* Lower copper prices have battered Congo since last year
* Several mines suspended amid growing political risk
* Chinese deals provide a cushion but not enough
By Aaron Ross
LUBUMBASHI, Democratic Republic of Congo, July 4 (Reuters) -
A t a mining conference in Democratic Republic of Congo's mining
capital, Lubumbashi, last month, government officials and mining
company executives huddled around two big tables, brainstorming
how to save a failing copper mine.
The mine was fictional but the scenario was all too real:
Africa's leading copper producer has shed thousands of mining
jobs this year after global commodities prices tumbled, and
analysts say further retrenchment is likely.
Investing in this unstable country has never been for the
faint hearted, but while mineral prices were high many firms
were willing to take the risk. That may no longer be the case
for the world's big mining companies as the commodities slump
forces them to slash costs globally to reduce high levels of
debt.
Glencore's GLEN.L Katanga copper mine, one of the biggest
in Congo, announced an 18-month suspension last September, but
analysts expect this could now be extended.
Australia's Mawson West Ltd MWE.TO and Kazakhstan's
Eurasian Resources Group also both put mines on care and
maintenance earlier this year.
Chinese companies, taking a longer-term view and keen to
invest in much-needed resources for China's economic
development, are picking up some of the slack.
China Molybdenum 603993.SS snapped up Freeport-McMoRan's
FCX.N majority stake in the Tenke copper project in Congo for
$2.7 billion in May, as the American company, in order to cut
debt, pulled back on what was previously seen as a strategic
investment. ID:nL5N1863LX
Chinese investments, however, will not be enough to reverse
the decline in Congo's mining sector, which saw copper and
cobalt output plunge by around 20 percent in the first quarter,
while gold production fell by 8 percent, according to the
central bank.
"There will be more job losses over the next six months,"
said Serge Bilambo, head of mining and metals at Standard Bank
Group SBKJ.J in Congo.
At least 3,000 direct and 10,000 subcontractor jobs have
already been axed in Congo's mining sector since last year.
Sicomines, the mining side of a $6 billion
infrastructure-for-minerals deal between Chinese firms and
Congo, came on tap in November and may soon become the country's
largest copper producer. But Chinese companies' preference for
imported Chinese labour and supplies means they will contribute
less to the local economy than previous big mining projects,
analysts say.
China Molybendum and Zijin Mining 601899.SS , another
Chinese investor, have invested heavily in copper-cobalt
projects in the last year in an echo of when China snapped up
cheap assets during the 2008-09 global financial crisis.
The outlook for cobalt, a byproduct of copper, is much more
promising than for copper with cobalt prices forecast to rise 45
percent by 2020 owing to growing demand for electric vehicles.
SQUEEZED
The long-term forecast for copper is bearish. A Reuters GFMS
survey in April said a global surplus would suppress prices
until 2020.
Add in growing political risk in Congo -- an election set
for November to replace longtime president Joseph Kabila will
almost certainly be delayed, which could trigger unrest -- and
the business case for pulling out looks strong for companies
already under financial pressure.
Much of local investors' anxiety is trained on Glencore's
Katanga unit (KCC) in the southeastern town of Kolwezi. The mine
produced 158,000 tonnes of copper and paid over $300 million in
taxes in 2014.
It announced an $880 million investment in upgrades, and says
it plans to resume in late 2017, but Kolwezi residents are
sceptical. Delphin Monga, regional secretary of the KCC workers'
union, said construction was going "in slow motion" and he
thinks concerns Glencore has raised about theft by artisanal
miners are "a pretext to close the mine."
A Glencore spokesman said production is still scheduled to
resume next year, but Ben Davis, an analyst at investment bank
Liberum Capital, was doubtful.
"I wouldn't be surprised if they keep it off for longer," he
said.
Viviane Bakayoko, CEO of Citibank DRC, told Reuters that one
or two more mines may suspend production in the coming months.
Mining and oil make up 95 percent of Congo's export earnings
and the government last month cut its economic growth forecast
for this year to 5.3 percent, from an original estimate of 9
percent.
It has said it is unable to subsidize struggling mines.
In April, it suspended value-added tax reimbursements to
mines in an effort to contain exchange rate pressures. The
government currently owes mining companies $700 million,
according to Congo's chamber of commerce.
A finance ministry spokesman said the suspension has since
been lifted but did not know when reimbursements would start.
Artisinal miners have as usual stepped in as big mining
companies pull back, risking all to make a living amid Congo's
economic crisis.
At a former industrial open mine near Kolwezi visited by
Reuters, workers had pitched tents at the bottom of a chasm and
were filling bags with rock containing copper and cobalt to be
sold to middlemen.
"For the diggers, it's the same precariousness," provincial
governor Richard Muyej said. "The poverty is serious."