne Marie Roantree)