A bid for front-line command in Africa

A bid for front-line command in Africa

8th November 2007

by Rebecca Bream, Financial Times

This week Aim-listed Nikanor and Katanga Mining of Canada made their bid to command the frontline in the battle for Africa’s natural resources.

That frontline lies in the bush of the Democratic Republic of Congo, where both companies own potentially lucrative copper projects.

Today it consists of a remote collection of disused, rusting conveyor belts and flooded pits. But Nikanor and Katanga hope their $3.3bn (£1.6bn) merger, announced on Tuesday, will free up cash to enable them to exploit the copper reserves below the ground.

Their move comes as the government of the huge central African country holds a review of mining contracts held by private investors to weed out shady deals and make the industry more transparent.

A copy of the initial recommendations leaked this week suggested several companies, including Nikanor and Katanga Mining, could lose their assets or have the licences’ terms changed.

Martin Kabwelula, DRC’s mining minister, said, however, that the leak was “grossly misleading” and it was expected that “after all irregularities have been corrected, the great majority of companies currently in the DRC will remain in the country for the long term”.

As well as Nikanor and Katanga, London-listed companies such as First Quantum Minerals and Phil Edmonds’ Central African Mining & Exploration Company (Camec) could be affected.

The big mining companies such as Anglo American and Rio Tinto are looking at ways to get into DRC and are eagerly waiting for the licence review to finish and reveal what licences could be up for grabs.

They are lured by some of the richest mineral deposits in the world, including one-tenth of the world’s copper and one-third of the world’s cobalt, a metal used in everything from high value steel to pigments.

But they are deterred by the country’s lack of infrastructure and widespread corruption. DRC is still reeling from its 1997-2003 civil war, which is thought to have led to the deaths of up to 4m people, and ethnic conflict continues in its north-eastern provinces.

China has been paying attention and in September said it would invest $5bn in improving DRC’s limited infrastructure and rehabilitating old mines in return for access to minerals.

The merger of Nikanor and Katanga will reunite adjacent copper mining assets that were run as a single operation by Gecamines, DRC’s state-owned copper company, between 1960-2000.

Putting the projects together could lead to about $700m of cost savings, says Art Ditto, Katanga Mining’s chief executive. It will also enable Katanga’s cash flows to be used to develop Nikanor’s assets.

The combined company will be called Katanga Mining and run by Mr Ditto. It will be listed in Toronto and London.

The deal also comes in spite of a strained relationship between the biggest shareholders of Nikanor and Katanga Mining, and reflects a desire for the two companies to achieve critical mass at a time when there is greater competition for copper assets in DRC.

The main shareholders behind Nikanor and Katanga Mining have been active in DRC for many years and were able to secure some of the country’s best copper assets when the government privatised the bankrupt mining industry.

Katanga Mining’s main shareholder is George Forrest, a 67-year-old Belgian national who is a veteran of the DRC’s mining industry.

He owns 24 per cent of Katanga Mining and in August supported a hostile C$1.52bn (£779m) bid for the group from Camec.

The main opponent to Camec’s bid was RP Capital, a hedge fund holding 15.6 per cent of Katanga.

One of the largest investors in RP Capital’s funds is Dan Gertler, an Israeli businessman who first made his fortune in diamond dealing but has since diversified into mining.

Mr Gertler was one of the founders of Nikanor with Beny Steinmetz, a billionaire diamond dealer, and Israel’s Gertner family.

RP Capital is also the largest shareholder in Nikanor and for some time has been pushing for a merger between Nikanor and Katanga Mining. But a clash of personalities between Mr Forrest and Mr Gertler got in the way.

The emergence of Camec as a hostile bidder helped bring the two sides together, but the main breakthrough seems to have come with the involvement of Glencore, the Swiss commodities trader, as an investor in both companies. It is understood Glencore, which has the exclusive contract to market the output from Nikanor and Katanga’s mines, helped oil the wheels and get this week’s deal off the ground.

If the deal goes through, the enlarged Katanga Mining expects to become Africa’s largest copper producer by 2011. It could also be a future target for a big group such as the acquisitive Xstrata, which is 40 per cent-owned by Glencore.

Veteran wants to keep it in family

George Forrest is a veteran of the mining industry in the Democratic Republic of Congo.

The 67-year-old, who holds a Belgian passport, was born in the copper mining town of Kolwezi when DRC was under Belgian colonial rule.

His father, Malta Forrest, started the Forrest Group in 1922 as a transport company, but by 1986 George had taken over and the group had moved into mining and construction.

One of the country’s largest employers and taxpayers, Mr Forrest is well-connected politically.

He owns 24 per cent of Toronto-listed Katanga Mining, which is focused on rehabilitating the Kamoto copper mine near Kolwezi in southern DRC.

Mr Forrest secured the rights to Kamoto in 2004, early in the DRC’s government’s privatisation process.

He has said that when he retires he wants his business empire to be run by his three sons and one daughter, including Malta Forrest, who is due to sit on the enlarged Katanga Mining’s board.

Investor who diversified into metals

Still in his 30s, Dan Gertler has become one of the most powerful figures in DRC’s mining industry.

His Israel-based DGI group of companies started out in diamonds but have since diversified into base metals. He was one of the founders of Nikanor, which floated on Aim in July 2006. The group’s main project is the rehabilitation of the KOV copper mine near Kolwezi.

He is no longer a direct shareholder in Nikanor but has rolled his interests into RP Capital, a London-based hedge fund where he is now a significant investor. RP Capital is the largest shareholder in Nikanor and Katanga Mining, and has been pushing for a merger between the two companies for several months.

Mr Gertler also jointly owns the Mukondo copper and cobalt project with Phil Edmonds’ Camec. The two sides have been in a dispute over the project for more than a year but a joint venture signed on Wednesday indicates the relationship has improved. It bodes well for Camec regaining its mining licences in DRC, which were revoked by the government earlier this year.

Copyright The Financial Times Limited 2007