How First Quantum settled with ENRC for compensation over Congolese mine – by Matthew McClearn (Canadian Business Magazine – June 05, 2012)

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It’s a bit like discovering your spouse’s name on a marriage certificate—to somebody else. Written in French and bearing official-looking stamps in red and black ink, the 56-page contract detailed a joint venture between a collection of mysterious shell companies and the government of the Democratic Republic of the Congo. The happy new partners had agreed to harvest a valuable collection of mining scrap heaps called the Kolwezi Tailings. But for executives at First Quantum Minerals, the implication seemed clear: its crown jewel had just been stolen.

This was not entirely unexpected. Founded in the mid-1990s, Vancouver-based First Quantum developed a reputation for mining in difficult frontier countries. The Congo is the frontier of frontiers, where one either takes or is taken. Since Belgium’s King Leopold II ran the country as a private fiefdom in the late 19th century, a dominant theme of Congolese history has been plunder of this abundant natural endowment by those in power.

Beneath its soils lie some of the world’s richest reserves of copper, cobalt, uranium, gold, diamonds and other resources. First Quantum coveted the copper- and cobalt-rich scrap heaps; it invested years and billions of dollars building the necessary infrastructure to harvest them. But then its relationship with the Congolese government went to hell. Losing its mining licence to someone else was just a formality.

First Quantum’s Congolese adventure followed an all too familiar trajectory. Governments in resource-rich underdeveloped countries often bend over backward to attract foreign investment. “Only after costs are sunk and major investments have been made do new cycles of resource nationalism restart,” explains a recent report by political risk consultancy Eurasia Group. Then come windfall taxes and revised contracts. “The First Quantum case is one of the more recent indicators of governments using more draconian tactics against investors,” says Riyaz Dattu, a lawyer with Osler, Harcourt & Hoskin in Toronto. “What we’re now seeing, globally, is increased resource nationalism.”

For resource companies, the good news is that they can fight back. Aiming to regain control or get compensation, First Quantum retaliated with an aggressive, multi-faceted campaign on three continents. This exhibited deft use of political pressure, international law and the powerful weapon of shame. And that’s why, a couple of months ago, the first instalment of a $1.25-billion peace offering arrived in the company’s bank accounts. This is the story of how the company got taken for a ride in one of the world’s most corrupt countries, fought back and won.

First Quantum actually lost the Kolwezi Tailings twice.

Katanga, Congo’s southeastern province, is home to some of the world’s richest deposits of copper and cobalt. In the early 1950s, the state-owned mining giant La Générale des Carrières et des Mines (Gécamines) began operating an open-pit copper-cobalt mine just north of the town of Kolwezi. Gécamines converted the area into a hellish wasteland of abandoned pits and rock dumps; it discarded tailings behind a massive dam and deposited them along an 11-km stretch of a nearby river valley. This waste contaminated surrounding areas, but it contained significant concentrations of copper and cobalt.

The Kolwezi Tailings were off-limits to foreigners during the 31-year rule of the western-backed kleptocrat Joseph-Désiré Mobutu. But that changed in 1996 when the obscure rebel Laurent Kabila attempted to depose him. As the rebels advanced, a few bold foreign companies began negotiating with them for mineral concessions. “Kabila had scant regard for property rights,” observed a 2009 report by the South African Institute for International Affairs, “and had promised to allocate major mining assets to certain companies on the strength of the material assistance they had rendered him on his way to power.” American Mineral Fields (AMF), a small mining company, exploited this. In April 1997, just months before Kabila took Kinshasa, it signed a joint venture agreement with Kabila to exploit the tailings.

The question was how long AMF could hold on to its prize.

Not long. Kabila’s advisers warned that AMF might sell Kolwezi to a bigger company, pocketing profits that ought to wind up in government coffers. So Kabila cancelled the deal and held talks with other foreign companies to form a new consortium. That’s when First Quantum entered the picture. Then a nascent, junior mining company, it acquired a 51% stake in four tailings dumps, including two at Kolwezi. AMF was outraged. But the Congo’s mining minister brushed it off as an exceptional case.

For the rest of this article, please go to the Canadian Business Magazine website: http://www.canadianbusiness.com/article/85278–how-first-quantum-settled-with-enrc-for-compensation-over-congolese-mine

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