First Quantum Minerals Ltd. (TSX: T.FM, Stock Forum) is facing more uncertainty in the Democratic Republic of Congo following a Supreme Court ruling that annulled its exploration rights and awarded them to a state-owned company.
The company said the ruling has so far had no impact on operations at the Frontier mine and a nearby development site – known as the Lonshi mine, which are still operating “steadily and normally,” according to Chief Executive Officer Philip Pascall, who spoke with analysts during a conference call on Monday.
The Frontier mine is located near the Zambian border and is expected to produce 75,000 tonnes of copper in concentrates this year from open pit operations. At nearby Lonshi, the company has been conducting underground exploration below a former open pit copper mine in a bid to develop a 30,000 tonnes-per-year copper mine.
However, First Quantum shares reacted to the news by falling 12% to $55.36.
News of the annulment comes after a separate court ruling upheld the DRC government's cancellation of a permit at First Quantum's Kolwezi copper-cobalt project last August.
With a US$750 million investment at stake, First Quantum and partners IFC (International Finance Corp.) and Industrial Development Corp. of South Africa (IDC) have responded by taking the dispute to an international arbitration panel in a bid to have their rights to the copper-cobalt tailings project reinstated.
During Monday’s conference call with analysts, Pascall said state-owned mining company Société de Développement Industriel et Minier du Congo (“SODIMICO”) went to court seeking the annulment of a letter from the former DRC Minister of Mines which was written in 2000 and allegedly withdrew exploration rights belonging to SODIMICO.
As a result, SODIMICO requested that its rights be reinstated on so called “exclusive exploration zones” which SODIMICO previously held and which were allegedly converted into a number of exploration and exploitation licenses now held by subsidiaries of First Quantum. They contain what are now the Frontier and Lonshi mines.
Following a court hearing on May 14, the Supreme Court cancelled the Minister of Mines letter of February 2000 and rehabilitated SODIMICO and its mining rights and titles.
The company says the court does not address what impact, if any, the rehabilitation has or will have on the valid and still existing mining licenses held by First Quantum subsidiaries. So far, no direct action has been taken by the DRC authorities against either Frontier and Lonshi as a result of the court decision and operations there continue.
During the conference call with analysts, Pascall said the company is aware that the arbitration process affecting Kolwezi “is not liked.’’ “There have been some threats that our other prospects in the Congo would be targeted,’’ he said.
He also said Frontier recently made a $55 million tax payment at the end of March, which Pascall described as the largest tax payment in Congolese history. He said the Minister of Mines made reference to the example that that set for other investors in the Congo.
“So clearly, in our opinion, the activities on the legal side come from a fairly small, but very influential group of players in Congo, but don’t necessarily reflect the sentiment of the other authorities and the Congolese at large.”
Meanwhile, Pascall said he couldn’t predict what will happen next. “In this case, what action will be taken next, and how it will be applied is a matter of concern, but not one that we can speculate exactly on.’’
For its part, First Quantum is unlikely to sink any more money into the Lonshi site, Pascall said.
Other companies with operations in the DRC say they are not impacted by the First Quantum court ruling. That includes Freeport-McMoRan Copper & Gold (NYSE: FCX, Stock Forum) and Lundin Mining (TSX: T.LUN, Stock Forum), the joint venture partners in the massive Tenke Fungurume copper project.