The undisclosed sale of assets by Gecamines, the Democratic Republic of Congo’s (DRC) state-owned copper and cobalt producer, might undermine its plans to offer shares to investors, analysts and legislators said.

Gecamines, which sits on the world’s biggest cobalt reserves, this year sold stakes in two mining projects to Israeli businessman Dan Gertler. The transactions were revealed without a sales price in a prospectus issued by Glencore International, which operates the mines, before Glencore’s initial public offering in May.

While Gecamines had “world-class assets”, with some of the richest copper deposits available, investors might be reluctant to buy if it didn’t disclose its revenue from selling properties, Adam Kiley of Ambrian Partners said.

One of the complexes, Mutanda Mining, is worth more than $3 billion (R21bn), according to calculations by Golder Associates that were included in the prospectus.

Gecamines, based in Lubumbashi, is among state-owned assets being prepared for sale to private investors. The sale is intended to bring in capital to boost output after years of underinvestment and political corruption in the DRC. The company’s production stood at about 20 000 tons last year, compared with 476 000 in 1986, central bank figures show.

“If they are getting rid of some of their better assets on the cheap that may not be such a good thing, so they would need to tell investors exactly what they have and what they’ve sold,” Kiley said.

As of January, sales and prices of the DRC’s natural-resource assets are supposed to be made public, according to an agreement between the government and the World Bank, and a finance ministry decree.

“Now that they’re becoming a private company they don’t tell us anything,” Modeste Bahati Lukwebo, the head of the audit board of the National Assembly’s economic and financial committee, said.

“They must make management transparent and justify what the state has gained from the sale of all these concessions.”

Gecamines officials, including managing director Ahmed Kalej, did not respond over a one-month period to phone calls, text messages, visits to the company’s head office in Lubumbashi and a letter from Bloomberg requesting comment.

“Gecamines has no comment,” chairman Albert Yuma said by cellphone message on July 11, adding that he was travelling in Malaysia.

Acquisitions

Rowny Assets, an entity “associated” with Gertler, “recently” acquired a 20 percent interest in Mutanda from Gecamines, according to Glencore’s May 4 listing prospectus.

Biko Invest, also linked with Gertler, recently bought a quarter of Kansuki from Gecamines, it said. Both companies were incorporated in the British Virgin Islands, according to filings with the islands’ corporate registry.

The net present value, a measure that includes future earnings prospects, of Gertler’s stake in Mutanda may be more than $800 million when royalties and other payments are taken into consideration, according to calculations using figures in Glencore’s prospectus. The entire Mutanda project was worth about $3.1bn and could produce 110 000 tons of copper annually by 2012, the prospectus said.

Neighbouring Kansuki had “the potential to be a bigger producer” of minerals, Deutsche Bank said in report on Switzerland-based Glencore.

Glencore’s half-owned subsidiary in Mutanda, Samref Congo, should have right of first refusal on any share sale by its partners, according to its joint-venture agreement with Gecamines. Simon Buerk, a spokesman for Glencore, declined to comment on the sale.

Gertler’s success has also brought him into conflict with business rivals such as First Quantum Minerals, which is suing companies he owns with Eurasian Natural Resources (ENRC) for alleged involvement in the DRC government’s cancellation of its Kolwezi tailings licence in August 2009.

After Vancouver-based First Quantum lost the rights to the licence, a series of transactions put it in the hands of ENRC, which bought 50.5 percent of Gertler’s Camrose Resources for $175m and a $400m loan facility, according to an ENRC public filing.

ENRC required Gertler to sign a letter saying he wasn’t involved in the loss of the licence, ENRC board member Paul Judge said in response to questions, adding that ENRC lawyers said that nothing was illegal about the transaction.

Developing

DRC was ranked the second-least developed nation in the world last year by the UN Development Programme, out of 169 countries. Almost half its $7.3bn budget comes from international donors. At the same time, such mining companies as Phoenix-based Freeport McMoRan Copper & Gold and AngloGold Ashanti operate in the country.

After providing 60 percent of the DRC’s exports in the 1980s, Gecamines was losing $15m to $20m a month last year, according to the World Bank. The company has $1.5bn of debt, according to the portfolio ministry, which manages the DRC’s state-owned companies.

The government, which holds all of Gecamines’ 10 000 shares, has yet to decide when it will begin offering stock to investors.

Both Gecamines’ assets and debts were still being assessed as part of its transformation into a commercial company, a process that would continue until at least the end of this year, Steven Dimitriyev, the head of the World Bank team advising the DRC’s state-owned companies on their privatisation plans, said in a June 28 interview from Kinshasa. “The valuation of the company is ongoing,” he said.

The bank and the International Monetary Fund were “insisting on fully transparent disclosure of all divestitures and new joint venture contracts” involving the DRC’s state companies, he said. “We trust in the government’s sincerity to do the job correctly, but the process should be going faster.” – Bloomberg