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Companies close shop as war on mineral trafficking intensifies

By Vision Reporter

Added 21st December 2012 04:16 PM

THE key element is not the resource itself, but how it is exploited. An orderly mining regime, operating within a transparent and predictable legislative and fiscal framework

THE key element is not the resource itself, but how it is exploited. An orderly mining regime, operating within a transparent and predictable legislative and fiscal framework

By Francis Kagolo

AS the International Conference on the Great Lakes Region (ICGLR) searches for a political answer to the M23 DRC rebels and other conflicts in the region, technocrats are shifting focus to tightening the noose on illegal mining.

This comes after it was established that mineral trafficking was the major factor abetting political instability in the region as its proceeds are used to fund rebels.

The ICGLR has set goals to cut the links between incomes from minerals and the financing of illegal armed groups in the region,  ICGLR deputy executive secretary, Ambassador Vincent Mwanda, said.

Passed in 2010, the ICGLR measures call for transparency in the mineral sector, which would involve certification of ores to show their origin. Member states also ought to have a whistle-blowing mechanism against mineral traffickers, maintain a database of minerals in the region and formalise artisanal mining.

According to Mwanda, certifying exporters' ores would help to trace their origin and distinguish acceptable minerals from those illicitly acquired to fund crime.

 We shall be able to tell legal minerals from those acquired in conflicts. This will increase credibility of minerals and make them competitive on the international market.

Mwanda made the remarks during a recent international conference on Mining for Sustainable Economic Development in Bujumbura, Burundi. The conference was organised by Germany agency GIZ and the UN Development Programme (UNDP).

However, the campaign against mineral trafficking has put Uganda's mineral sector under threat as the Government crawls to implement regional guidelines. 

Mwanda decried the fact that of the 11 countries, only Rwanda and DRC had implemented the regional anti-illegal mining measures despite its likely immense benefit.

In Uganda, the process to domesticate the regional guidelines is still dragging on, two years down the road.

As a result, Uganda's mineral exports have dwindled after about 10 mineral companies suspended operations due to absence of certification.

According to Grace Nakku, the assistant commissioner for mines in the energy ministry, gold and the 3Ts -Tin, Tungstern and Tantalum -are the most affected ores.

Tin is used to make tins and bullets if mixed with copper while Tungsten is mainly used in making armour plate in military equipment, manufacture of filaments for electric bulbs and in making tungsten-carbide for drilling bits.

Tantalum makes batteries for mobile phones and computers. The minerals are normally exported to China, US, Europe and sometimes Rwanda and other countries within the Great Lakes region.

A report from the mines department shows that the annual gold production fell from 0.0039 tonnes in 2010 to almost zero in 2011.

The annual production of Tin reduced from 32 tonnes worth sh1.089b in 2010 to a mere 0.01 tonne valued at sh306,000 last year.  

Tungstern/Wolfram reduced from 55.17 tonnes valued at sh1.907b in 2010 to just 10.04 tonnes worth sh347,237 in 2011.
This year's preliminary report indicates that the production and exports of Gold and the 3Ts has continued to drop although the geology department is yet to compile a final report.

 Without certification, it has become hard for Uganda to sell ore in the region and abroad. Exports of the 3Ts have reduced by almost 80%,  Nakku revealed during the conference in Burundi.  Some of our ore was being exported to Rwanda and neighbouring countries but we can hardly export there because of lack of certification.

Besides the ICGLR, the US congress in 2010 also restricted importation of uncertified minerals through the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010.

According to the ACT, the exploitation and trade of conflict minerals originating in the DRC and neighbouring countries helps finance conflict in the region characterised by extreme levels particularly sexual and gender-based violence, and contributes to an emergency humanitarian situation therein.

As a result, dozens of mining companies have suspended operations. The affected companies include Zarnack Holdings which operated in Mwerasandu, Ntungamo district, the biggest Tin mine field in the country.

 We got the mineral exploration license in 2009 and invested over €2m (about sh6.8b). But our German partner was forced to suspend the business after learning that Uganda had not yet started certifying minerals,  said Jimmy Katumba, managing director of Zarnack holdings.

 If the Government does not implement the certification system, we shall count that a dead business. Nowadays you cannot export uncertified minerals.

Tom Nsubuga, the managing director of Krone Uganda, which has been exporting Wolfram/Tungstern since 1999, says 'the market has reduced tremendously and business is becoming stiff.'

There's overwhelming demand for Wolfram. But we can no longer export to major markets like the US, South Africa and Rwanda because our minerals are not tagged to show their source,  Nsubuga explained.  It's so serious. Some of these countries, especially US, used to offer the highest prices. We are now missing out on these profits and this is affecting Uganda's foreign exchange earnings.

Katumba explained that supply contracts for minerals always range between three and six months because mineral prices keep fluctuating.  Whoever mines does it to sell. No investor wants to put money in something just to stock the products,  he noted.

Katumba wondered why Rwanda, Burundi and DRC, the centre of conflicts, could start certifying their minerals ahead of Uganda.

He suspects this has given artisan miners leeway to smuggle ore to neighbouring countries where mineral companies have certificates to export freely across the world, denying Uganda the royalties (taxes).

Most mining projects are financed by whites. These people don't want to invest where they don't expect profits,  Katumba said.

Asked why the certification process had delayed, Edwards Katto, the commissioner for geological survey and mines, said there was need to sensitise the various stakeholders to appreciate the system before it is implemented.

This is a regional and international concern. Countries need to trace the origin of minerals on the market as a way of reducing funding for conflicts,  he said. 

Nakku said the energy ministry submitted the proposed amendments to the ministry of justice.

We believe it will be of great importance for us if we incorporate these guidelines into our laws. If implemented, they will promote good governance, transparency, reduce conflict and promote sustainable exploitation of natural resources in the region.

Uganda's mining industry reached peak levels in the 1950s and 1960s when the sector accounted for up to 30% of Uganda's export earnings.

However, political and economic instability experienced in the country in the 1970s and the recent global economic slowdown led the sector to decline drastically. The energy sector's contribution to total GDP, was the lowest in 2009/2010 with a share of only 0.3 percent

Yet, Stephen Turyahikayo, the manager of the Africa-Canada partnership, the official partners of the ICGLR on the anti-mineral trafficking mechanism, warned of severe consequences if the country continues to delay mineral certification.

If Uganda cannot sell its minerals, obviously this will threaten investment in mining and the Government will lose a lot of revenue,  said Turyahikayo.

Our neighbours Rwanda and DRC are already certifying their minerals. With time, you will end up finding Ugandan minerals clandestinely taken to Rwanda or DRC and later exported, and then Uganda will lose revenue.

Turyahikayo urged the Government and other industry players not to fear certifying minerals, saying the process did not call for an overhaul of legislation. All that is required is the minister to issue a statutory instrument for the system to start working, he said.

According to Marit Kitaw, an official from the UN Economic Commission for Africa (UNECA), natural resources can either be a source of great good or dreadful ill depending on the way of exploitation.

The key element is not the resource itself, but how it is exploited. An orderly mining regime, operating within a transparent and predictable legislative and fiscal framework, can be a major source of prosperity for governments and people,  Kitaw told participants in the mineral conference in Burundi.

Without it, mineral wealth will be a magnet for the greedy and corrupt to line their own pockets at the expense of the people.

Companies close shop as war on mineral trafficking intensifies

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