Simply not cricket: UK plays in the DR Congo

Simply not cricket: UK plays in the DR Congo

22nd July 2007

As the government of DR Congo continues its major investigation into dubious contracts made with mining companies over the past decade of oppression and turmoil, the activities of some UK-run companies (notably Katanga Mining), entrepreneurs (notably British ex-criketeer, Phil Edmonds), and a London-based hedge fund, are coming into sharp focus.

CONGO: Edmonds group in spin after miner is run out

by Ben Laurance, Sunday Times

22nd July 2007

The document in Billy Rautenbach's hands was uncompromising. He was accused of fraud, theft, corruption and violating commercial law, it said. He was persona non grata. He would have to leave. It was last Wednesday evening. Rautenbach was in his hotel at Lubumbashi, the capital of the Katanga province in the southeastern corner of the Democratic Republic of the Congo. The meaning of the document he held, from the DRC's ministry of the interior, was clear: he wouldn't be returning in a hurry.

Rautenbach spent the night at his hotel, and the following morning was driven under armed escort to Lubumbashi airport. There, under the watchful eyes of a team of Congolese immigration officers, Rautenbach walked across the asphalt in front of the low, single-storey airport buildings and climbed into his private King Air plane for the 90-minute flight to his home in Zimbabwe.

The aircraft took off at 9am and headed south. In his briefcase was Rautenbach's Zimbabwean passport. Across one of the pages for visas, a DRC official had scrawled "Entrée nonauthorisée".

The expulsion of Rautenbach marked an extraordinary climax to a bizarre and tangled tale that takes in South Africa, the British Virgin Islands and some of the richest mineral deposits on the planet. And it is a tale that could have a crucial impact on an £800m bid battle involving one of Britain's most controversial entrepreneurs. Rautenbach has long been known as a kingpin in the mining world in southern Africa. In the late 1990s, with the support of Robert Mugabe's Zimbabwean regime, he was given access to the DRC's rich mining deposits in the south of the country. Laurent Kabila, then president of the DRC, installed Rautenbach as head of the state mining company, Gécamines.

The men fell out in 2000. Kabila accused Rautenbach of underreporting exports and sales of huge quantities of cobalt - with the gains being diverted to a Rautenbach company, Ridge-pointe, based in the British Virgin Islands. Rautenbach denied any wrongdoing. Kabila was assassinated in 2001 and his son Joseph took over as president.

For a time, Rautenbach seemed to be rehabilitated. But since the elections last year, the new DRC regime has been trying to clean up its mining industry and last week the government issued its declaration that Rautenbach was persona non grata. The papers ejecting Rautenbach from the country did not mention his activities in the DRC itself. They said only that the authorities were ejecting him because he was sought in South Africa in connection with a string of fraud and theft charges.

These relate to his time spent in control of the South African arm of Hyundai. Rautenbach has always denied the accusations, but he has not returned to South Africa since the charges were filed in 2000.

There is no extradition treaty between the DRC and South Africa. As a result, Rautenbach could not be sent to South Africa specifically. He could only be ejected from the DRC.

But the DRC authorities are nevertheless investigating Rautenbach's conduct in their own country. A government source in the capital, Kinshasa, said: "We are very interested in how some of the assets of Gécamines were apparently moved out of the Congo." The whole affair might be dismissed as a small, if colourful drama in a country more than 4,000 miles from London.

But Rautenbach has played a pivotal, if determinedly low-profile, role in the building of Camec - short for Central African Mining & Exploration Company - the latest corporate vehicle of Phil Edmonds, a man known not only for his eventful business career, but also for his prowess as a spin-bowler until he retired from the cricket field two decades ago.

With Edmonds at the helm, Camec last year acquired a bundle of DRC cobalt and copper mining assets from Rautenbach. In return, Rautenbach became a shareholder in the enlarged Camec. The exact size of his current shareholding is not clear, but it is thought to be about 18%. Camec itself has tried to play down the significance of Rautenbach's involvement in the company.

When it emerged last week that the DRC was going to try to deport Rautenbach, Camec issued a statement. It disputed the authenticity of the document ordering his removal. But the statement then went on: "Even if it were authentic, it would not affect any of Camec's operations in the Congo; Mr Rautenbach is not involved in the operational management of the company's projects." The essence of Camec's stance was clear: one of our shareholders may find himself kicked out of the DRC, but so what?

Others are more willing to acknowledge the importance of having Rautenbach on board - particularly if the company succeeds in clinching a huge takeover deal that would create, in its own words, "one of Africa's largest copper and cobalt producers". Earlier this month, Camec signalled that it wanted to take over Katanga Mining, a company quoted in Canada but run from London. The company's main asset is a huge copper and cobalt mine in the south of the DRC that should start production towards the end of this year. It is the third-largest known copper resource in Africa.

Camec is in a strong position. It bought 22% of Katanga earlier this year. And Camec claims that it has "lockup" deals with holders of a further 32% of Katanga under which they have pledged their support for the bid. Crucially, George Forrest, deputy chairman of Katanga and its biggest shareholder with a 24% stake, has indicated that he is prepared to accept the Camec offer: this accounts for most of the 32% covered by lockups. But Camec's takeover is not yet a done deal. The company cannot formally make an offer until the middle of next month. And the so-called lockups are not completely watertight: if a rival bidder comes along with an offer 7% or more higher than Camec's bid, then it will be free to accept the better deal.

Nevertheless, Katanga's chairman, Art Ditto, conceded this weekend that he now had to "explore alternatives" - code for seeing if there was another company out there that might be prepared to top Camec's offer. One suggestion - although not one being advanced by Ditto - is that RP Explorer Master Fund, which has a stake in Katanga, may try to engineer a merger with another DRC copper miner, Nikanor, where it also has a significant holding. [see below]

Camec might want to play down Rautenbach's role. But in a recent research note - written before the drama at Lubumbashi airport - Credit Suisse analyst Jeremy Gray suggested Rautenbach would indeed have a significant part to play. Gray said: "Having George [Forrest] on the ground in DR Congo alongside Billy Rautenbach makes for a powerful combination."

For Edmonds, the Rautenbach affair is unfortunate. In particular, the DRC government's clear unease about what Rautenbach has done in its country, let alone in South Africa, will revive memories of controversy surrounding White Nile, the exploration company floated on London's lightly regulated AIM market by Edmonds in February 2005. White Nile's shares listed just a month after the signing of a peace agreement to end two decades of civil war in Sudan. Then, days after their market debut, the shares were suspended. Edmonds said that the company had secured the rights to a 60% stake in a promising oil exploration block in southern Sudan.

But there was a problem. White Nile had been granted its rights by the government of southern Sudan. Meanwhile, Total, the French oil company, said that it had been given the rights to explore as long ago as 1980: in other words, the authorities in southern Sudan did not have the right to award the block to someone else. Authorities at the London Stock Exchange looked into the matter to satisfy themselves that White Nile could substantiate its claims to the exploration acreage, but allowed share trading to resume. White Nile insisted then and continues to insist to this day that it has a legal right to the Sudanese exploration territory. But the company was forced to announce two weeks ago that White Nile's position was less than rock solid. Indeed, the company had been asked to leave.

The announcement - from the southern Sudan authorities who had granted the concession to Edmonds' company two-and-a-half years ago - came as a shock. White Nile's operations manager pointed out that the company had already spent $18m (£9m) on seismic testing alone. The company said it was "seeking urgent meetings" with the government of southern Sudan to "clarify the situation". Nothing further has since been said publicly. White Nile's share price is now little more than half its level early last month, but the company is still worth nearly £250m - although it has few significant assets outside Sudan. Total certainly has grounds to claim control over the disputed block. Sudan's peace treaty between the north and south was signed in January 2005, a month before White Nile announced its move into the country. And the agreement could hardly have been more explicit. A section of the 240-page peace accord was devoted to "Existing Oil Contracts".

It said: "Contracts shall not be the subject of renegotiation ... the Parties agree that 'existing oil contracts' mean contracts signed before the date of signature of the Comprehensive Peace Agreement." On the face of it, that would seem to cover the Total concession: the French firm secured its rights decades earlier. Naturally, lawyers are continuing to argue over the exact interpretation of the agreement - hardly surprising, given the importance of the block to White Nile's future.

Against this background, the murmurings from Kinshasa about Billy Rautenbach's past activities in the DRC are striking uncomfortable chords for Edmonds and the investors who have backed him. The whole controversy about White Nile has turned on a dispute about its legal rights to ownership of oil-exploration assets. Edmonds cannot afford any controversy in another of his companies. Neither he nor Rautenbach was available for comment this weekend.

Last month, the new DRC administration embarked upon an exercise to review 60 mining concessions, most of which were negotiated during a six-year war in the country and the three-year transitional period that followed. The exercise is more far-reaching than most observers had expected. The DRC government has enlisted help from Rothschild in Paris and from the Carter Center in an attempt to pin down exactly who owns what - and, more importantly, who should own what.

The DRC clearly has Rautenbach in its sights. He has always denied wrongdoing. But when the Kinshasa authorities announced his expulsion, they said: "Mr Rautenbach has amassed a large number of mineral and other assets in the DRC during the civil war and subsequently. The government of the DRC is making strenuous efforts to clean up the mining sector."

For Camec, Rautenbach is looking like a liability.

Offer for Katanga Mining Limited by Central African Mining & Exploration Company plc ("Camec") PRNewswire LONDON

11th Juy 2007 RP Explorer Master Fund ("RP EMF") a major shareholder in Katanga Mining Limited ("Katanga") states that it is strongly opposed to Camec's unsolicited offer for Katanga. RP EMF believes that this unsolicited offer of Camec's shares undervalues the potential of Katanga and the quality of its assets. Camec shares are illiquid, difficult to value and, RP EMF believes, do not represent an attractive acquisition currency.

Further, RP EMF believes that a potential combination between Camec and Katanga detracts from management's ability to execute its envisaged project on schedule and has the potential to destroy value. RP EMF has full faith in Katanga's management to represent the best interests of all shareholders. Notes to Editors: - RP EMF is a 15.72% shareholder in Katanga. - RP EMF a London based hedge fund is managed by RP Capital Partners Cayman Islands Limited