International mining companies have insisted that Democratic Republic of Congo amend portions of a new mining code to respect exemptions they were granted by its predecessor.
The companies announced last week that they had submitted a formal proposal to the government but the document itself, seen exclusively by Reuters on Thursday, takes a hard line that could set industry on a collision course with officials who have repeatedly said they will accept no changes to the new law.
In the proposal, the companies outlined a plan to let royalty rates - fees paid by miners to the government based on output - for copper, cobalt and gold fluctuate with their international market prices.
In exchange, the government would eliminate a 50 percent tax on windfall profits in the new code.
They also offered to accept a “slight additional increase” to the outlined royalty rates if the government relinquishes its authority to designate “strategic substances”, whose royalty rates would more than double to 10 percent.
The companies that signed the proposal - Randgold, Glencore, Ivanhoe, China Molybdenum, Zijin, MMG and AngloGold Ashanti - say they are particularly bothered by the new law’s cancellation of their stability clauses, which protected them against changes to the prior fiscal regime for 10 years.
They say that violates existing agreements and will scare off investment in Congo. The country mines more than half the world’s cobalt - used in batteries for electric vehicles and other electronics - and is Africa’s top copper producer.
In response, the companies proposed that the government amend the law with a series of “transitional provisions” that would preserve their earlier fiscal terms, albeit with certain exceptions, including the sliding scale royalty rates.
The companies said they believed their proposals to eliminate the windfall profits tax and strategic substances provision were reasonable, “but if they should be rejected, we will maintain our position that the provisions concerned should be subject to transitional measures and cannot then be immediately applied”.
Either way, the companies’ proposal would require the government to rewrite the law signed by President Joseph Kabila a month ago, something government officials have repeatedly said they are not willing to do.
The mines minister and his chief of staff did not respond to requests for comment. A spokeswoman for Randgold, who is leading communication efforts on behalf of the seven companies, also did not respond to a request for comment.
Randgold threatened in February to pursue international arbitration if Kabila were to sign the code into law. The firm has not made a similar threat since the president promised to take companies’ concerns into account in follow-up discussions that began last month about implementing the code.
A sliding scale proposed by the companies would impose a maximum 6 percent royalty on copper if prices exceed $8,000 per tonne and a minimum of 3 percent if prices fall below $6,000 per tonne. Benchmark copper on the London Metal Exchange is currently trading at around $6,800 per tonne.
The cobalt royalty would range from 2 percent if prices are below $20 per pound to 10 percent if they rise above $90 per pound. Cobalt prices, which have quadrupled in the past two years, are currently around $40 per pound.
The royalty on gold would range from 3 percent if prices are under $1,000 per ounce to 6 percent if they are above $2,000 per ounce. Spot gold is trading at about $1,300 per ounce.
Under the code, the royalty rate on all three metals would be 3.5 percent unless the government designates them strategic.
“Such a system would be more fair than a windfall profits tax ... and would be better placed to lead to an increase in revenues for the government,” the companies wrote.
Congo’s government is eager to increase its take from the mining sector. Year-end inflation neared 50 percent last year after government revenues plummeted due to low commodity prices.