This American’s Massive Congolese Copper Play Is Backed by China

Robert Friedland has made a career out of securing funding for, and then exploiting, mines in far-flung corners of the world.

Source JUNIOR KANNAH/AFP via Getty

Why you should care

Because his supersize copper mine venture is stoking fears about Beijing’s influence in resource-rich countries.

When Felix Tshisekedi, the new president of the Democratic Republic of Congo visited Washington, D.C., in April, the mining billionaire Robert Friedland was waiting in a room at the Willard Intercontinental Hotel to greet him. Also waiting were the U.S. ambassador to Congo and Sun Yufeng, head of China’s state-owned Citic Metal, the largest investor in Friedland’s company Ivanhoe Mines. 

Sun and Friedland wanted support for a new copper venture in Congo that is set to solidify China’s influence over the resource-rich country — something that would not have skipped the attention of U.S. officials taking part in tense trade talks with their Chinese counterparts across the city on the same day. Sun told Tshisekedi about Citic’s ability to build large infrastructure projects, including roads, railways, ports and bridges, in the country — something few Western mining companies could match. Since then, Citic has agreed to invest an additional 612 million Canadian dollars in the Toronto-based Ivanhoe.

The importance of the meeting for Friedland was clear. Having helped discover two of the world’s largest mines, now, off a dusty unpaved road in Congo, he believes he may have found a third: Kamoa-Kakula, a huge untapped copper deposit worth at least $10 billion. 

No one is skeptical about the resource, but it’s not clear what the actual economics of getting it out of the ground will be.

A London Mining Investor

A college friend of Steve Jobs’, the late Apple founder, and a movie producer whose credits include Crazy Rich Asians, Friedland has made a career out of securing funding for, and then exploiting, mines in far-flung corners of the world and selling them for large sums of money. “Every time I go and see him I first zip my pocket,” says Pierre Lassonde, a Canadian mining veteran, of Friedland’s ability to persuade investors to part with their cash. “He has that magnetic effect on people.” 

But to finance this latest venture, which the 69-year-old calls “unquestionably the best copper development project in the world,” Friedland has turned almost exclusively to China. 

Chinese companies already own some of the richest deposits of copper and cobalt in Congo and beyond, metals that are critical to the switch from fossil fuels to renewable energy. They have invested at least $8 billion in Congolese mining assets since 2012, with miner China Molybdenum buying the Tenke copper and cobalt mine from Freeport-McMoRan for $2.65 billion in 2016. 

The control and dominance over global supply chains that this potentially gives China has triggered concern in the United States. Secretary of State Mike Pompeo announced in September an initiative to help governments in resource-rich countries better attract investment from U.S. companies by improving their regulatory standards. The State Department’s Energy Resource Governance Initiative says it wants to “encourage a level playing field surrounding the critical minerals that underpin clean energy technology,” and includes Congo as a “participant.” 

But fearful of operating in Congo, one of the world’s poorest and most corrupt countries — it ranks 161 out of 180 on Transparency International’s corruption perceptions index — Western mining companies have stayed away from Friedland’s mine. Investors have also declined to become involved. Instead Friedland has turned to China’s Zijin Mining and Citic Metal, two of the best-connected Chinese mining companies, to generate the more than $1 billion he needs to build Kamoa-Kakula. 

“There is a reasonable slug of evidence,” says one London-based fund manager, “that shows to operate there you need to do things Western shareholders do not allow their management teams to do.” 

But such uneasiness is overdone, says Paul Gait, an analyst at Bernstein. “The capital markets are closed for mining investment in the West. [In effect] we have decided that we are conceding control of industrial production to China.”

***

Stretched across the southeast of Congo into Zambia, the copper belt is one of the world’s richest sources of both that metal and cobalt. Mined by the Belgians at the beginning of the 20th century, copper from the city of Kolwezi was used in shells fired in battle during World War I in France. Congo became one of the largest producers in the world in the 1960s, with output peaking in 1976. But by 1995, production was down by 90 percent. 

The industry had fallen further into disrepair under Congo’s former dictator, Mobutu Sese Seko, and in the late 1990s, as Seko’s regime crumbled, miners rushed to sign deals with rebel leader Laurent-Désiré Kabila, who came to power in 1997. In the brief interlude before the outbreak of another conflict in 1998, Friedland obtained licenses to explore about 5,400 square miles of land in the Congolese copper belt. 

He decided to look farther west of Kolwezi, the capital of Lualaba province, at an area that had never been mined before because it lacked any surface indications of copper, such as a break in the vegetation or the presence of distinctive bright-turquoise malachite rocks that contain the metal.

Screen-Shot-2019-10-29-at-4.22.04-PM-1

Source: Financial Times

Source Jerome Favre/Bloomberg via Getty

But in 2008, five years after the end of Congo’s brutal civil war — which left more than 5 million dead — geologists began to drill the deposit. Rock cores suggested the presence of a large ore body and Friedland announced the discovery in April 2009.

“The financial crisis had melted everything else down … we were the only company that stayed [in Congo]. Drilling companies phoned me up saying: ‘Do you need any drills?’” says David Broughton, the geologist who helped discover Kamoa-Kakula. “We were living in tents and mud.… But when you make a discovery like that, you’re in the clouds for two years.” 

***

The mining camp, about 15 miles west of Kolwezi, is a hive of activity. South African, Congolese and Chinese workers rub shoulders in the company canteen. Meeting rooms are decked out with Lazy Susans to make Chinese executives feel at home, while outside members of Broughton’s team are drilling for new deposits next to small villages where residents use discarded mining equipment as makeshift doors. 

Workers are building a 21-mile road to the airport and accommodations to house up to 1,000 workers. Hundreds of meters underground, miners are rushing to dig in the richest part of the copper deposit, manning machines in the deep, wet dark at the rock face. Fifty-ton trucks carry the copper ore up a winding path to the surface. 

Friedland claims the Kamoa-Kakula mine has the potential to produce up to 700,000 tons of copper a year at its peak, if fully developed. That is almost 6 percent of China’s annual consumption of the metal and would make it the second-largest copper mine in the world, after Escondida in Chile. 

Kamoa, which is 20 percent owned by Congo’s government, is set to begin production in 2021. But doubts remain about whether Friedland’s target is realistic.

Key Speakers At the Renaissance Capital Conference

Robert Friedland, founder and CEO of Ivanhoe Mines (center).

“His business model has always been able to find something unbelievably good, make it look amazing and sell it for the very, very best price,” one mining investor in London says. “No one is skeptical about the resource, but it’s not clear what the actual economics of getting it out of the ground will be.” 

***

Born in Chicago, to parents who emigrated from Germany, Friedland achieved a certain early notoriety after he was arrested in 1970 on charges of selling LSD. He spent more than six months in jail — a conviction that was later expunged from his record. He went on to attend Reed College in Oregon where he met Jobs. The two worked together on a farm owned by Friedland’s uncle. It was the apple orchard that inspired the name of the computer company, Jobs’ biographer later claimed. 

But Friedland soon lost interest in farming, and by the late 1970s — and with the backing of some Vancouver brokers — he moved on to gold mining, promoting a series of ventures on the Canadian stock markets, many of which failed to take off. One of them earned him the nickname “toxic Bob,” after heavy metals and effluent from the Summitville gold mine in Colorado leaked into a nearby river in 1992, leaving the government with a large cleanup bill. In 2001, Friedland paid $20.7 million as part of a legal settlement with the U.S. government.

His first big success came after geologists stumbled upon a huge nickel deposit in Voisey’s Bay in Canada while looking for diamonds. Friedland played two corporate suitors against each other to sell the mine for $3.2 billion to the nickel giant Inco, in 1996. 

From his base in Singapore, Friedland rapidly expanded across the globe, from Myanmar, then under a military regime, to Africa, and bought exploration rights in Mongolia from BHP for just $5 million. The copper and gold mine his company subsequently discovered, Oyu Tolgoi, is set to be one of the biggest mines in the world and is now operated by Rio Tinto. 

Friedland has maintained close links to China since the 1990s, when he explored for gold in southeast Fujian province and met Chen Jinghe, who would go on to become head of Zijin Mining, which is listed in Hong Kong with a market capitalization of 80 billion Hong Kong dollars (about $10 billion). Friedland’s film business, SK Global, is also backed by a private equity company, China Cultural and Entertainment Fund. Liu Yang, who is head of the company, previously worked for Citic in Australia. 

Screen-Shot-2019-10-29-at-4.27.36-PM-1

Source: Financial Times

As copper prices plummeted in 2015, Zijin agreed to invest $412 million to acquire a 50 percent interest in the Kamoa mine. Zijin also owns shares in Ivanhoe — which is listed in Toronto and valued at 4 billion Canadian dollars (about $3 billion). In October, Zijin announced the purchase of an additional 49 million shares, taking its stake in Ivanhoe to 14 percent and eclipsing Friedland’s share for the first time. Citic Metal, a unit of the Chinese state-owned conglomerate that has $900 billion in assets, will own 29.4 percent of the Canadian-listed company. 

“The Chinese are more than willing to be strategic buyers of these assets,” says Norman MacDonald, a Canadian fund manager at Invesco. “The copper market is on sale and they consume half of it. If you are going to Selfridges, and it’s 50 percent off, [because investors are avoiding Congo] you are going to buy it.” 

Many expect Friedland to eventually cede control of Ivanhoe to Zijin and Citic. China has long coveted the idea of having a large mining company to rival those of Western groups such as BHP, Anglo American and Rio Tinto, which they see as controlling the world’s best deposits, according to Bernstein’s Gait. 

“What’s driving him on is his legacy. Can he create for the Chinese a vehicle to rival BHP?” Gait says. “It’s no longer flipping assets but about building something for the future. He wants to be a partner with the Chinese and that process is going to make him exceedingly wealthy. You’ve got the synergy of his ability to operate, own and find mining assets, coupled with the balance sheet of China.”

+
By Henry Sanderson

OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2019.

OZYNews + Politics

Catch up on the day’s headlines and go deep on where we’re at.