Dark Side
First Quantum in $12bn court farce
By Barry Sergeant, Mineweb 16/3/10
Mar 17, 2010 - 9:59:57 AM

First Quantum, the African copper-gold miner, on Tuesday announced 2009 results that include an eye-popping account of how its apparent foes, in the Democratic Republic of the Congo, have asked a court there for "an unsupported request for up to USD 12 billion in damages".

First Quantum, a global Top 10 copper miner, may be the biggest miner on the central African copperbelt, and insistent that it is compliant with the DRC's Mining Code, but in a September 2009 announcement, it confirmed suspension of work at the 75%-complete Kolwezi tailings project, after it was shuttered by government agents.

Some 700 jobs were lost, on a project that was lined up to come on stream in May this year. The carrying value of the Kolwezi development project is USD 787m, being an initial acquisition cost of USD 388m, and capital expenditures, so far, of USD 399m.

First Quantum and its partners at Kolwezi, the IFC (International Finance Corporation), and IDC (Industrial Development Corporation of South Africa), hold 82.5% of the project; the DRC government and its parastatal La Générale des carrières et des mines, or Gécamines, the balance. The latter two parties have not pitched so much as a penny into the project, formally known as the Kingamyambo Musonoi Tailings SARL, or KMT.

In late November 2009, First Quantum learned that a domestic DRC court had awarded a USD 3m damages claim against it and its subsidiaries. The bashing continued when on 11 January 2010, a First Quantum subsidiary "received a letter from Gécamines advising they were cancelling the Contract of Association".

First Quantum apparently lost its sense of humour at this stage; "In the company's view, the Local Court's decision constituted a flagrant denial of justice and this, along with the actions taken by Gécamines to wrongfully cancel the Contract of Association, demonstrated the need for the company to file international arbitration seeking orders obliging the DRC and Gécamines to respect their undertakings and obligations under the Contract of Association".

On February 1 First Quantum announced commencement of international arbitration by First Quantum and its partners in KMT, under the facilities of the International Chamber of Commerce, International Court of Arbitration, in Paris. Not to be outdone, the DRC mines minister in public statements made on 3 February 2010, at the Indaba conference in Cape Town, indicated that "instructions had been given" by the DRC to start negotiations with third parties, in order to create a new Kolwezi partnership.

First Quantum and its partners reacted, this time by publishing notices in certain widely circulated publications advising of valid contractual rights, and the ongoing ICC International Arbitration, warning third parties not to interfere.

It is no secret, though this is not mentioned by First Quantum, that certain "entrepreneurs" were jetting around above the jungles, offering to solve the impasse, using a method known politely as "briefcase diplomacy". To think that First Quantum would have fallen for such snake oil would be tantamount to not knowing that the smartest thing the devil ever did was to convince the world that he doesn't exist. The devil, and his little devil pets, lurk large in this story.

In fully resisting the devil and his cohorts, it was on 23 February 2010 that First Quantum, without any prior notice, received from Gécamines a "Notice of Hearing Date", and a hearing less than 24 hours later, on 24 February. This time Gécamines and its sidekicks "requested the confirmation of the Lower Court judgment and also made an unsupported request for up to USD 12bn in damages to be awarded to Gécamines and, CAMI, the DRC Mining Registry".

KMT's lawyers attended and objected to the proceedings. KMT believes a decision of the Local Appeal is imminent; KMT "continues to believe the allegations against KMT and CMD (Congo Mineral Developments, a First Quantum subsidiary), have no merit and intends to vigorously defend against any decision".

First Quantum believes that "there is no legal basis for the cancellation of KMT's exploitation permit, the sealing of the KMT facilities, Gécamines's cancellation of the Contract of Association, or the decision of the Local Court, and as previously noted, that CMD and the KMT Project's other contributing partners, the IFC and the IDC, continue to have a valid and binding contract with the DRC and Gécamines".

First Quantum ranks as the pioneer miner in reenergizing the Central African Copperbelt, which extends some 500km through Zambia and into the DRC's Katanga province, with a width of around 50km. In 1996 First Quantum acquired Zambia's Bwana Mkubwa, worked on and off since discovery in 1902, as an operation that would exhaust its own ore reserves by mid-2002.

Today First Quantum owns 80% of and operates the Kansanshi copper-gold mine in Zambia, 95% of Frontier in the DRC, and 80% of the Guelb Moghrein gold-copper mine in Mauritania. The group is expanding into nickel production in Finland and Australia.