First Quantum May Seek $1 Billion Compensation for Kolwezi Loss in Congo

First Quantum Minerals Ltd., a Canadian mining company that produces copper in Africa, said it’s considering seeking compensation of more than $1 billion from Eurasian Natural Resources Corp. to cover financial losses at the Kolwezi project in the Democratic Republic of Congo.

“We’re looking at our options for taking action against ENRC,” First Quantum President Clive Newall told reporters in London today. A decision will be made before the end of the year, he said.

First Quantum, based in Vancouver, is seeking international arbitration to resolve a yearlong dispute over Kolwezi, which Congo shuttered in 2009 and was last month sold to London-based ENRC. The Congolese government last week also revoked First Quantum’s licenses for the separate Frontier and Lonshi mines, Newall said.

“We believe ENRC’s conduct in the matter is very difficult to defend,” Newall said today. First Quantum contacted ENRC by mail and telephone before the acquisition took place to warn them about the arbitration process, he said. ENRC didn’t provide a “proper explanation,” he said, without commenting further.

Lawful Action

ENRC undertook “substantial” due diligence and was satisfied with the findings, the company’s Chief Executive Officer Felix Vulis said on a conference call on Aug. 20. The license was withdrawn a year ago by Congo and the court of appeal confirmed the withdrawal was lawful, ENRC said in a statement today. “Any dispute that First Quantum has is with the appropriate authorities in the DRC,” it said.

The financial impact of losing the licenses at Kolwezi and Frontier is more than $2.5 billion, Newall said. First Quantum may eventually seek compensation of as much as $2 billion for losing Kolwezi, he said.

“Calculated market damage done to First Quantum and against our peer group is $2.5 billion,” he said. “The actual value of the properties on a discount cash-flow basis is a lot larger than that.” The company invested about $750 million in Kolwezi and $250 million in Frontier, Newall said.

ENRC agreed to buy Kolwezi and manage it with Cerida Global Ltd., owned by Israeli investor Dan Gertler. First Quantum also contacted Gertler following reports that he would be awarded the license, Newall said. “We had a letter from his lawyer that he wasn’t involved in the project, which of course he was,” he said.

Last year, Frontier accounted for about 25 percent of First Quantum’s earnings before interest, tax, depreciation and amortization, Newall said. The company posted earnings of $747.8 million before tax and non-controlling interests.

A Congo court on Aug. 4 appointed a liquidator for the Kolwezi project, escalating the dispute between First Quantum and the government. Kolwezi is part-owned by the World Bank’s International Finance Corp. and the Industrial Development Corp. of South Africa. It was shut last September after the government said First Quantum hadn’t fulfilled its contractual obligations.

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

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