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Cablegate: Drc Copperbelt - Tenke Fungurume Mining Makes No Small

VZCZCXYZ0000
RR RUEHWEB

DE RUEHKI #0646/01 2191629
ZNR UUUUU ZZH
R 061629Z AUG 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 8276
RUEHLS/AMEMBASSY LUSAKA 1463
RUEHSA/AMEMBASSY PRETORIA 4101
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEHBJ/AMEMBASSY BEIJING 0087
RUEHBY/AMEMBASSY CANBERRA 0036
RUEHLO/AMEMBASSY LONDON 0167
RUEHMO/AMEMBASSY MOSCOW 0060
RUEHFR/AMEMBASSY PARIS 1200
RUEHOT/AMEMBASSY OTTAWA 0123
RUCNSAD/SADC COLLECTIVE
RUEHXR/RWANDA COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS KINSHASA 000646

SIPDIS
SENSITIVE

STATE PLEASE PASS USAID
STATE PLEASE PASS USGS
STATE PLEASE PASS OPIC FOR JIM WILLIAMS
DEPT FOR AF/S, EEB/ESC AND CBA
DOE FOR SPERL AND PERSON
E.O. 12958: N/A
TAGS: EMIN ENRG EINV EIND ETRD ELAB CG ZA SF
SUBJECT: DRC COPPERBELT - TENKE FUNGURUME MINING MAKES NO SMALL
PLANS

REF: A) KINSHASA 515
B) LUSAKA 666
C) LUSAKA 744


1. (U) This cable represents innovative collaboration in resource
reporting and commercial advocacy between Embassies Pretoria,
Kinshasa, and Lusaka. It is the fourth in a series of six cables on
the Democratic Republic of the Congo (DRC)/Zambia Copperbelt
(reftels).

2. (SBU) SUMMARY: The Tenke Fungurume Mining (TFM) copper-cobalt
mine in the DRC's Katanga Province is a mega-project in many ways.
U.S.-based Freeport-McMoRan's estimated USD 1.9 billion investment
represents the largest U.S. investment underway in southern Africa
and will be the largest mine in the region. The project aims to
initially produce 115,000 tons per annum of copper and 8,000 tons
per annum of cobalt, with potential to ramp up production by a
factor of four. Part of the ample investment represents funds for
power and local infrastructure in this underdeveloped region.
Transportation, power, and government intervention represent
significant risks to the project. Freeport remains concerned about
the pending license review (Ref A), but continues to mine and build
its processing plant in anticipation of production later this year.
Tenke Fungurume Mining (TFM) asserts it has put in place substantial
social development investment and is committed to zero discharge of
waste from its tailings reservoir. End Summary.

3. (SBU) Embassy Pretoria Minerals/Energy Officer and Specialist
visited mines on both sides of the DRC/Zambia copperbelt May 12-23
to assess developments in the sector, covering six mines in the DRC
and four in Zambia. Ref A provided an executive summary of
developments on both sides of the border of the copper-cobalt belt.
Companies were helpful in supporting the well-received visits.
Embassy Kinshasa Economic Assistant accompanied the team for a May
12-14 visit to the Tenke Fungurume mine under development west of
Lubumbashi in the Katanga Province of the copper-cobalt belt.
Processing General Manager Sam Rasmussen hosted the team's visit.

4. (SBU) The Tenke Fungurume deposits lie on the northern edge of a
belt of folds comprising the geologically famous Lufilian Arc that
stretches 500 kilometers across the DRC and Zambia. TFM's
high-grade copper-cobalt deposits occur in a sequence of sedimentary
rocks known as the "Mines Groups" that are between 1050 million and
650 million years old. TFM Chief Geologist Wolfram Schub described
Tenke Fungurume's geology as a unique series of complex geological
phenomenon of sedimentation and successive infiltration of salts,
oxidants, organics, and other chemicals, in advance of tectonic
action. DRC copper and cobalt mining parastatal GECAMINES and
precursors previously owned mining rights at Tenke Fungurume, but
the state focused its mining activities more intensely elsewhere in
the DRC, so the current project is effectively a greenfield
endeavor. Freeport McMoRan International (FMI) holds an effective
57.75 percent stake, in partnership with Vancouver-based Lundin
Mining (24.75 percent) and parastatal GECAMINES (17.5 percent).

Massive Investment
------------------

5. (SBU) FMI announced on April 22 that investment in TFM would
nearly double the previous estimate to USD 1.9 billion, as a result
of scope changes and additional infrastructure, reflecting its
commitment to this long-life, remote project. TFM has already
invested more than USD 600 million to date. (Note: TFM officials
have more recently suggested the total will likely be closer to USD
1.7 billion. End note.) Tenke Fungurume's oxide ore is associated
with a harder silicified limestone that forms numerous domed

outcrops throughout the lease area, of which three have been
evaluated. These are amenable to mining using a unique USD 1.6
million U.S. Vermeer surface miner. The miner's rotating drum is
studded with titanium-hardened steel picks that fragment ore and
waste rock down to a depth of 0.6 meter. At the completion of the
cut, the rock is selectively removed by front-end loader and
transported to respective waste and ore stockpiles in advance of the
start-up of processing. Mining has begun on the first such outcrop
known as Kwatebala. TFM has ordered a second machine and additional
spare parts, now en route to the mine, both as a back-up for the
first machine and in anticipation of future mining phases. The
substantial processing investment will include five sulfuric acid
leaching tanks, neutralization tanks, solvent extraction and
"electro-winning" plants to produce copper cathode, and a cobalt
refinery to produce cobalt hydroxide. Transportation and egress of
products will be one of the biggest challenges given poor roads in
the DRC. Phase I alone will require 450 trucks to carry copper
cathode to the port in Durban, South Africa.

6. (SBU) A primary driver of the increase in TFM's investment is
the need to build roads and power infrastructure. FMII will make a
loan to the Congolese national power utility (SNEL) to fund
investment in regional power infrastructure, including provision of
expanded electrical power-generation capacity and improved power
reliability. FMI's Rasmussen told the team that TFM will refurbish
two of four turbines at the N'seke hydroelectric facility, providing
250 MW of capacity, of which TFM will use 80 MW for its mining and
processing plant.

Doing the Right Thing - Social Development
------------------------------------------

7. (SBU) TFM says it is committed to the Equator Principles and
referred to its compliance with the international NGO's Pact
(located in 60 countries and focused on capacity building) and
International SOS (leading provider of international health care) to
implement a robust social development program, including medical and
education programs and facilities. TFM's substantial concession is
home to 61,000 people, including the separate villages of Tenke and
Fungurume. At present TFM employs 5,000 people for the current
construction phase and says it will employ 1,000 employees when in
operation, but will not come close to GECAMINES' historical maximum
work-force of 40,000 in all of Katanga Province, which only produced
at most 500,000 metric tons of copper per year. The project, TFM
spokesmen said, will give preference to local job-seekers and will
"employ" 150 national mine police to supplement its 140 mine guards.
TFM noted it has experienced some labor unrest because of
unrealistic employment expectations. Its social development program
emphasizes brick and fence-making, agriculture, and other small
business activities. TFM moved about 1,800 people in three villages
to four new villages with improved, larger housing. TFM says it
will implement robust malaria and HIV/AIDS Voluntary Counseling and
Testing programs. From an environmental perspective, spokesmen
said, the project is committed to a no-waste seepage policy from its
tailings reservoir and has invested significantly in its tailing
impoundment and monitoring processes. TFM has created a number of
"micro-reserves" (surface acreage unknown) to preserve unique,
indigenous flora with affinity to copper and cobalt.

License Review - GDRC reopens contracts
---------------------------------------

8. (SBU) The DRC government began a review of 61 joint venture
mining licenses in April 2007 and announced early this year that
most contracts are "Category B", indicating the need to renegotiate
terms or face contract termination due to alleged unfair or illegal
terms. This has made investment in the DRC mining sector more

uncertain, but - like in Zambia - big investors continue to develop
their mines. TFM feels that it has been unfairly labeled "Category
B" and TFM representatives fear the government may demand an
increased share in the project for GECAMINES. The GDRC Review
Commission recommended that GECAMINES' share be increased from 17.5%
to 45%, a decision the GDRC Review Panel has now accepted.
Rasmussen was cautiously critical of the involvement of the Carter
Center in the review because, he asserted, its role had not been
clearly defined and communicated. Rasmussen said that TFM is
continuing to meet with the GDRC and had also scheduled a meeting
with Carter Center officials. Rasmussen emphasized that the TFM
deal was negotiated with full transparency and is compliant with the
DRC Mining Code. He was optimistic that TFM would continue with
investment without impediment to reach production later this year.
An official from Australian mining company Anvil noted to the team
that FMI had previously negotiated a change in the license
convention which reduced the GECAMINS share from 45% to 17.5% in
exchange for cash and a change in tax payment schedules. According
to the official, the Mine Law of 2002 allowed automatic extension of
pre-existing partnership conventions, but proscribed changes to
these conventions and this could give the GDRC ammunition to seek to
increase its parastatal's share-holding.

9. (SBU) COMMENT: The GDRC Mining Concession Review process has
been opaque and slow, and much of the current and future contract
renegotiations will probably occur without much transparency as
well. The prolonged process has prompted critics to warn of a
worsening investment climate, but the potential profits of projects
such as TFM may be incentive enough to solve differences with the
GDRC. Like Lumwana in Zambia, the Tenke Fungurume project
represents a new class of copper-cobalt mega-project which exceeds
old, traditional projects' dimensions in terms of investment,
resources, production, geology, infrastructure, and social
development. Freeport's investment, through its acquisition of
Phelps Dodge, is remarkable as the biggest U.S. mining investment in
southern Africa. An important aspect of Freeport's investment is,
according to its representatives, is the great emphasis it places on
advancing social development objectives in the DRC. If these
objectives are indeed pursued, it will be a welcome change in a
country where there is a long and bitter history of antagonism
between the Government, mining companies and workers over profits,
taxes, and benefits to local populations. Such projects might also
help GDRC officials to understand that this new generation of "mega
projects," while not employing as many people as used to be the case
with GECAMINES during its heyday, is nonetheless beneficial to the
country because of its social development projects, the creation of
much-needed infrastructure, and the potential revenues to be paid
into the national and provincial treasuries. End comment.

10. (SBU) APPENDIX - TFM Resources

Copper/Cobalt Ore Reserves and Resources:

Tons Copper Cobalt
Reserves (millions) (percent)(percent)
Proven and Probable 100 2.27 0.33

Resources
Measured and Indicated
Oxide 92 3.25 0.34
Mixed 139 2.82 0.29
Sulfide 4 4.22 0.37
-------------------------
Total 235 3.01 0.31

Inferred Resources
Oxide 70 2.75 0.20

Mixed 176 2.61 0.20
Sulfide 18 1.82 0.13
-------------------------
Total 268 2.60 0.19


Major Mining Fleet Items:
-- 35 45-ton Caterpillar trucks
-- 9 Caterpillar Front-end loaders with 6.3 cubic meter buckets
-- 9 Caterpillar Road maintenance vehicles including five dozers
-- 2 1000 ton per hour Vermeer continuous surface miners.

Total capital cost for mining fleet is USD 40 million

Final Pit Dimensions (Kwatebala):
2,000 X 750 meters, to an unknown depth

Major Capital Items USD(USD millions)
Mining fleet USD 40
Copper-Cobalt plant USD 410
Indirect costs USD 232
Total USD 682

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