Presidential Elections In The Democratic Republic Of Congo: What Does It Mean For Investors?

by: Peter Arendas

In the Democratic Republic of Congo, presidential elections will take place on December 23.

The political and security risks are very high in the country right now.

If anything goes wrong, companies such as Ivanhoe Mines, Katanga Mining or even Randgold Resources may be impacted very negatively.

However, if anything goes wrong, the cobalt prices, along with the shares of the cobalt miners with operations outside Congo will sky-rocket.

The situation is complicated and investors should be prepared for a notably increased volatility.

The Democratic Republic of Congo is a large but poor country in the middle of Africa. Although it covers an area of 2.267 million km2 (the 11th largest country by land area) and it has a population of 84 million people (the 16th most populous country), its GDP (PPP) is only $72.638 billion (the 102nd biggest economy). The GDP per capita is less than $900. Although the data of various international organizations vary slightly (especially due to the differences in population estimates), the Democratic Republic of Congo usually belongs to the 5 poorest countries in the world, measured by the GDP per capita. However, also a country with such a weak economy can have a very strong impact on some segments of the global financial markets. Congo is the biggest producer of cobalt (58% of global cobalt production in 2017) and it has also significant resources of copper, tin, tantalum, zinc, lead, manganese and other minerals. This is why various smaller, as well as bigger foreign mining companies, operate in the country despite severe political and security risks. Right now, the risks are about to culminate, as critical presidential elections should take place on December 23.

The problem is that the former Belgian colony has never experienced a peaceful democratic transition of power. The country reached independence back in June 1960. But only one month later, the Katanga province in the south part of Congo declared independence as well and the first of many civil wars has started. The conflict was resolved several years later. But in 1965 a coup took place. President Kasavubu was eliminated and general Mobutu Sese Seko became the new president. This event started three decades of autocracy, corruption and various local armed conflicts often supported also by the neighboring countries. In 1997, one of the rebel groups supported by Rwanda was able to take over the control over the eastern part of the Democratic Republic of Congo as well as its capital city Kinshasa. Laurent-Desire Kabila was installed as president. But only one year later, in 1998, Rwanda together with Uganda supported another rebel group that tried to overthrow Kabila. However, Kabila was able to secure support of Zimbabwe, Namibia and Angola. The war that followed was stopped by a ceasefire in 1999. In 2001, Laurent Kabila was murdered by one of his bodyguards. Laurent's son Joseph became the new president although he was only 30 years old. In 2002, the Rwandan and Ugandan forces left the country and the war was officially over. However, several rebel groups kept on operating in some of the hardly accessible regions of the vast country.

President Joseph Kabila ruled the country during the transition period from the assassination of his father to the July 2006 elections. He won them. In 2011, he won another presidential election, however, this time, various questions regarding the regularity of the elections have emerged. In 2015, Kabila tried to change the constitution that prohibited him from serving the third tenure in a row. Extensive civil unrests have followed and the constitution remained unchanged. In December 2016, Kabila's tenure has ended, but he postponed the elections by two years, claiming that the additional time is needed to prepare the elections properly. The elections date was set at December 23, 2018.

In accordance with the constitution, Joseph Kabila is not running for another re-election. However, he doesn't plan to retire. Over the next five years, he will serve as the head of the ruling People's Party for Reconstruction and Democracy. He has also hand-picked his own presidential candidate, Emmanuel Ramazani Shadary, the former interior minister.

There are 21 presidential candidates. It is expected that the biggest favorites are Shadary (backed by Kabila and the current establishment), Felix Tshisekedi (the leader of the biggest opposition party) and Vital Kamerhe (an opposition leader who finished 3rd in the 2011 elections). The Democratic Republic of Congo has adopted a single-round election system. There is only one round of elections and the winner doesn't need to reach any pre-determined level of support (e.g. 50% of all valid votes). It means that in theory, if the electorate is fragmented enough, something around 15% or 20% of votes may be more than enough to become a president.

The list of candidates doesn't include some very strong opposition leaders such as the former vice-president Jean-Pierre Bemba and ex-governor Moise Katumbi. These names were excluded from the race. According to a July poll, Katumbi, Tshisekedi, and Bemba would be the main favorites, with a support in the 17-19% range. According to a BBC article from September:

Bemba was disqualified by the constitutional court earlier this month over a witness tampering conviction while Katumbi was prevented from re-entering the country last month to register his candidacy after two years in exile.

Due to the election system, the best choice for the opposition forces would be to team up and support one candidate. Such an attempt took place in November when candidates Tshisekedi and Kamerhe and four other opposition leaders agreed to support candidate Martin Fayulu. However, the very next day, Tshisekedi and Kamerhe withdrew their support, as their own supporters started to protest against this decision. They didn't like especially the fact that Fayulu is a rich businessman with close ties to Exxon Mobil (XOM). But less than two weeks later, another deal was reached. Kamerhe agreed to support Tshisekedi and Tshisekedi agreed to select Kamerhe as his prime minister and to support a candidate of Kamerhe's Union for the Congolese Nation party in the 2023 presidential elections.

After this deal, Tshisekedi seems to be a clear favorite. According to the October polls, Tshisekedi had a 37% support, followed by Kamerhe (17%) and Shadary (16%). In theory, the Tshisekedi-Kamerhe tandem should have a support in the 45-55% range. However, the opinion polls results were released by an organization named Congo Research Group and it is hard to tell how reliable they are.

It is widely expected that if needed, the results will be manipulated in favor of Shadary. The opposition is afraid especially of the infrastructure prepared for the Sunday elections. Electronic voting machines should be used. According to the Economist:

Some 105,000 electronic voting tablets from South Korea have been nicknamed machines à voler (stealing machines). Delivering them to 84,000 polling stations, many in remote areas accessible only by helicopter, boat or motorbike, will be tricky. If batteries go flat, it will be hard to recharge them. Only 1% of people in rural Congo have access to electricity.

Moreover, given the number of voters and their often very low level of technical skills, and the fact that not only presidential elections but also elections to national and provincial parliaments will take place simultaneously, 24 hours may be just not enough for 40 million potential voters to cast their ballots. To make the situation even worse, only last week, a fire in one of the Kinshasa warehouses has destroyed 7,000 voting machines.

One of the candidates, Martin Fayulu, has already declared that he will not accept the results generated using the voting machines. The situation in the Democratic Republic of Congo may get out of control pretty quickly. If Shadary wins, the opposition will claim that the results were manipulated. If the opposition wins, it is hard to predict the reaction of Kabila who has the support of Congolese army and police (for now). Moreover, even if one of the opposition candidates wins and Kabila just leaves the office (and probably also the country), the remaining opposition candidates may keep on questioning the results. Given the bloody history and the fact that various armed groups supporting various candidates still exist in the country, any kind of election results may lead to some negative consequences, ranging from local riots to a full-blown civil war, probably accompanied by another intervention of foreign military forces.

Besides some common unrests and encounters between Kabila supporters and opposition supporters, also some armed conflicts started to emerge in recent weeks. In early December, a clash between rebel forces and the regular army led to the death of 18 people. The incident took place in the notoriously problematic eastern region, near borders with Burundi. The seriousness of the current situation is well presented by the map below. The UK government advises its citizens not to travel to the Democratic Republic of Congo. For some of the regions, even the essential travels should be avoided completely.

Source: The Foreign and Commonwealth Office

The complicated situation in Congo may have a significant impact on share prices of many stock companies. Among the most important are Katanga Mining (OTCPK:KATFF), Ivanhoe Mines (OTCQX:IVPAF), Tiger Resources (OTC:TRSDF), Glencore (OTCPK:GLCNF) (OTCPK:GLNCY), Randgold Resources (GOLD), Zijin Mining (OTCPK:ZIJMF) (OTCPK:ZIJMY) or China Molybdenum (OTCPK:CMCLF) (OTC:CMCLY).

Ivanhoe Mines has two world-class projects located in the Democratic Republic of Congo. Namely the Kipushi zinc project and Kamoa-Kakula copper project. Especially Kamoa-Kakula is a large high-grade copper project with a huge exploration potential. Right now, it belongs to top 4 biggest copper deposits in the world. But given the recent exploration results that indicate that the deposits continue to the north and northwest, where Ivanhoe's 100%-owned exploration licenses are situated, Kamoa-Kakula has the potential to become the largest copper deposit ever discovered. If Kamoa-Kakula was localized in a better jurisdiction, Ivanhoe's market capitalization would be several times higher. Ivanhoe owns only 39.6% of Kamoa-Kakula. Another 40% is owned by Zijin Mining. However, Zijin Mining is big enough to avoid any major impacts on its share price.

The political risks may have a devastating impact on Katanga Mining. Katanga's only producing asset is the Kamoto copper-cobalt mine. The mining complex consists of an underground and an open pit mine with related facilities and the Luilu metallurgical plant. Glencore owns an 86.3% stake in Katanga Mining and in the Mutanda copper-cobalt mine. However, Glencore is too big and the operations are not large enough to have a major impact on Glencore's market valuation.

Tiger Resources (OTC:TRSDF) is in an unpleasant situation as well. Similar to Katanga Mining, its only producing asset, the Kipoi copper mine, is located in the Democratic Republic of Congo. It has also several other projects in various stages of development, but all of them are situated in the Democratic Republic of Congo.

Randgold owns the Kibali gold mine situated in the north-eastern corner of the country. The mine is expected to produce 730,000 toz gold this year. It is responsible for a major part of Randgold's gold production. Moreover, after the Barrick-Randgold merger is completed, the potential Kibali mine problems will start to be also the Barrick Gold (ABX) problems. China Molybdenum owns the Tenke Fungurume mine. It acquired the mine from Lundin Mining (OTCPK:LUNMF) for $1.5 billion in late 2016, before the political risks started to increase rapidly.

Chart IVPAF data by YCharts

As can be seen in the chart above, the two companies with a major direct exposure to the Democratic Republic of Congo, Ivanhoe Mines and Katanga Mining, didn't do very well in 2018. Ivanhoe Mines is down by 46% and Katanga Mining is down by 66%. Both of the companies underperform the Global X Copper Miners ETF (COPX) heavily. Moreover, Ivanhoe is down by 46% despite the fact that from an operational point of view it achieved some excellent results. Especially the discovery of another large copper deposit at its Western Foreland property was a great news, but all of the positive developments have been overshadowed by the political risks related to the upcoming presidential elections.

Looking at it from a different angle, if the situation in the Democratic Republic of Congo gets out of control and another round of violence and maybe a civil war is started, investors should expect the cobalt prices to skyrocket. This would be a very good news for the non-Congo cobalt producers and cobalt project developers, such as First Cobalt (OTCQX:FTSSF), Cobalt 27 (OTCQX:CBLLF), eCobalt Solutions (OTCQX:ECSIF), Clean Teq (OTCQX:CTEQF), Ardea Resources (OTCPK:ARRRF) and others. Although prices of some other metals, especially copper, may experience a support too, it shouldn't be as strong as in the case of cobalt.


The presidential elections in the Democratic Republic of Congo, that should take place on December 23, may have a significant direct or indirect impact on share prices of many mining companies. If everything ends up well, shares of companies like Ivanhoe Mines or Katanga Mining should generate some very nice returns during 2019. If something goes wrong and the country returns to its rich history of violence and civil unrests, these companies will suffer, regardless of the quality of their assets. On the other hand, in this case, the non-Congolese companies from the cobalt mining industry will experience significant upwards pressure.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.