Congo Resources

[Berliner]

Inside Moto Gold Mines
Sunday , 01 Apr 2007
http://www.mineweb.net/mineweb/view/mineweb/en/page33?oid=18928&sn=Detail

JOHANNESBURG -

It's one thing being called the world's hottest gold stock - by many accounts, Moto Gold Mines (MGL, C$4.91, C$300m) - and another thing being bogged down in potential legal ruination. But it seemed inevitable that MGL would run into some kind of trouble for outlining nearly 20m ounces of gold resources in the far northeastern part of the Democratic Republic of the Congo (DRC), in Orientale province, just outside the Ituri "province", after the proclamation of James Kazini, a warlord, in 1999.

Specialist investors have long classified as "world class" a find of 1m ounces of gold, pushing MGL into the realms of potential super stock. MGL's fortune, to say nothing of its hard physical and corporate work, has attracted lots of attention, good and bad. So it is that MGL has just announced that, given the current potential challenges to its title, it's been "actively updating influential people in the DRC and internationally".

In this part of the world, influence counts. The people targeted for "updating" include the board and current executive team at Okimo (L'Office des Mines d'or de Kilo-Moto, a State-owned gold mining entity), and new ministers appointed following the DRC's elections late last year.

Given its standing board of directors, it seems that MGL had an early sense of what it would find in the Moto concessions, part of the famous Kilo-Moto gold trend. MGL's standing board of directors include Sam Jonah of Ashanti renown, Klaus Peter Eckhof, Andrew Dinning, Mark Arnesen, Walter Kansteiner (erstwhile US assistant Secretary of State for African Affairs), David Hodgson (erstwhile COO of AngloGold Ashanti), Jeff O'Leary, T. Sean Harvey, and Patrick John Flint.

MGL has also just announced that it has "engaged both international and local DRC legal experts to prepare and take the appropriate legal action". The MGL board is also meeting frequently both to review the position and to determine "appropriate action".

The current focus is a November 2006 Protocol between MGL and Okimo, which sought a "simplified" contractual arrangement to govern the development of and future production activities at the Moto Gold Project. In 2003 MGL had entered into a joint venture with Borgakim sprl, a subsidiary of Orgaman sprl. Both are privately owned entities under the control of the Damseaux family, with headquarters at Avenue Lt. Colonel Lukusa, in Kinshasa, the DRC capital.

Orgaman runs a sprawling business empire across the DRC, operating in five of its nine provinces, and including the importation of frozen foods, road transport (Transmac), maritime trade (Sotrama), general trade (Mampeza and Economat du Peuple), beef farming and production (la Société des Elevages du Bandundu Occidental), coffee growing (Domaine de Katale), real estate (Immokin) and mining (via Borgakim).

According to corporate literature, it is not possible to distinguish between Orgaman and the Damseaux family, which installed in the DRC in 1931. Orgaman ("organization, participation and management") is currently directed by William Damseaux and his son Jean-Claude, apparently "two of the most important Belgian private investors in DRC".

The November 2006 Protocol provided that Orgaman would hold 10% of the Moto concessions, as defined; Okimo would hold a non-dilutable 30%, and MGL itself, 60%. It was agreed that the project's existing contracts be amalgamated in favour of a 30 year lease over some 2350km2, with the balance of the area being released to Okimo. MGL agreed to pay Okimo $5m (via Borgakim), plus ongoing monthly rentals of $350 000 until the commencement of production.

Okimo owed Orgaman debt of some $21m, which MGL agreed via Borgakim to purchase on terms acceptable to MGL, Borgakim, Okimo and Orgaman. MGL further agreed to pay Orgaman $8m for interest accrued on the debt. Meanwhile, from an operating point of view, leasing agreements and a contract of technical and financial assistance with Okima apparently remained in place.

But in January this year, certain MGL subsidiaries received letters from the-then CEO of Okimo, Victor Kasongo (now vice minister of mines), claiming certain obligations under MGL's existing contracts "had not been satisfied" and giving 90 days to rectify matters. MGL "strongly disputes that it has failed to satisfy any performance criteria under any of the contracts with Okimo and is seeking formal withdrawal of the letters".

MGL has now received a copy of a letter to Kasongo from the chairman of Okimo "making it clear that he had no authority to write the letters", but MGL still awaits formal withdrawal of the letters. Further documentation, moreover, had been prepared by MGL to implement the November 2006 Protocol. MGL was, however, requested to wait until the appointment of the new DRC government and the appointment of officials to State companies following the recent elections before progressing the documentation.

The relevant appointments have been made, but the recent outbreak of unrest in Kinshasa is seen as possibly delaying the withdrawal of the letters from Kasongo, and thus, implementation of the ancillary documents. The principal asset is, of course, the Moto Gold Project, roughly 560 km northeast of Kisangani and 150 km west of the Ugandan border. The project's 18.5m-ounce resource sits in a series of deposits known as Pakaka, Gorumbwa, Kibali, Mengu Hill, Mengu Village, Karagba, Chauffer, Durba, Mengi, Marakeke, Kombokolo, Sessenge, Ndala, and Pamao.

A number of conspiracy theorists point out that pickings are not nearly as rich "down south" in the Kilo area, where AngloGold Ashanti is exploring, around Mongbwalu. AngloGold Ashanti bought the concession (also partially held by Okimo) from Kimin (owned by a Belgian company, Mindev). AngloGold Ashanti kept Mongbwalu on hold until 2003 and after conducting some exploration mixed up a little money with the locals. AngloGold Ashanti CEO Bobby Godsell was forced to comment and reacted with a very public mea culpa.

Members of the Damseaux camp privately claim that as soon as Kasongo moved to Okimo, during 2005, he immediately put the heat on Borgakim, and even attempted to cancel the gold concessions. In 2004 Kasongo had quit as boss of the Centre d'Evaluation, d'Expertise et de Certification, regulator of the DRC's diamond industry, and headed to South Africa where he worked for, amongst others, Iscor, now Mittal. In 2005 he was recalled back to the DRC as head of Okimo.

Kasongo is backed by Jean-Claude Masangu, governor of La Banque Centrale du Congo, and no doubt could tap a direct line to DRC president Joseph Kabila. Damseaux, on the other hand, is known to enjoy the support of the super-powerful Augustin Katumba Mwanke, one of Kabila's closest associates.

The balance of political power is likely to favour Damseaux, as powerful in Kinshasa as George Forrest is in copper-cobalt rich Katanga province. Kasongo may be a good engineer, well connected and very smart, but he's a second-rate political player.