MAC/20: Mines and Communities

DR Congo nationalises one of its largest copper mines

Published by MAC on 2010-09-14
Source: The Guardian (UK), Financial Times

Canadian and UK companies go head-to-head over deal

The "spat" between two foreign mining outfits, over which  should control one of DR Congo's most important copper lodes, has escalated - to the point that one of them is taking the other to court.

Siding with London-listed Kazakhistan-based ENRC is the Congolese government, which has now effectively nationalised the project.

Meanwhile , the aggrieved party, Canada's First Quantum, has protested to the UK's Financial Services Authority, calling for an independent review.

The company also accuses two of ENRC's high-profile British non-executive directors of failing to exercise due diligence over the deal.

Mining companies clash over Congo copper mine

First Quantum writes to UK authorities over ENRC's acquisition of Kolwezi copper mine.

By Tim Webb

The Guardian

6 September 2010

A row between two mining companies over a multimillion-pound copper mine in the Democratic Republic of the Congo has escalated after one of the firms wrote to the UK regulator alleging that shareholders have been misled over the affair.

First Quantum, a Canadian company whose copper mine has been seized by the DRC government, has written to the UK regulator. It alleges that ENRC, the FTSE 100-listed rival which now owns a large stake in the mine, misled investors over the acquisition.

The Guardian has seen a letter written last month by First Quantum to the UK Listing Authority, part of the FSA, shortly after ENRC announced the deal.

The letter alleges that ENRC broke stock exchange disclosure rules by not detailing to shareholders the legal action against the DRC government by First Quantum to try to win back the mine. A spokeswoman for the FSA declined tonight to say whether it was investigating.

ENRC said that the international arbitration process over the dispute was already in the public domain and that it had carried out full disclosure before announcing the deal. It added: "The licence was withdrawn by the DRC in August of 2009, and the court of appeal has confirmed that the withdrawal was lawful. Any dispute that First Quantum has is with the appropriate authorities in the DRC."

Last month ENRC paid $175m (£113m) for mining assets in the DRC, including a majority stake in the Kolwezi mine.

The revelation will bring further pressure to bear on ENRC. The Guardian has also learned that First Quantum will launch its own legal action this week against its rival, probably in the British Virgin Islands. It will seek to secure damages of about $2.5bn, the estimated value of the lost assets and money spent developing the Kolwezi mine.

ENRC bought the stake in the disputed assets via a holding company incorporated there by Dan Gertler, an Israeli mining entrepreneur with strong links to the Kinshasa government.

ENRC has a stellar cast of City grandees as non-executive directors, including Sir Richard Sykes, formerly chairman of GlaxoSmithKline, who is deputy chairman.

First Quantum is already pursuing the matter in the international court of arbitration in Paris. The DRC last month seized First Quantum's other operation, Frontier, the largest copper mine in the country.

The DRC government claims that it removed the licences because First Quantum refused to renegotiate the terms of the contract, alleging "unreasonable behaviour" in three years of negotiations. In an increasingly bitter row, the government also alleges unspecified misconduct by First Quantum executives.

First Quantum president Clive Newall said: "They are making weightless and scurrilous accusations against the management. We would be delighted to have an independent review. It's extraordinary that ENRC's non-executives would put their names to this."


Congo seizes First Quantum Minerals’ assets

By William MacNamara and Christopher Thompson

Financial Times

31 August 2010

The Democratic Republic of Congo, the mineral-rich African country, has nationalised one of its largest copper mines and on Tuesday said it would investigate First Quantum Minerals, the Canadian owners of the mine, for “suspected wide-scale misconduct”.

The dispute between the Congo government and First Quantum, the Toronto and London-listed copper miner that says it is Congo’s biggest tax payer, has drawn the attention of the global mining industry.

Large mining companies have eyed Congo’s mineral wealth for years but have refrained from investing until pioneers such as First Quantum proved that their licences were secure.

First Quantum now appears to have been stripped systematically of all its assets in the country, even as it disputes these alleged “expropriations” through an international court in Paris.

First Quantum shut down the Frontier mine – its only producing mine in Congo – on Friday by government order. Sodimico, a state-owned mining company, ordered the company to “stop all mining and exports and leave the mining title areas”, according to First Quantum.

That follows a Congo supreme court ruling that granted prospecting rights over Frontier – but not explicit mining rights – to Sodimico in May.

In the six months to June 30, First Quantum generated almost one-third of its operating profits from the Frontier mine, implying a serious financial penalty from the government’s action.

“First Quantum believes that any purported withdrawal of the Frontier permit is contrary to the mining code and [Congolese] law, amounts to an expropriation of First Quantum’s property and was initiated against First Quantum as retribution for the commencement of arbitration relating to the Kolwezi project,” the company said on Friday.

First Quantum – together with the World Bank’s International Finance Corporation – spent $750m (£489m) developing Congo’s Kolwezi copper project. But last September the government seized the site, citing contract violations, and in January sold the asset to a company controlled by Dan Gertler, the Israeli entrepreneur.

This month Mr Gertler sold Kolwezi and other Congo mining assets to Eurasian Natural Resources, the Kazakh miner. Kolwezi remains the centrepiece of international arbitration that First Quantum has brought against the Congo government.

Bene M’Poko, Congo’s ambassador to South Africa, said First Quantum had violated the law broadly and specifically. “When the new mining code came in 2002, we asked everyone to conform to the law. That is why we launched the review of mining licences in 2007,” he said. “First Quantum is the only one that did not negotiate.”

The Canadian company has stated for three years that its mining contracts are fair and legal and required no amendment under the Congo mining review.

The government said on Tuesday it would investigate “suspected widespread misconduct” by First Quantum.

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