Virtual mining in Cameroon: How to make a fortune by failing
Cameroon has a growing portfolio of failed mining projects in which a few well-connected individuals have made millions, all the while the minerals have remained deep under the ground. We investigate.
In 2003, the American company Geovic raised hopes when it secured a permit to build an industrial cobalt mine. Cameroon’s mineral wealth had long been known – ranging from iron and bauxite to diamonds and gold – but this was the first such licence to be granted in decades.
Expectations were sky high and further intensified when the company announced it had discovered the “largest known primary cobalt deposit in the world”. A leaked cable from the American embassy in Yaoundé in 2008 insisted: “Far from a ‘hoax,’ Geovic is Cameroon’s best hope for industrial mining in the near future.”
However, despite the company’s spectacular declaration and the US diplomat’s rosy outlook, Geovic’s project site remained mostly fallow until, in 2014, the company finally up and left. There had once been hope that Geovic’s activities could be transformative for the country’s economy, and the East region. But by the time the company departed, it had still yet to extract any minerals whatsoever. In fact, the most lasting legacy of the company’s presence may well be a handful of decrepit announcement boards that are still standing in some surrounding villages.
On the surface then, the project was clearly a failure. Geovic’s shareholders lost money. The Cameroonian government missed out on tax revenues. And the local population did not benefit from substantial employment or development.
However, it is clear that not everyone lost out. For instance, while foreign investors squandered huge sums of money and Cameroonians got increasingly frustrated at the lack of activity, Geovic executives paid themselves handsomely in salaries and stocks worth several millions of dollars over two decades.
At first glance, it would be easy to dismiss this account as an oddity, as an unfortunate failure in a sometimes risky sector. But a closer look at Cameroon’s mining projects suggests that Geovic’s story is the rule rather than the exception.
In its recent history, Cameroon has produced more failed projects than minerals. Venture after venture has followed in Geovic’s exemplary footsteps. Projects start full of promise and often raise enormous sums of money before ultimately vanishing in a puff of smoke, leaving all but a small handful of individuals let down and out of pocket.
But why do these projects keep collapsing? How is it that some people come away with huge financial rewards? Who are these individuals benefiting from Cameroon’s mining misadventures? And at whose expense?
By examining public and leaked documents, speaking to insiders in the companies involved, and visiting the site areas of several mining projects, we conducted an investigation in an attempt to answer these questions.
In the course of our inquiries, we uncovered close links and conflicts of interest between investors and powerful politicians, we came across multi-million investments that disappeared into thin air, and we saw how a few well-connected individuals managed to multiply their money by a factor of 400 in just one year.
How to make real cash from “pretend” mining
It is probably fair to say that the Cameroonian government’s management of the mining sector is haphazard. In 2010 and 2011, for instance, the Mines Ministry suddenly accelerated the granting of new exploration permits, issuing about a hundred over a couple of years. Moreover, a map of these permits – something the ministry official who provided the information said he had never seen before – shows that many of them overlap with logging concessions, protected areas, and even each other. Perhaps predictably, none of these licences has led to any great success.
However, within this somewhat chaotic environment, some canny individuals have managed to reap huge rewards. According to our investigation into a dozen cases where this has happened, the projects have tended to follow a similar pattern.
To begin with, a domestic company acquires a mining permit. This firm usually lacks significant resources itself, and is soon sold on to a foreign corporation which, in the process, obtains the mining licence. This international firm is usually listed on a stock exchange, but generally also lacks the capacity to extract the minerals. The stated aim of such juniors is to explore for minerals and structure a project that is then sold on to yet another corporation – this time a major one – which finally conducts the mining.
So far so good. Yet amongst Cameroon’s countless attempts, this last step – the one at which minerals actually leave the ground – has only ever been reached by two quarry projects. Thus, over time, the country has developed a growing portfolio of failed mining ventures, some of which have provided huge profits for those involved in the first few stages, but that have never reached the point of actual extraction.
Great hopes have been stirred, multi-million dollar deals have been signed, and great fortunes have been made (and lost) from Cameroon’s vast deposits – all while the minerals themselves have remained deep under the ground.
Uranex S.A. and Resource Generation Ltd.
A template for failed mining projects described above comes courtesy of the Cameroonian company Uranex and its Australian partner Resource Generation Ltd.
According to incorporation documents we procured, Uranex was created in 2006 by four individuals with capital worth the equivalent of just $15,000. To obtain an exploration permit, Cameroon’s mining law requires companies to prove they have the financial means to conduct exploration activities of at least $1.5 million for the 3 years of the permit. Uranex had just a fraction of this sum, but this did not stop the government granting the company three uranium exploration licences, covering an expanse spanning nearly 3,000 square kilometres. It is also curious that two of these sites overlapped with protected rainforest areas where extraction is illegal without a special derogation, which the company did not have.
Anyhow, about a year later, 80% of Uranex’s capital was sold to Resource Generation Limited (ResGen), a company listed on the Australian Stock Exchange (ASX). Until then, ResGen had been called Comdek and supplied telephone, data, facsimile, and internet to remote mining sites – it was hardly an expert in extracting minerals.
In the buyout, the shareholders of Uranex were paid 40 million shares of ResGen, which were worth about $5.6 million on the day, and $100,000 in cash. The return on their initial capital investment just a year before was thus a tidy 37,900%. According to documents, a substantial “facilitation fee” (worth over $1.2 million) was also paid to two Australian firms and one individual, though for what services exactly remains unclear.
This was a fairly big money deal, but it was not long before ResGen wrote off its Uranex acquisition. Its reasons for doing so also remain unclear, but the upshot was that while a few Uranex shareholders walked away with small fortunes, no minerals ever left the ground.
We contacted ResGen by email to seek further information, but were told that due to a change of the board and staff turnover, they did not know the background to the events and could not comment formally. They added, however, that as far as they know, the company had not had any engagement with representatives of Uranex over the last few years.
C&K Mining, a joint venture between Cameroonian and South Korean investors, provides a larger-scale and more dramatic example.
C&K was already operating on the edge of legality – using semi-industrial methods to produce gold despite only having an artisanal mining licence – before it changed direction and moved into diamonds in 2010. That year, the company was awarded an industrial exploitation permit in the Mobilong area, allowing it to mine diamonds in the rainforest bordering the Central African Republic.
While Cameroon has granted countless exploration permits, this is one of only four exploitation licences the country has ever awarded. Soon after the announcement, South Korea’s Ministry of Foreign Affairs declared that C&K’s concession held diamond reserves of 420 million carats, an estimate it reiterated in 2011. At one point, Reuters even reported that the site held 736 million carats.
Even taking the much smaller figure, this estimate suggested C&K was sitting on a pile of precious stones several times larger than the next largest diamond mine in the world. As one might expect, the company’s shares skyrocketed on the Korea Stock Exchange.
By the time it became clear that the size of the reserves had been vastly exaggerated – with some estimates suggesting the mine held only 6% of the projection – it was too late. Excited investors had already bought hugely inflated stocks in a company worth a tiny fraction of what they thought.
On the surface, this might seem like an unfortunate estimating error. But in 2012, it was discovered that the company’s president, Oh Deok-gyun, had earned himself an estimated $83 million by buying shares just before the announcement and selling them after stock prices exploded.
Far from an innocent mistake, this had been a classic ‘pump and dump’ scandal. Deok-gyun escaped prosecution for two years by hiding in Cameroon, but was caught in Korea in 2014 and sentenced to three years in jail and five on probation. Korea’s Ministry of Foreign Affairs was also raided by prosecutors who confiscated documents and hard drives from the office of Ambassador for Resources, Kim Eun-seok, but in the end, high-ranking officials that were implicated escaped conviction.
It is difficult to believe no Cameroonian partners were knowingly involved in this brazen scam too, but as far as we know, no charges were made in Cameroon. C&K was delisted in May 2015.
While Uranex’s project only ever existed on paper, C&K did build a large camp in the middle of the rainforest. However regardless of this, it seems that little effort was ever made to actually do any extraction. When we visited C&K’s mine in 2014, none of the machines had been operating for several months. They were allegedly waiting for parts, but a local public official told us that the project merely “pretends to operate”.
We sent emails to several of C&K’s addresses for comment, but they were no longer operational.
Geovic Mining Corp.
A final example is the aforementioned US company Geovic and the collapse of the project once hailed as the bright future of Cameroonian mining.
Geovic found itself in possession of mining permits via its Cameroonian subsidiary GeoCam, and as outlined above, the company claimed in the mid-2000s to have discovered game-changing levels of cobalt reserves.
On the back of this great hope and expectation, Geovic managed to accrue huge sums of money. It raised around $66 million on the Toronto Stock Exchange in 2007. It issued warrants and sold shares on a US Over The Counter market. Meanwhile, according to a whistle-blower interviewed by Mediapart, its subsidiary GeoCam received over $100 million from the Cameroonian state, which owned 20% of the domestic company, much of it to reimburse exploration costs; this was more than the annual education budget, but the informant claimed the company defrauded the government by vastly exaggerating the expenditures.
However, despite all the money it had raised, by 2014, Geovic had recorded a total operating loss of $167 million. How exactly it managed this feat remains a mystery.
Documents we saw partly explain some of the company’s spending. Geovic’s financial reports show that the company’s three to four top executives were awarded salaries of around $200,000 per year (plus bonuses and expenses). Additionally, according to its filings with the Securities and Exchange Commission, the company spent over $96 million on “exploration costs”, $19 million on “Stock based compensation” and $50 million on “General and administrative costs” between 1994 and 2013.
However, Geovic’s reports do not provide detailed breakdowns of what these categories refer to. Thus, it is not clear exactly how these huge sums were spent. And when we drove to the gate of Geovic’s mine in 2014 – to which we were refused entry – the surrounding area showed few signs that any mining activities had been conducted.
We also know that some of Geovic’s money went to a charity it set up called GeoAid, which was supposed to implement development projects in communities neighbouring the mine. But the spending by this “non-profit” raises questions and mysteries too.
According GeoAid’s filings in the US, its budget amounted to a total of $4.8 million between 2009 and 2011. But the US non-profit re-granted much of these funds to organisations in Cameroon, whose budgets are not publicly available, including to GeoAid Cameroon and to the Foundation of Chantal Biya, President Paul Biya’s wife.
GeoAid’s filings reveal that the director was paid nearly $100,000 per year between 2009 and 2012 (while living in the US), and local NGOs reported that one of the American managers prior to 2009 paid himself most of the organisation’s budget. But there are few signs of where GeoAid’s remaining funds have gone over the years.
Despite the impressive sums involved, when we visited the villages surrounding the mine in 2014, one resident told us “they have done nothing [and] if they tell you that they have done anything, they should come here and show us.” When pressed, a few people eventually recalled “a case of medicines” sent “eight years ago” or “some corrugated iron sheets” donated to a school in 2000. But everyone we talked to was frustrated at the long list of Geovic’s unfulfilled promises. Meanwhile, GeoAid staff told us they did not even have vehicles to visit the communities they were meant to be helping.
After years of drawn out frustrations, Geovic left Cameroon in 2014 and was delisted from the Toronto exchange. By this time, vast sums had been raised, spent, and vanished. Yet despite all the sound and fury, when the company departed, it left behind barely an imprint in Cameroon’s soil.
We tried to ask Geovic for clarifications on these matters, but the email address provided on its website was no longer functional.
The secretive owners of Cameroon’s mining rights
In theory, it ought to be straightforward to find out the identities of the individuals involved in Cameroon’s mining sector. As a member of the Extractive Industry Transparency Initiative (EITI), extractive companies in Cameroon have been required to disclose their beneficial owners since 2015. Furthermore, companies listed on stock exchanges are generally obliged to publish records showing who their largest shareholders are, and the incorporation documents of Cameroonian companies are public records.
However, in reality it is not so simple. For instance, the Cameroonian chapter of the EITI decided that any beneficial owner with a stake under 10% would not need to be disclosed, creating an easy loophole to exploit. Many investors in listed firms hide their names by buying shares via companies registered in secrecy jurisdictions. And the process of obtaining access to records in Cameroon is no easy feat. In order to gain access to public documents, we had to convince clerks to help us and then wait for several days as a single official sifted through piles of dusty papers; in several instances, we were told the incorporation documents we wanted could not be found.
Nevertheless our investigation did yield some names and greater details into the tactics some people adopt to stay hidden.
One common strategy for maintaining anonymity that we saw on various occasions involved the use of secrecy jurisdictions. For instance, a Cameroonian company might hold a mining permit, but this company would itself be owned by another firm registered in a tax haven. Under the laws of these offshore jurisdictions, it is nearly impossible to find out companies’ true owners.
An especially shocking example of this approach that we came across regarded the government programme CAPAM. This project was created in 2006 to support artisanal gold miners, but at one point it unaccountably changed course into industrial mining. It acquired shares in several ventures, including C&K’s diamond project, and created a company called CAPAM Holdings through which it came to hold several exploration permits.
In 2011, the Prime Minister’s office raised questions about the curious foray of this government project into industrial mining and asked then Minister of Mines Badel Ndanga Ndinga to provide the incorporation documents of CAPAM Holdings.
These documents, which we also procured, show that the CAPAM programme owned 20% of CAPAM Holdings, with the remaining 80% held by a company called UKAM Industries Ltd. Registered in the secrecy jurisdiction of the British Virgin Islands, the beneficial owners of UKAM and, with it, substantial mining rights in Cameroon, are carefully hidden.
Using secrecy jurisdictions to hide true ownership is a well-known tactic, but it is particularly worrying and telling that a government programme would engage in this practice too. Paul Ntep Gweth, CAPAM’s coordinator, clearly overstepped his mandate, though he it was not until two years later, in 2013, that he was replaced. CAPAM Holdings’ mining rights were apparently not renewed.
We tried to contact CAPAM for comment but the email address provided on their website did not function and their phones were not picked up.
Another strategy to hide beneficial ownership that we came across was the use of straw men and women when registering companies. Through this practice, unknown individuals are listed as the official owners of firms, but the reality is that they are holding these assets on behalf of someone else.
It is difficult to prove this is the case, but in many of the mining companies’ incorporation documents that we obtained, the listed occupations of the owners would be quite extraordinary if true. According to records we saw, a “housewife” owned substantial shares in what became the local subsidiary of one of Cameroon’s biggest mining projects; a “pupil” and “environmentalist” had big stakes in uranium mining company Uranex; and a “driver” and “hairdresser” held substantial shares in a sapphire mining operation. We also saw official documents that indicated that two of GeoCam’s shareholders had contributed at least $5.9 million to the company; this would place them amongst Cameroon’s richest citizens, yet the couple were hitherto unknown.
There are thus several ways to maintain anonymity in Cameroon’s mining sector, but our investigation did yield some interesting names and findings, which pointed to why people might go to such lengths to hide their identities.
Amongst Uranex’s shareholders, for instance, we found Gerard Mabia Lomié, an ex-parliamentarian for the ruling party and mayor of Lomié, a town not far from the area covered by the permits. Alongside Mabia’s name was also Serge Edmond Asso’o Mendomo, the son of a well-known general who is commonly remembered for having saved President Paul Biya during a coup attempt in 1984. These two well-connected shareholders made huge profits when ResGen purchased Uranex, being awarded shares worth about $2 million and $1.35 million on that day respectively.
In another case, Cameroon’s 2012 report to the EITI showed that a company called Bonhold Business owned 4% of C&K Mining. Other documents indicate that Bonhold was headed by Rosine Magloire Matio Paki, the wife of Charles Salé. Salé was Cameroon’s Minister of Mines, Industry and Technological Development in 2006 when C&K was granted its exploration permit, suggesting a clear conflict of interest.
Finally, delving into Geovic’s documents revealed some further powerful individuals who may have had similar conflicts of interests. The first is Jean-Marie Aleokol, Secretary of State in the Defence Ministry between 2004 and 2007. And the second is Juliana Ndiforchu who, according to Mediapart, is the niece of Simon Achidi Achu. Achu was Cameroon’s Prime Minister from 1992 to 1996 (when Geovic received its exploration permit) and then went on to be president of the board of Cameroon’s National Investment Society (SNI), the public organisation that managed the country’s GeoCam shares.
A silver lining?
In the course of our investigation through public records, company documents and mining sites, we stumbled upon a number of disturbing findings.
In the case of Uranex, a few individuals who created a company with just $15,000 of capital somehow managed to obtain several lucrative mining permits from the government. Just a year later, this lucky handful had made a 37,900% return on their investment.
In C&K Mining’s straightforward pump and dump scam in which one man earned a quick $83 million − and others no doubt made tidy profits too − we found that one of the investors was none other than the wife of the Mines Minister that granted the exploration permit in the first place.
And in Geovic, we saw how hundreds of millions of dollars raised on the back of apparently unprecedented levels of minerals disappeared into thin air. Where these huge funds went and who exactly benefited remains a mystery to a large extent, though we do know that some local shareholders had close relationships to people in power.
These kinds of dealings are not unique to the mining sector, nor to Cameroon. And if there is one unique aspect of these cases, it may be that they have been built on the promise of minerals that have remained in the ground. Well-connected individuals have made real profits from virtual mining.
This, however, could be a silver lining. The opportunity presented by Cameroon’s natural riches still exists and is waiting for a government that could manage them to the advantage of the country’s population rather than for the benefit a few individuals.