Alongside joint venture agreements, mergers and acquisitions provide a chance for both major and mid-tier mining companies to expand and consolidate their portfolios. Junior explorers with strong mineral assets and solid leadership can present a sound investment opportunity.
According to a myriad of reports, the People’s Republic of China has been buying hoards of gold during the last year. Consequently, World Gold Council (WGC) statistics show the demand for gold by central banks has risen at the fastest pace in 55 years. Meanwhile, Wells Fargo’s head of real asset strategy, John LaForge, contends that when silver starts outperforming gold, it usually signals it is “closer to a bull market in precious metals versus the other way.”
As blockchain technology continues to expand its reach, the endless opportunities to revolutionise our world have become evident. From streamlining financial transactions in banking and insurance to improving security for digital assets and smart contracts, this technology is set to transform the way we live.
Gold is in a transition phase. In the past nine months two key developments—war and inflation—have made gold trade much stronger than how it was priced from 2006 through 2021. Both developments are likely to stick around in the coming years and will prove a tailwind for gold. Moreover, the current monetary environment is adding support to the gold market as governments and central banks risk insolvency. For the medium- and long-term I’m therefore optimistic on gold. In the short-term gold still has downside risk due to rising interest rates and the possibility of collapsing asset markets triggering a liquidation event.
Is the price of gold at an inflection point?
From 2006 until early 2022 the market priced the U.S. dollar gold price based on the 10-year TIPS yield, which can be seen as the expected real interest rate on 10-year U.S. government bonds, and dollar strength. In my article from January 2022 I have explained the mechanics of TIPS bonds and gold’s inverse correlation with the TIPS yield. Basically, the TIPS yield is the nominal interest rate on U.S. government bonds (the Treasury rate) minus inflation expectations.
TIPS rate = Treasury rate – inflation expectations
The correlation between gold and the TIPS yield is inverted because the lower the TIPS yield (expected real rate) the more investors are incentivized to buy gold and vice versa.
Let’s have a look at an updated chart of the 10-year TIPS yield versus gold prices.
We can see that until recently the correlation was tight. From 2014 until 2017 the gold price traded below the TIPS yield because of a strengthening dollar. Remarkably, since the war in Ukraine gold is not only trading firmly above the TIPS yield, it’s doing so while the dollar is going up. Based on how it was priced in the past 15 years gold should be trading at $800 dollars an ounce now, but it’s not. At the time of writing gold trades around $1,700. What’s going on?
The first development that has changed how gold is priced is Russia’s invasion into Ukraine, which set in motion a proxy war between the West and Russia. As ties between the U.S. and China are also deteriorating, for example over chip technology and Taiwan, it can be expected the division between East and West will accelerate. The consequences are that the East is hastening to de-dollarize and trade between East and West is declining. The former boosts gold as investors are looking for an alternative store of value. The latter—de-globalization—will reshore production and create new supply chains, which is inflationary and supportive for gold too.
The war made the U.S. decide to freeze dollar assets owned by the Russian central bank (CBR). This watershed moment has startled all foreign holders of dollars. Countries in the East holding large dollar reserves are warned their assets can be rendered worthless in the blink of an eye. Sovereign wealth funds and other investors are buying gold because there aren’t many alternatives for the dollar. Gold isn’t issued by any country or central bank, and thus has no political or credit risk, it’s in limited supply, it’s untraceable, and has a five thousand year track record as a store of value.
The freezing of CBR’s dollars has lowered foreign demand for U.S. Treasury bonds during a trend in which foreigners are already willing to hold less of the total U.S. federal debt. Potentially, this could lead to a funding problem for the U.S.
Recently the World Gold Council (WGC) reported central banks bought close to 400 tonnes of gold in Q3 2022, which is four times as much compared to Q3 2021 and a record since the end of Bretton Woods. Although, this number should be taken with a pinch of salt, as it’s mostly based on field research and not what central banks report to the IMF. Most people I talk to in the industry agree the Chinese central bank, and a few others, buy gold covertly. We may assume this is reflected in WGC’s estimates.
Some investors are disappointed by gold’s performance this year because the price in dollars is down while consumer prices in the U.S. have increased by 8% year-on-year. What they fail to see is how gold was priced in recent years—based on the expected real yield—and how that is changing. Now inflation is showing to be sticky, and the world is de-globalizing, gold seems to be in a transition phase. Some entities sell gold based on the old model; others are buying based on a new model.
There are analysts that presume inflation has peaked and will sharply drop. I’m more tempted to think it will stay elevated for the foreseeable future. First, Deutsche Bank analysts researched 318 episodes across developed and emerging markets since 1920 in which inflation reached 8%. The team concludes we have passed the point of no return:
When zooming in on developed economies since the world is on fiat only money (1970), the team finds that inflation has been even stickier.
More from Deutsche Bank:
Fiscal policy has remained loose throughout this inflation shock to ease the burden of Covid and higher energy prices. Indeed even now, many European countries are still pursuing fiscal stimulus packages of various kinds to cushion their citizens from the impact of the energy shock. In the meantime, monetary policy has also been behind the curve, … And, even after the hikes we’ve already had, central bank policy rates remain incredibly negative in real terms. So, you could argue this is the loosest policy response to inflation we’ve ever seen in peacetime. … However, the current consensus expects us to be back at or even below 3% just two years after we initially moved above 8%.
Perhaps gold knows more about what’s coming than the bond market, and hence gold’s pricing model is changing. Interesting fact: before 1914, inflation was practically non-existent due to metallic monetary standards.
Second, since the pandemic several governments have taken control over the printing press. In an interview with market strategist and historian Russell Napier, he explains that while many central banks are tightening, their governments are easing through loan guarantees. Commercial banks create credit, which increases the money supply, and governments will pay the bill when the loan turns sour. “This is the new normal,” says Napier, and inflation will stay around 5% in the coming years as governments want inflation to lower their debt burden. Finding reasons to ease comes naturally for politicians with endless ambitions to win votes: reducing inequality, general investments to combat climate change, the energy transition, etc. From Napier:
Just to give you some statistics on bank loans to corporates within the European Union since February 2020: Out of all the new loans in Germany, 40% are guaranteed by the government. In France, it’s 70% of all new loans, and in Italy it’s over 100%, because they migrate old maturing credit to new, government-guaranteed schemes. Just recently, Germany has come up with a huge new guarantee scheme to cover the effects of the energy crisis. This is the new normal. For the government, credit guarantees are like the magic money tree: the closest thing to free money. They don’t have to issue more government debt, they don’t need to raise taxes, they just issue credit guarantees to the commercial banks.
Third, the world is still highly dependent on fossil fuels, for conventional energy use and to realize the energy transition, but new oil discoveries are dwindling. From Rystad Energy (June 2022):
Continuing the trend from previous years, Rystad Energy’s 2022 review shows a sizeable drop in recoverable oil resources in what could deal a major blow to global energy security. According to Rystad Energy analysis, global recoverable oil now totals an estimated 1,572 billion barrels, a drop of almost 9% since last year.
A tight oil market will persist in the coming years, driving up the price of oil, which will be passed on in prices of goods and services, further fueling inflation.
Fourth, commodity price are currently subdued because China is holding on to zero COVID policy, limiting production and thus demand for anything from base metals to oil. If China would reverse course and open up, commodity prices get a push and so too inflation.
After 40 years of moderate inflation Wall Street is conditioned thinking inflation will always swiftly revert to 2%. This reflects strong confidence in central banks and governments. Misplaced confidence?
Now central banks are raising rates, it’s becoming ever more apparent they themselves, and governments, pose a threat to the economy. In Europe, for example, Italy has so much public debt that the ECB has virtually been the only buyer of Italian government bonds in recent years. So how is the ECB suppose to tighten (sell Italian government bonds) and hike rates without Italy going bankrupt?
Central banks that conducted Quantitative Easing (QE) in the past years and now raise rates are suffering losses due to increasing interest expenses on their liabilities. In my previous article I shared the Dutch central bank is making losses that will have a severe impact on its equity (capital). But other European central banks, the Bank of England, and the Federal Reserve have the same problem.
There are three scenarios for central banks having burned through their equity:
The theory of revaluing gold has gone mainstream after renowned financial journalist Ambrose Evans-Pritchard mentioned it in The Telegraph on November 7, 2022. Markets might anticipate a gold revaluation and buy gold accordingly. Additionally, they might buy gold as a safe haven for when sovereigns default and cause contagion in financial markets.
There is a plethora of challenges in global finance. Previous to 2022 such challenges could temporarily be resolved by QE and zero interest rate policy (ZIRP), while fundamentally making matters worse: debt levels kept going up. Due to inflation these options are lethal. There is no easy way out anymore. War, inflation, and solvency risk could be a perfect storm for gold.
China and Russia may be working toward a new gold-backed currency in a move that would aim to dethrone the dollar as the primary reserve currency of the world, but any such currency would unlikely achieve that goal.
“The USD remains the safest, most convenient and most widely used currency in Asia and in the world today,” Min-Hua Chiang, a research fellow and economist at the Heritage Foundation’s Asian Studies Center, told FOX Business. “No other currency (backed by gold or otherwise) is comparable, and that is unlikely to change in the near future.”
Neither country has officially confirmed plans for such a currency, but China earlier this year started to buy up huge quantities of gold at the same time that Russia was forced off the dollar due to sanctions in response to the invasion of Ukraine. The war also led to the steepest discount on gold prices in years.
Some experts caution that these moves, along with the closer relationship that has developed between Moscow and Beijing as the rest of the world has isolated Russia after the invasion, point to the likelihood of China attempting to launch a new currency with gold backing it.
The idea of a joint Russo-Sino currency has periodically surfaced over the past decade, especially after the Russian Central Bank opened its first overseas office in Beijing in 2017.
Craig Singleton, Senior Fellow at the Foundation for Defense of Democracies, noted that Chinese leaders have spoken for two decades about reforming the global financial system and weakening the dollar’s dominance.
“Two components in that strategy center around the development of a Yuan-based global commodities trading system and efforts by China, in partnership with Russia and other like-minded countries, to challenge dollar dominance by creating a new reserve currency,” Singleton told Fox News Digital.
“In essence, Beijing and Moscow are seeking to build their own sphere of influence and a unit of currency within that sphere, in effect inoculating themselves from the threat of U.S. sanctions,” he added.
But the record amount of gold that China has purchased has raised some eyebrows, even as the trend remains under the radar for mainstream media: Swiss gold exports to China hit a five-year high, with Beijing in July alone receiving 80.1 tons of gold valued at around $4.6 billion – more than double the 32.5 tons it bought in June and the second-highest monthly total since 2012, according to Reuters.
International Financial Statistics from March 2022 indicated that China may have the seventh-most gold stores, with more coming every month.
Francis Hunt, a trading expert, told Asia Markets that using gold to back the currency would be the best way to build confidence in said currency, and that currency may be digital in nature to give China a greater scrutiny over its citizens’ activity.
But Chiang downplayed the potential success of a new currency due to the “relatively small trade volume” that would limit its growth, and that a digital currency would prove difficult to promote.
“Even if both countries use a new currency for bilateral trade transactions, the relatively small trade volume between will limit the impact on the U.S. dollar,” Chiang argued, noting that a multinational currency, like the Euro, requires “a level of political and economic coordination and integration that is not present in Asia today.”
“The appeal will be limited,” Chiang said. “Consider that in August 2022, 43% of global payments were conducted in USD, followed by 34% in Euro. RMB accounted for just 2% of total global payments according to RMB Tracker.”
“The RMB is gaining some ground, but it is still leagues behind the USD and Euro,” she concluded, adding that “foreigners’ confidence towards China’s and Russia’s economic prospects (or lack thereof) is a key limitation” to any potential joint currency.
Source: Yahoo Finance
A DW journalist has been given unprecedented access to rebel-controlled gold mines in the Democratic Republic of Congo. Miners and civilians are forced to risk their lives, while the wealthy buy gold in the global north.
We’ve been waiting for hours to meet rebel leader William Yakutumba. As darkness falls, a man who had introduced himself as Raymond, Yakutumba’s secretary general, assures our group of journalists that the rebel strongman is marching through the forest that surrounds Misisi town with his security escort.
He and some other rebels are drinking beers in a hideout, which from the outside looks like a hotel closed for construction. But from behind a barrier, it serves as a base for the Mai-Mai Yakutumba rebels who are from one of the most active groups in eastern Democratic Republic of Congo (DRC).
The Mai-Mai Yakutumba are feared for their brutality. They have repeatedly attacked an ethnic group called the Banyamulenge, a Tutsi group, that they say doesn’t belong to the DRC. They drive them out, indiscriminately raping and killing as they burn down entire villages.
The rebels can move freely without having to hide because they work together with the army, Raymond explains.
“A colonel of the Congolese army is my good friend,” he brags, calling what he says is the colonel’s number. He has a brief conversation on speakerphone — “proof” for the international journalists.
He shows us pictures on his cellphone: His rebel colleagues posing with AK47s and other heavy weapons as children stand among them. They all wear uniforms he claims they stole from defeated Congolese army soldiers.
“We have all kinds of uniforms. If I want to, I can become a police officer.” He joined the rebels after his whole family was killed when he was 9 years old, he says. They see themselves as a self-defense group against their enemies.
We wait in vain. Yakutumba never shows up. But we receive his permission to enter two mines that the group controls: Mitondo and Makungu, near Misisi town.
According to a recent UN report, the group not only controls these two mines but also the routes to them and a vast area around them.
Our journey brings us to Nyange village, located beside the mines. But the village chief is not happy with our permits. Nor is he convinced by our letter stamped by the governor of South Kivu region. It seems the local chief doesn’t want us to go there.
Officially, the mine is controlled by the local authorities and the mining ministry, but after hours of discussions the village chief eventually admits to our local contact: He can’t let us go to the mines — it’s not safe because the rebels control it, not him.
After a long conversation, we admit to him that the rebels have given us their permission to visit.
He’s stunned. And lets us proceed. But only after we agree to be accompanied by a police officer, a soldier, an intelligence officer, the son of the chief, and a man who introduces himself as part of the local mining cooperative — but whom we later learn is actually one of the rebels.
We notice all rebels we meet wear something red. Red trousers, red hats, a red ribbon somewhere. Red is their distinguishing feature so that villagers know who they are. They live among the villagers. Everyone knows they control the mine and tax the people working there.
According to the UN report, the Mai-Mai have been in control since December 2021, when they forced government troops out.
The Mai-Mai appointed a parallel administration to govern the mine, says the UN report, which miners confirm.
According to the report, up to 150 diggers are at the site, which produces between 1 and 2 grams of gold per week.
At the Mitondo mine, our local contact manages to distract our entourage, allowing us to hide in one of the narrow tunnels and speak to one of the miners, who we call Michael. He tells us that he has to pay a “tax” of a few dollars each month to the rebels just to access the mine.
Together with different government taxes and the contribution for the mining cooperative, there’s not much of his salary left on which to survive.
“They take over what is most lucrative. They know exactly which mine is producing most gold, down to which tunnel,” Michael tells us.
In meter-wide tunnels that feel overwhelmingly hot, he scrapes out a gold-bearing rock. He tells us about their special breathing technique to help deal with the stifling heat. Flat, regular breaths to prevent fainting. “When you go to work, you just pray to God. Because we’re feeling like it’s a death sentence,” he says.
Often it is — when the mines cave in. Six years ago, more than 20 people were buried alive.
Another digger, Patrice, remembers it well. “I was there with my three brothers and other miners. All of them were trapped inside the mine. Up until now, their bodies are still inside. I was sad, really sad. But I can’t be sad for long. I have to earn a living.”
Other miners have similar stories. They say the Mai-Mai are never far away, even now that they’re hiding further up the mountain because they were told that we were coming.
Later, we confronted the Mai-Mai Yakutumba via WhatsApp about these allegations, but they never replied. Local government officials also repeatedly declined our interview requests. Several sources tell us that the rebels often work together with local authorities and even share profits with them.
We later meet Esther Nanduhura, who is from the Banyamulenge ethnic group targeted by the rebels. She describes how she survived an attack by the Mai-Mai Yakutumba.
“They found us at the place we had sought refuge and they killed three people. Then they murdered my father-in-law and injured my mother-in-law,” she recalls.
Both of them were over 80, she says. She and her family were forced to march for days with no food. Then they took her husband. She never saw him again. Later she learned he had been hacked to death with a machete. They killed dozens, displaced hundreds in several attacks.
Now Esther is safe, sheltering with her eight children at a friend’s house in a bigger city.
She is aware that gold from DRC ends up in the rich part of the world; people there pay a lot of money for it.
“The Mai-Mai sell gold to white people to buy weapons — that’s why they sell the gold. I want to tell these white people to stop buying from them. So they stop killing us with these weapons.”
For Esther it is a simple equation: As long as armed groups can reap profits from gold mining, they will keep earning the cash to kill.
The Democratic Republic of Congo has some of the purest gold in the world. Belgian businessman Yasin Karim Somji tells us that he is convinced of the purity of the gold in Misisi and other places in the North and South Kivu regions. He plans to soon open the first gold refinery in the DRC and export the gold to Europe, Asia and America.
“At the moment we are in long discussions with the government. They will check all artisan mine workers who will come here; they will try and trace it and maybe it will help. I hope it will help,” Somji says.
But it will be hard to make sure the gold that comes out of the region is not linked to rebels. Traders tell us that tracing certificates that indicate the origin of the gold are already altered in the first city they reach, Bukavu, in the DRC’s East.
From here it is often smuggled or officially exported — with fake certificates — across the border to Rwanda and other East African countries. Then it is transported to Dubai, a worldwide trading center for gold.
Eventually, it’s sold to the end consumer in Europe, the United States and other countries.
The vast majority of gold from DRC is smuggled illegally across the border. When it reaches its final destination it is virtually impossible to know where it originally came from.
Source: DW
In an exclusive interview with Daniela Cambone, billionaire philanthropist, Frank Giustra lays out his thesis for the global monetary reset already underway. We’re at the beginning of a currency war, “and I’m absolutely certain we’re heading into a global monetary system reset,” warns Frank Giustra, CEO of the Fiore Group. He tells Daniela Cambone, Russian President Vladimir Putin and Chinese President Xi Jinping, “have made it very clear they want an alternative to the U.S. dollar,” after being held hostage by the currency for so long. Predicting that the dollar will lose its status as the world’s reserve currency, Giustra says China will be victorious in its efforts to solidify a new central bank currency backed by gold. “Everybody, and I mean everybody, should own physical gold,” he says when asked about the increasing privacy issues posed by technology. “I think the pivot is around the corner, the [Fed’s] math doesn’t make any sense,” claims Giustra when asked about the rate-hike cycle currently underway for the central bank. “The Fed is trying to talk inflation and something is going to break, they’ve ruined the American dollar,” he concludes.
Source: YouTube
Mining represents a critical sector for the development of the Democratic Republic of the Congo (DRC). According to the World Bank, the mining sector has dominated the Congolese economy since the early 1910s.
This domination is unsurprising, given that the country is incredibly rich in minerals. For example, the Katanga Copper Belt’s cobalt reserves total an astounding 5 million tonnes, making it the world’s largest known cobalt deposit. The DRC also possesses the largest known diamond deposits and the largest gold deposits in the world. Its copper reserves make this region the second richest copper region in the world, with 70 million tonnes, surpassed only by Chile. Other significant mineral resources in the DRC include tin, tantalum and tungsten.
Since peace returned to the DRC, successive governments have faced significant challenges in their efforts to establish or re-establish both industrial production and a legal framework for this key sector.
After several years of discussion, the Congolese Mining Code was enacted by the Congolese Congress in 2002, replacing outdated mining legislation. This resulted in both an increase in foreign direct investments and a steady increase in copper production in the years prior to the global financial crisis of 2008. Despite this crisis, more than 1 million tonnes of copper were transported in 2014, up from 9,000 tonnes in 2003, the year a peace agreement officially ended Africa’s deadliest civil war.
The 2002 Mining Code was substantially amended by Law No. 18-001 of 9 March 2018 (the New Mining Code). The New Mining Code notably reinforces local content requirements, reduces the tax regime attractiveness and abrogates the 10-year stability clause provided for in the 2002 Mining Code.
Major mining companies have threatened to challenge the New Mining Code through international investment arbitration. However, the DRC government has maintained all the problematic amendments in the New Mining Code.
Some commentators had predicted that, as a consequence, the DRC’s mining sector could suffer a slowdown. This has, however, not been the case and the DRC’s mining sector continues to grow. In 2021, the mining sector was still a key driver of DRC’s growth, with copper and cobalt production rising by 12 per cent and 7.6 per cent respectively.
The New Mining Cod was adopted by the Congolese Parliament on 27 January 2018 and promulgated by the President of the DRC on 9 March 2018. The implementing measures of the New Mining Code are set forth in the Mining Regulations adopted in June 2018.
The DRC is a member of several international organisations, including the World Trade Organization, the World Bank Group, the Multilateral Investment Agency, and the International Centre for Settlement of Investment Disputes. The DRC has also ratified the 1958 New York Convention on the recognition of foreign arbitral awards.
In addition, the DRC voluntarily adhered to the Extractive Industries Transparency Initiative criteria, and has entered into several bilateral investment treaties and into a convention for the avoidance of double taxation with Belgium.
Additionally, with the stringent UK Bribery Act and US Foreign Corrupt Practices Act in force, it is essential for any company doing business in the DRC to seek professional commercial and legal guidance to mitigate business and regulatory risks. Section 1502 of the US Dodd–Frank Wall Street Reform Act and the new EU Conflict Minerals Regulation are also relevant for businesses active in the DRC. Depending on the type of mineral traded (tin, tungsten, tantalum and gold), these laws impose extensive supply-chain due diligence obligations on both upstream and downstream companies.
At the regional level, in July 2012 the DRC joined the Organisation for the Harmonisation of Business Law in Africa (OHADA). OHADA law can only benefit further investment by providing companies doing business in the DRC with a single, modern, flexible and more reliable business law framework, which already applies in 17 OHADA Member States and which supersedes previous or subsequent national legislation. OHADA law is of particular interest to mining companies, as it primarily covers commercial, corporate, loan-guarantee, accounting and arbitration law. OHADA law entered into force in the DRC on 12 September 2012. In addition, a one-stop shop for business start-ups was instituted and shows encouraging development.
Congolese law, which is based on civil law and closely modelled on Belgian law in particular, will remain applicable in areas not governed by OHADA law. It will, thus, be of paramount importance to understand the myriad applicable pieces of legislation to properly navigate the remaining bureaucratic, legal and, especially, cultural and linguistic hurdles.
The Mining Cadastre receives applications for mining rights, grants mining rights and keeps records of mining rights, among other functions. Moreover, the DRC has created a national transparency initiative committee with respect to the management of extractive industries in the DRC. Any regulation is issued by the Ministry of Mines, which supervises mining activities at the national level. At the highest level, the President of the DRC is empowered to enforce the mining regulations and to classify mineral substances as reserved mineral substances, if applicable.
Underground minerals belong exclusively to the state. However, any private party may be authorised by the state to engage in mining activities (from exploration to exploitation and distribution), provided that specific objectives of eligibility, priority and capacity criteria set forth in the Mining Code are met. The types of mining permits available in the DRC are research permits, exploitation permits (including small-scale mines) and tailing exploitation permits. Specific legislation regarding artisanal mining and quarry rights also exists.
Companies that wish to develop mining activities in the DRC are required either to incorporate a Congolese company or to elect domicile with a ‘mining agent’ as a condition of eligibility to obtain an exploitation permit. In addition, to be eligible for a mining permit, companies are obliged to either form a joint venture with a state-owned company (such as Gécamines) that already holds the necessary permits, or freely assign a mandatory 10 per cent stake of its share capital to the DRC.
Any person wishing to engage in prospecting or reconnaissance activities must make a prior declaration to the Mining Cadastre and seek a prospecting permit. This permit entails no priority whatsoever in relation to potential future exploration or exploitation rights.
An exploration permit may be granted to any eligible private company for a period of five years, renewable once for the same duration, with respect to all mineral substances (Article 52). To be eligible for an exploration permit, a company must demonstrate a minimum financial capacity of at least five times the total amount of the annual surface rights payable for the area covered by the exploration permit (Article 58). The surface rights amount to US$5.89 per square metre (Article 397). In addition, the company will have to submit a rehabilitation and mitigation plan before starting any research activity. There are specific obligations for maintaining the permit, including the requirement to start exploration work within one year of delivery of the permit (Article 197).
Should the holder of a research permit demonstrate through a feasibility study the existence of an economically workable ore deposit (including tailings, for which specific permits exist) and sufficient financial capacity for the development, construction and exploitation of a mine, the Minister of Mines may grant an exploitation permit for a duration of 25 years, renewable for successive periods of 15 years. The exploitation permit may be refused by the Minister of Mines only for specific reasons, which are exhaustively listed in the Mining Code. Obtaining an exploitation permit obliges the operator to transfer to the state a free carry participation of 10 per cent of the operator’s share capital (Article 71). In practice, however, operators that are engaged in joint ventures with state-owned permit holders, such as Gécamines, are not required to transfer 10 per cent of their share capital to the state.
In addition to exploration and exploitation permits, the Mining Code contains specific provisions with respect to artisanal or small to very small-scale mining rights, and quarry rights. Quarry rights relate to construction materials rather than mineral substances.
The timeline for obtaining an exploration or exploitation permit is as follows.
The Mining Cadastre has 20 working days to examine the request and to make a decision (Article 40). Following this, the Directorate of Mines must conduct a technical investigation. The office in charge of the protection of the environment examines the environmental impact study and the environment management plan. These reviews must be conducted within a period of time set forth in the Mining Code for each type of request (typically, for exploitation permits, within 30 working days for the Mining Cadastre, 60 working days for the Mining Directorate and 180 working days for the environmental investigation). Should any of the aforementioned authorities fail to reach a decision within the required time frame imposed by the Mining Code, the mining permit will be considered granted.
When a favourable decision is made, the Mining Cadastre will then grant the mining permit to the applicant, provided that the relevant surface rights have been paid for within 30 business days.
All mining rights are conveyable under the Mining Code. A specific right of amodiation (comparable to a long lease agreement) also entitles the holder of an exploitation permit to transfer all or part of such rights under a rental scheme. Exploitation permits can also be mortgaged. Finally, while mining rights are valid only for specified mineral substances, permits can be extended to additional minerals through specific procedures.
Processors of mineral substances who do not hold mining rights and whose activities are limited to processing activities must obtain a specific licence in this respect pursuant to the Mining Code.
The holder of a research permit will also have to submit a rehabilitation plan for the site after its closure to be eligible for an exploitation permit. The closure of a research or exploitation centre must be promptly notified to the Mining Administration.
The holder of the mining rights is required to obtain a financial guarantee in an amount sufficient to carry out environmental rehabilitation.
iEnvironmental, health and safety regulations
The New Mining Code and the Mining Regulations contain several environmental and health and safety regulations. Environmental regulations are by far the most detailed.
While most health and safety regulations are contained in the Congolese Labour Code, and are therefore not specific to the mining sector, the Mining Regulations do contain specific safety directives regarding the use of explosives.
In order to conduct mining operations, an Environmental Exploitation Permit from the Ministry of the Environment is mandatory, in addition to the environmental obligations arising from the New Mining Code.
Environmental compliance obligations exist at every stage of a mining project:
As mentioned above, rehabilitation costs must be covered by a financial guarantee to be set up in accordance with the Mining Regulations.
Under the Mining Code, occupants of the land covered by a mining permit have a right to be indemnified when their activities (such as agriculture) are affected by a mining project, in accordance with the conditions set out in the New Mining Code.
Other rights include an obligation for the operator to consult with local authorities.
Additional provisions of the New Mining Code are intended to ensure the conservation of any archaeological findings that occur during the course of the project.
Generally speaking, the DRC’s infrastructure is either outdated or non-existent. In order to develop and maintain activities and personnel, mining operators are therefore frequently required to participate in local development, for instance by funding roadworks, hospitals or schools.
The New Mining Code authorises a permit holder obtaining any further licences or permits to install and operate processing plants inside the perimeter of the relevant permit.
There are no specific restrictions on the import of equipment and machinery, or on the use of foreign labour and services, save for certain tax measures pursuant to the New Mining Code. However, when applying for the granting of a mining right, mining operators must, pursuant to the New Mining Code, commit to process and manufacture minerals in the DRC. If for any reason it is impossible to do so, a derogation may be granted subject to the fulfilment of several criteria. However, current mining title owners will benefit from a three-year period to comply with this industrialisation requirement.
Expatriate labour may be hired but the New Mining Code (like its predecessor) provides that, assuming equal qualifications, priority must be given to the local labour force for the performance of mining operations.
The sale and processing of mineral substances are unrestricted under the New Mining Code: the exploitation permit holder is free to sell the products to customers of his or her choice, at freely negotiated prices.
Generally, there are no legal restrictions on foreign investment in the mining sector, and currency exchange provisions are quite liberal.
There are, however, some basic obligations with which operators must comply. The DRC adopted new Exchange Control Regulations on 25 March 2014, which have been in force since 24 September 2014. Their main characteristics are as follows:
A recent ministerial decree adopted on 2 February 2022 introduced the Centre de négoce (Trading Centre), which takes the form of a public centre for artisanal miners with adequate infrastructure to regulate and facilitate activities related to the sale of mineral substances from areas open to artisanal mining.
Trading Centres will offer a range of practical and supply chain-related services to artisanal miners, such as the receipt of batches, weighing, sampling, packaging, sealing and quantitative and qualitative analysis of mineral substances. Trading Centres aim to provide a safe space whereby offer and demand for artisanal mining can meet in a regulated environment. They will also serve as central points for the collection of taxes and duties that are due as a result of the mining operations and transactions.
Each Trading Centre is to be formally and effectively set up by a provincial decree deliberated in the provincial council of ministers, on a proposal of the provincial minister of mines, after consultation with other state services and civil society organisations.
This initiative constitutes a revolutionary step towards the formalisation of the artisanal mining sector, subject to significant tensions between miners and traders.
The tax and customs regime applicable to DRC mining companies is exhaustively set forth in the New Mining Code.
The main taxes levied on mining companies include surface taxes and rights, corporate income taxes, royalties, taxes on dividends and interest rates, and taxes on wages.
The value added tax regime entered into force on 1 January 2012. Since then, import of goods is subject to VAT at a rate of 16 per cent. The tax base equals the cost, insurance and freight value plus any (customs) duties and taxes (with the exception of VAT itself). Import of goods is deemed to take place when the goods cross the border of the DRC, but VAT is only due upon the declaration for release of the goods.
Prior to the entering into force of the DRC 2021 Financing Act, the Ordinance Act instituting the VAT, as amended and completed from time to time, exempted the imports of goods made by the mining companies from VAT. However, the 2021 Financing Act has removed this special VAT exemption and introduced a new VAT treatment for the imports of goods by mining companies. The VAT due on goods imported by mining companies will now be established and liquidated by way of declaration of goods to customs at the point of entry and will subsequently be declared to the DRC tax administration department to which the licensed company belongs at the first VAT declaration due date following the import.
The modalities of application of the provisions of the 2021 DRC Finance Act, with respect to the aforementioned VAT regime on importation of goods, remain to be set out in a Ministerial Decree of the Minister of Finance.
Royalties (i.e., specific mining tax) are due on the gross commercial value of all commercial products. Royalties become due at the exploitation phase and are payable at the leaving of the goods from the exploitation or processing site of the project. They amount to 1 per cent for iron or ferrous metals, 3.5 per cent for non-ferrous metals, 3.5 per cent for precious metals, 6 per cent for gemstones, 1 per cent for industrial minerals, zero per cent for common construction materials and 10 per cent for strategic minerals determined by the government (i.e., copper, cobalt and coltan and geranium).
Although mining royalties are deductible expenses for the determination of corporate income tax, they are due regardless of the mining company’s profitability (Article 255).
The corporate income tax rate is set at 30 per cent of turnover, as it is the case under the DRC’s common regime.
Specific taxes are subject to the standard or common tax regime, such as taxes on rental revenues, real estate contributions (for surfaces falling outside the scope of the mining surface taxes or rights) and taxes on vehicles and roads.
The tax rate on expatriate remunerations only amounts to half the common tax rate set at 25 per cent.
The withholding tax rate payable on dividends is set at 10 per cent of the gross amount.
In principle, withholding tax on interest is levied at the ordinary rate of 20 per cent on the gross amount.
However, interest paid in respect of loans granted from abroad in a foreign currency is not subject to withholding tax provided that the interest rate and other loan conditions are at least as favourable as those the company could obtain from unaffiliated companies.
The New Mining Code has further implemented a super profit tax at a rate of 50 per cent. The super profit tax is due when the commodity prices rise by 25 per cent in comparison to those referred to in the feasibility study. The revenues subject to the super profit tax are then exempted from the profit tax (i.e., the corporate income tax at 30 per cent).
Lastly, the New Mining Code has introduced a capital gain tax, which will become due in the case of a share transfer; the amount that is taxable is calculated on the basis of the share transfer price and the accounting value of the share.
The customs regime applicable to mining companies includes some exemptions, particularly for temporary (for up to 18 months) imports, furniture imported by expatriates, etc. In addition, various preferential rates on imports apply to mining companies. These rates increase as the project progresses:
The preferential rates of 2 per cent and 5 per cent only apply to goods that appear on the list that the holder of the mining licence must submit to the Congolese authorities, which must be approved by a joint Decree issued by the Ministry of Mines and the Ministry of Finance.
Any holder of a research or exploitation permit is subject to a surface right at the rate of US$5.89 per quadrangle.
The 2021 Financ ing Act provides for the application of the ‘non-tax revenue procedure’ to: (1) the payment of the 50 per cent share of royalties; (2) the transfer of grants; (3) the additional royalty; and (4) rents (in the case of amodiation) provided for in various mining contracts and paid to the companies in the state’s mining companies.
In early 2013, the Congolese government initiated a review of the 2002 Mining Code. The fact that some international institutions, such as the Carter Centre and The World Bank, have pointed out several flaws in the 2002 Mining Code has undoubtedly influenced the government’s decision to initiate such a major review of the Code. According to the New Mining Code’s explanatory statement, among other points, the aim of the Code is to:
In 2015, the government decided to suspend the review of the 2002 Mining Code, presumably because of the turmoil that the contemplated amendments would cause for the mining industry. However, in May 2017, the new DRC government announced that it would pursue the review.
On 27 January 2018, after unsuccessful discussions with mining operators, the New Mining Code was approved by Parliament, promulgated by the President of the Republic on 9 March and published in the Official Gazette on 28 March 2018. In June 2018, a new mining regulation came into force, closing the legislative procedure of the mining sector reform.
Mining companies seeking to invest in the DRC must note that, pursuant to the New Mining Code, subcontracting activities in the mining sector are subject to Act No. 17/001 of 8 February 2017 establishing the rules applicable to subcontracting in the private sector (the Subcontracting Act). The Subcontracting Act notably provides that:
In this respect, whereas local content requirements were already imposed on subcontracting activities in the mining sector by a Ministerial Decree, the Subcontracting Act’s implementation measures impose rather unclear obligations on mining operators and subcontractors. Furthermore, it appears that the subcontracting authority has recently increased the frequency of its on-the-ground visits to control compliance of the mining actors with the Subcontracting Act and related regulations.
In line with a current African trend, the New Mining Code reinforces local content requirements. By way of example, 25 per cent of purchase desks’ share capital is reserved for Congolese citizens.
From a political point of view, DRC President Felix Tshisekedi has stated, in May 2021, his intention to revise all the contracts the DRC has signed with China as the scope of the terms of these contracts is now deemed contrary to the national interest and inequitable for the DRC. In particular, the contracts that were entered into between the DRC and China under the ‘infrastructure for minerals’ deal have remained on the President’s radar since then. The announced renegotiations are not expected to impact the current state of the mining sector at large.
The adverse economic conditions continue to take a high toll on several local mining companies, which are frequently managed primarily for the benefit of foreign shareholders, to the detriment of the companies themselves.
In November 2021, and after reading a parliamentary report denouncing the illegal exploitation of the country’s mines, specifically in South Kivu, DRC President Felix Tshisekedi issued a list of recommendations, including the suspension of the granting and transfer of mining permits and rights, both for research and for exploitation, until further notice.
The lifting of this measure was confirmed in a notice signed on 14 March 2022 by the General Director of the Mining Registry, on the instructions of the Minister of Mines in her letter No. CAB.MIN/MINES.ANSK/000589/01/2022 of 5 March 2022.
On 29 March 2022, the DRC became the seventh member of the East African Community (EAC). The accession to the EAC will imply access for the DRC to the customs union and single common market existing between the Member States of the Community. This will facilitate cross-border trade and transport of mining products, including through a better access to the strategic ports of Mombasa (Kenya), and Dar es Salaam (Tanzania).
Source: Lexology
Leading gold firms from across the world have signed an agreement pledging to work closer with governments to support robust standards in the industry.
The Declaration of Responsibility and Sustainability Principles was agreed at the Global Precious Metals Conference in Lisbon on Oct. 18.
Signatories to the declaration include the industry’s global trade association LBMA, the World Gold Council, the Singapore Bullion Market Association, and the Swiss Association of Precious Metals Producers and Traders.
Other firms to agree to the principles include the China Gold Association, Dubai Multi Commodities Center, and the Indian Bullion and Jewellery Association.
David Tait, CEO at the World Gold Council said: “I believe this is just the starting point, as we move to improve collaboration across the supply chain for the benefit of all stakeholders, end-users and the future of the gold industry.”
The declaration has ten key sustainability objectives, including commitments to responsible sourcing standards, respect for human rights, the advancement of the UN’s sustainable development goals, and action and disclosures on climate change.
As a part of the declaration, gold industry players are also expected to continue to work with governments, international organizations, other private sector actors, and civil society to define and support robust standards of integrity and governance.
“I am pleased that we have been able to define a shared pathway to progress and unite our industry around these principles. By coming together in this way, we can demonstrate our collective commitment to responsible and sustainable business practices,” said Ruth Crowell, CEO at LBMA.
Source: Arab News
For Dubai Multi Commodities Centre (DMCC), its foundation was underpinned by gold.
Conceived to provide the physical and financial infrastructure required to create a hub for the global commodities trade, it wasn’t until Standard Bank London and Dubai Islamic Bank became the first to make gold Sharia-compliant by launching the first and only ground-breaking gold Sukuk, which raised $200 million, the proceeds of which were used to finance the construction of its first commercial towers, namely Gold, Silver and Almas.
With a foundational environment created, the Dubai Gold & Commodities Exchange (DGCX) debuted as one of its subsidiaries in 2005 and, with it, the region’s first commodity derivatives exchange.
With a formally established bourse that not only provided guaranteed settlements, reduced counter-party risk, fully transparent fee structures and access to regional and international liquidity pools, DMCC’s facilities and services – particularly its vault, which was developed in conjunction with Brink’s Global Services – helped to support not just the development of its futures market but that of the physical. Which today includes Sharia Gold, India Gold Quanto, Daily Gold and Physical Gold Futures & Spot Gold Contracts.
Having captured the physical market, DMCC’s next focus is on possibilities for bullion in the digital space.
As a single location that fully services the entire gold value chain, from research and refining to trading and investing, Dubai has risen to become responsible for roughly 25 per cent of global trade. However, this was only made possible, but creating and nurturing the right environment. In a similar way to how China, Indonesia and Uzbekistan remain the largest producers in Asia, with China and India being the largest consumers, it is Singapore and Hong Kong that remain the favored trading centres due to their zero rate tax for bullion and strong rule of law.
Similarly, other centres such as Luxembourg have also remained attractive and competitive by catering to the increasing demand for ESG products by offering Fair Trade bullion through its state savings bank. Akin to other Fair Trade products, BCEE guarantees that for each kilo of gold sold, in addition to the minimum fair wage guaranteed, Fair Trade receives a premium of $2,000, which is directly paid to the community of the Macdesa mine in Southern Peru, where the gold is mined.
As a lesson learned from the regulated economies of least resistance, hopefully the same philosophy will be applied to the UAE’s mint and coin industry, thereby attracting another branch of the gold industry to benefit from the country’s existing verticals.
If I were to mention a second key policy advantage, it would be DMCC’s steadfast commitment to serving its stakeholders by remaining an impartial entity whose sole commitment is to its community and the greater long-term vision of Dubai and the UAE. Driven by its own decree, its duty to provide an optimal environment has led to Dubai becoming an epicenter for the global physical gold ecosystem, connecting mining supply sources from Africa and the former CIS countries with the major demand markets of Asia, Europe, and the US, in a globally centralized timezone that facilitates trading activities around the clock.
An additional practice that has dramatically served Dubai’s gold industry is that of collaboration, most recently illustrated through DGCX’s agreement with FinMet, who will not only bring their wealth of experience but support the rollout of new products and in an advisory capacity to onboard banks and new members seeking greater diversity with their product needs.
It will be interesting to see how gold translates into the digital economy, in particular blockchain and crypto – with companies including Pax (PAXG) providing an asset-backed token where one token represents one fine troy ounce of a London Good Delivery gold bar, stored in professional vault facilities, perhaps more investors will consider this as an easier and safer way to invest.
Certainly, DMCC Crypto Centre will continue to monitor the market and be ready when opportunity, regulation and demand meet.
In a similar fashion to the development of Dubai’s wider gold industry, the release of our latest bullion coins are still in their infancy, particularly in comparison to the Krugerrand, which has been on the market since 1967 and is by far the world’s most popular 1 oz coin. However, as a store of value, which reflects the extraordinary progress made and forged using only fully-compliant 999.9 24-carat gold, I believe it is just a matter of time before history will repeat itself.
Source: Gulf News
