On the one hand you have the IMF - spokesman for the Western business interests. And on the other you have the world’s rising superpower - China. And what’s at stake is one of the richest hoards of natural resources on the planet - deep within the Congo.
Today, I’ll show you exactly how you could profit from this. First though, let us just look at why this African backwater is such an excellent investment opportunity.
A giant opportunity most investors will never hear about
Congo really isn’t the sort of place that comes to mind when you are thinking of where to invest. But the profit opportunity here is colossal - and it is easy for you to play it right here on London’s stock market.
The country holds practically every mineral known to man, from gold and diamonds to very rare metals like coltan. And the country could, literally, become the powerhouse of Africa. A single proposed mega-dam on the mighty Congo River, the Grand Inga project, could increase Africa’s total electricity supply by 30 - 50%.There is a shed-load of money at stake here.
But there’s a big problem here: the Congo is dirt poor. So it needs huge amounts of foreign investment to bring its resources to market. The big question is who is going to get the prize deals to develop this country’s wealth?
In fact, the prize here is so big that Nicolas Sarkozy took time out just before the G20 summit in March to pay an official visit to the Congo. He was there to help French companies get a slice of the country’s wealth. Now, when the French president flies off to Africa at the very height of the global financial crisis, you know that there is a lot at stake here. And what’s really putting the fear of God into them is China...
You see, in April last year, China struck a deal to invest $9 billion in the Congo. They have agreed to build thousands of kilometres of new roads and railway tracks, and hundreds of new schools and clinics across the country. In return, the Congolese gave China rights over mines containing more than 10 million metric tons of copper and 600,000 tons of cobalt. The mines will be run by Chinese state-owned companies Sinohydro Corp. and China Railway Engineering Corp. And they could end-up making a $42 billion profit on their investment.
Other Chinese companies are also piling-in. China’s ZTE Corp, for example, has signed an agreement to set-up a palm oil plantation in Congo. The scale of the project is mind-blowing. They’re putting in $1 billion to set-up a three million hectare plantation. Western companies are finding it hard to compete against money like that, with the credit crunch cutting them off from easy money. So they risk being left out of one of the biggest development opportunities out there.
The simple fact is that China has outflanked the Western powers across much of Africa. And it has positively steamrolled them in the Congo.
So now, the Western countries are relying on the IMF to put the squeeze on China. Its Managing Director, Dominique Strauss-Kahn, has said that he won’t write-off $10 billion of Congo’s foreign debt unless the terms of the Congo-China agreement are changed. And he is withholding another $500 million in financial support. The IMF says that the deal will leave the Congo facing a huge liability if the projects fall through.
The IMF’s argument is a complete load of drivel. China is bearing most of the risk from its investments. What this is about is access to Congo’s natural resources. Strauss-Kahn is a former French finance and industry minister. And he is acting to protect the interests of the Western countries that dominate the IMF.
But the plan may actually backfire. Congo’s government has rejected the IMF’s criticism and they’ve latched on to the Chinese dragon to fund the country’s development. The more pressure the IMF places on the Congo government, the less inclined they are going to be to let Western companies in on the best deals.
How to grab yourself a slice of the Congo’s wealth
Still, you can grab a slice of Congo’s mineral wealth through several public-listed companies that are already in there. The Canadian-listed gold miner, Banro (ticker: BAA.CN) owns several prize gold mines in Congo. And the American mining giant Freeport McMoran (ticker: FCX.US) and its partner, Lundin Mining (ticker: LUN.CN) operate the huge Tenke Fungurume copper mine in southern Congo.
Then there is London-listed Central African Mining & Exploration Company or CAMEC (ticker: CFM.LN). It owns the massive Mukondo copper mine in Katanga province. These are all interesting investments, but they face real political risks.
The Tenke Fungurume mine has just started production, for example. But it is bogged down in negotiating the final terms of operation with the government. And CAMEC has a habit of rubbing the Congolese government up the wrong way. Not very smart in a place like this.
These are all high-risk plays. But bold investors could find themselves very well rewarded.
Best regards,
Manraaj Singh
For The Right Side
P.S. My top play on the Congo owns what could be country’s finest mining property. And best of all, it has the political connections to make that project work. To find out about this company, as well as my other top African play, click here.
Note: Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Seek independent financial advice if necessary.
MARKET NOTES
Never mind the Nationwide, house prices are still too high
BY THEO CASEY
Nationwide reported yesterday that house prices rose 2.6% in May. Good news, no?
As someone in the process of buying a house myself - in a lovely corner of Wimbledon Village as you ask - I’ve got a very good reason to just go along with the optimistic spiel that has followed Nationwide’s surprise announcement. Alas, even I don’t believe we’ve turned the corner. The numbers continue to suggest caution. Rather than recovering, prices may be "bouncing along the bottom" as Bloomberg contributor Matthew Lynn puts it.
From the chart below, we can see the IMF’s measure of fair value in the housing market. The IMF was one of the first groups to warn on the bubble in our housing market back in 2006. Today, it places the UK as the third most overvalued property market in the world with prices roughly 14% over their fair value.
Still too expensive - UK house prices are still 14% overvalued according to the IMF’s economic model 
The IMF’s model is based on wage inflation and economic growth. The inference is that at £158,565, house prices are still £22,199 too dear and could be set for another correction. That is despite the 16% fall we’ve seen in the last 12 months. While I doubt that houses will hit the IMF’s estimate of fair value, I do think the chart should remind us all to manage our expectations.
Despite Nationwide’s mood-improving news, we are not out of the woods yet. House prices and mortgage approvals may be improving but that will itself bring previously reluctant sellers to the market.
Such a supply increase, as well as poor value, may stall the recovery in house prices.
The Daily Reckoning - The Bear market is not nearly over
BY BILL BONNERLondon, England
Friday, 5 June 2009
"Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation," said Ben Bernanke in response to a question posed by a Member of Congress. Then, he added...
"The Federal Reserve will not monetize the debt."
That last sentence has a ring to it. It reminds us of Richard Nixon’s "I am not a crook." Surely, it is destined to make its way into the history books, alongside Bill Clinton’s "I did not have sex with that woman" and the builder of the Titanic’s "even God himself couldn’t sink this ship."
Monetizing the debt is precisely what the Fed will do. But it will not do so precisely. Instead, it will act clumsily... reluctantly... incompetently... accidentally... and finally, catastrophically.
That’s our prediction, here at the Daily Reckoning. Prove us wrong!
In today’s reckoning, we describe why you don’t have to be an astrologer or an economist (the two are similar... except astrologers have more professional credibility) to see what is coming.
First, a look at the market. Yesterday, investors seemed to think it over and change their minds. Their first reaction - on Wednesday - to Geithner’s reassurances to the Chinese and Bernanke’s reassurances to Americans, was positive.
‘Maybe these guys are on the level, after all,’ they said to themselves. ‘Maybe the dollar won’t fall apart.’
But after 24 hours of deep reflection and heavy drinking, they came to their senses: ‘What was I thinking? Of course they’re going to undermine the dollar... what else can they do?’
So yesterday they were back at it - buying assets that are priced in dollars but that move in the opposite direction. The euro went right back to where it was at the beginning of the week, at $1.41. Gold, which had lost $18 on Wednesday, recovered $16 on Thursday. Oil had slipped $2 after Bernanke’s comments; yesterday, it gained $2.
Stocks rose too - with the Dow up 79 points.
A friend sent a recent report from analysts with Barclays Bank. Barclays is advising private clients that the "bear market is probably over."
Anything is possible, of course. But for the many reasons we’ve described in these reckonings, we doubt that we’ve seen the last of this bear. Or the last of this recession. What we’ve seen so far is merely a classic post-crash bounce. Nothing more.
Read on...
To read the Daily Reckoning in full, click here.
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