DRC, Zambia draw big miners as copper prices surge

Investor wariness about conditions in these countries has been overcome by high demand for metals, surging prices and a longer-term view of risk

Mining companies are looking to invest in countries they previously considered too risky, including the Democratic Republic of Congo (DRC) and Zambia, propelled by a dwindling pipeline of big copper mines and record high prices.

Investor wariness about uncertain regulatory environments, challenging working conditions and corruption have meant some listed companies favoured countries such as Australia or Canada, despite the higher costs of operating there.

But perceived improvements and the impetus for more copper, a metal essential to the electric-vehicle industry are starting to convince some miners that the possible reward could outweigh the risk.

“I am confident we have the capabilities to pursue opportunities in what some would see as tougher jurisdictions, but the size of the opportunity needs to be commensurate with the increase in management effort that is going to be required,” BHP CEO Mike Henry said last week.

BHP has not been active in Africa since it spun off South32 in 2015.

In the DRC, the start-up without hitches of big projects like Ivanhoe’s Kamoa-Kakula mine provides reassurance for companies considering a project in the country, investors say.

“Mining companies take a longer-term view than regimes last. What is perceived as risky today might not be so in 10 years,” said George Cheveley, portfolio manager at Ninety One in London.

“When BHP developed Escondida, Chile was considered riskier than it is now and look at the value of that project many years down the line. One of the advantages of diversified miners is their ability to manage risk rather than avoid risk,” Cheveley said. Escondida is the world’s largest copper mine.

In Zambia, the August election of President Hakainde Hichilema has been a “game changer”, said Nick Schirnding, chair of exploration firm Arc Minerals. Hichilema brings a promise of more businessfriendly policies after his predecessor was seen as antagonistic towards the mining industry.

“Going to places like Zambia has just become so much higher on anybody’s agenda,” said Schirnding, whose company owns five copper exploration licences in the country.

Arc Minerals hired investment bank Rothschild in March, and Schirnding said the company had received expressions of interest from several majors, without giving details.

Investors have become more tolerant in general, and the African Copper Belt’s high-grade copper is a reward for the higher risk, said Ian Woodley, a fund manager at Old Mutual. “You can get 3% to 4% copper in the DRC and Zambia; you can’t get that anywhere else,” he said.

The DRC has the world’s biggest reserves of cobalt and is Africa’s largest copper producer but it is among the worst nations in the world for “corruption perceptions”, according to a Transparency International index.

A banking source who asked not to be named said Western majors that previously would not have considered the country, were looking at it because of the shortage of new discoveries in relatively safe jurisdictions.

But the dangers have not gone away.

“If you go in there transparently, you’re upfront and you follow all the rules, I think people will give you the benefit of the doubt, but you have to be careful,” said Woodley.

“We’ve seen miners going into different locations; sometimes they get it right and sometimes they get it horribly wrong.”