First Quantum Out Of Luck In The DRC

A mining official in the Democratic Republic of the Congo (DRC) has stamped out any hope First Quantum Minerals ₍FM-T, FQVLF-O) may have had that it could bring its Kolwezi tailings project in the central African nation into production.

Deputy mines minister Victor Kasongo told a reporter at Bloomberg news agency in Kinshasa that the government’s decision last month to cancel the mining contract was final. “Regarding KMT, it’s over,” Kasongo was quoted as saying. “The government has taken a decision and that’s that.”

According to the news agency, First Quantum was unwilling to alter its contract to suit the wishes of the DRC during its review of 61 mining contracts.

Sharon Loung, investor relations for First Quantum Minerals in Toronto, was reluctant to comment on the Sept. 14 news report. But she did say that “arbitration is still a right under our contract.”

On Sept. 16, the company stated in a press release that it was suspending construction at the project, which it said was nearly 65% complete.

“The company regrets that the suspension will result in the immediate loss of approximately 700 jobs in the Kolwezi area, loss of tax revenues to the DRC government, and an indefinite delay in commissioning of the Kolwezi project, which was targeted for May 2010,” First Quantum noted.

Initial production rates were expected to have been 35,000 tonnes copper and 7,000 tonnes cobalt per year, rising to 70,000 tonnes copper and 14,000 tonnes cobalt within two years.

First Quantum owns 65% of the Kolwezi project, while Gecamines held 12.5%, the Industrial Development Corp. of South Africa held 10%; the International Finance Corp. 7.5% and the DRC government 5%.

“The company and the Kolwezi project’s other contributing partners, the IFC and the IDC, remain firmly of the view that the DRC government’s actions have no legal basis,” First Quantum said. “While the company is preparing to file for international arbitration pursuant to the contract of association, it will continue to seek an alternative solution to the claims, which have resulted from the mining contract revisitation process, and will provide further updates as warranted.”

Kolwezi, about 300 km northwest of Lubumbashi in Katanga province, consists of stockpiled flotation tailings left over from past-producing mines dating as far back as the early 1950s. Poor recoveries from previous conventional concentrating techniques resulted in two tailings dams (Kingamyambo and Musonoi) full of very valuable metal. The company planned on using high-pressure water guns or monitors to extract the metal.

The project contains about 112.8 million tonnes grading 0.32% cobalt and 1.49% copper, equivalent to 361,000 tonnes of contained cobalt and 1.7 million tonnes of contained copper. (About 97% of the reserve is in the proven category.)

As recently as December 2008, First Quantum estimated that the project would likely operate from 2010 until 2032.

At presstime, First Quantum traded at $65.40 per share in a 52- week trading range of $12.75-77.07.

The company has 78.4 million shares outstanding.