First Quantum exits DRC on a high note

First Quantum Minerals (FM-T) is putting an end to its troubles in the Democratic Republic of the Congo (DRC) by agreeing to sell its DRC assets and drop any related legal claims for US$1.25 billion.

Integrated miner Eurasian Natural Resources will buy First Quantum’s Frontier and Lonshi copper mines, along with the Kolwezi tailings project and related exploration interests. All the properties are located in the DRC’s copper- and cobalt-rich Katanga province. 

First Quantum will receive US$700 million when the transaction closes and another US$500 million in a three-year promissory note. The deal is contingent on both companies and the Congolese government dismissing all related ligation and resolving outstanding disputes surrounding the assets. 

If the deal goes through it will put a positive spin to First Quantum’s unfortunate saga in the Central African country. 

“It brings to a close First Quantum’s current involvement in the DRC and secures substantial compensation for our shareholders for the loss they have suffered,” the company’s chairman and CEO, Philip Pascall, said in a prepared statement. 

The first wave of suffering came when the general prosecutor of Katanga suspended construction at the company’s 65%-owned Kolwezi project in September 2009. The government later vended the project to Israeli businessman Dan Gertler, who sold most of his stake to ENRC. 

ENRC reported on Aug. 20, 2010, that it bought 50.5% of Camrose, a company held by the Gertler Family Trust, which owns 70% of the Kolwezi project. 

The situation continued to worsen for First Quantum. On Aug. 27, 2010, it reported that the government withdrew its exploitation licence at the 95%-owned Frontier mine, later transferring the mine’s titles to state-owned miner Sodimico. 

First Quantum has been fighting to restore its assets through international arbitration with little success, given the lengthy process. 

 The miner spent an estimated US$1.1 billion on its DRC assets, and the US$1.25-billion hardly covers its losses, not mentioning the inherent asset value these operating projects would have, Haywood Securities’ analyst Kerry Smith explains in a Jan. 5 note. 

That said, he adds, the deal is better than anticipated because it “allows First Quantum to now focus on their operating and development assets, rather than be distracted by shenanigans in the DRC.” 

Scotia Capital’s analyst Tom Meyer agrees. “This settlement appears positive for First Quantum and we expect the shares to react accordingly,” he writes in a brief note.

The company’s shares jumped 4.3% to close Jan. 5 at $21.98 on 4.88 million shares traded. 

Meyer has reiterated a one-sector “outperform “rating on the stock, increasing estimated earnings per share for 2012 to US$2.88, which is up a penny. 

Analyst Matt Murphy of UBS Investment Research boosted his 12-month target to $25.50, or US$25.17, from $24, or US$23.69, and maintains a “buy” on the stock. 

On the same day as the agreement, Reuters reported that the labour dispute at the company’s Kansanshi copper-gold mine in Zambia has ended. The dispute over higher wages started on Jan. 3, ceasing operations for two days. 

In other news, First Quantum is adding new faces to its London office. Harmony Gold Mining‘s (HMY-N) financial director Hannes Meyer will become the company’s new chief financial officer in mid-March. On Jan. 9, Juliet Wall joined as general manager of finance, acting as interim chief financial officer until Meyer arrives.