Industry Trend Analysis - Mining Code Reform To Increase Uncertainty - JUNE 2015

BMI View : Increasing uncertainty regarding the Democratic Republic of Congo's mining code reform will limit investment from entering the sector.

Despite the Democratic Republic of Congo's (DRC) significant mining growth potential, we see potential to downgrade our long-term production forecast. The key factor behind this is increasing uncertainty regarding mining code reform, which will hinder a proportion of new investment from entering the sector and could halt new projects from coming online. Growth in the Democratic Republic's of Congo's (DRC) mining sector has been strong of late, meaning that a slowdown would have considerable effects within the country. In Q115, DRC's gold and copper output grew by 70.0% and 13.7% respectively compared to Q114. The gold sector produced 0.29 million ounces (moz) in Q115, up from 0.18moz in Q114, while copper output reached 279.6 thousand tonnes (kt), up from 245.9kt in the same period last year.

The DRC government will increase mining royalties due to its desire to boost mining revenue and capitalise on the sector's growth potential. In our view, the government's push towards raising royalties ties in with the government's strategy to increase state control on the country's mining sector. On April 22 2015, the DRC's government announced its intention to reopen negotiations with mining firms regarding revisions of the country's 2002 mining code, as the previous draft legislation was recalled after significant opposition. Previously, in March 2015, the government submitted a draft proposal to Parliament that would hike copper and gold royalties from 2.0% to 3.5% respectively. Furthermore, the draft legislation would raise royalty taxes from 30.0% to 35.0% and increase the government's free share of new mining projects from 5.0% to 10.0%.

Solid Growth Outlook To Be Tempered By Uncertainty
DRC - Mining Industry Value (USDbn) & Growth y-o-y (%)

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