DRC gov’t wants to liquidate First Quantum’s Kolwezi

The battle between First Quantum Minerals (FM-T) and the Democratic Republic of the Congo’s (DRC) government continues to escalate.

The latest salvo fired by the DRC courts — which have consistently sided with the government in the year-long ordeal — calls for the liquidation of First Quantum’s Kolwezi copper project.

The move is connected to a court decree from March which ordered First Quantum to pay US$12 billion to state-mining firm Gcamines for damages.

First Quantum has conceded that the March ruling is enforceable within the country, and it appears the government is seeking to enforce it by selling the Kolwezi assets to Highwind Properties — a company registered in the British Virgin Islands.

Despite spending $388 million to acquire Kolwezi and another $406 million developing it, the government stripped First Quantum of the project in September 2009 as part of its mining contract review process.

The government argued that the original transfer of the project away from Gcamines, some 10 years ago, was not legal.

With the liquidation process underway, First Quantum will desperately try to get international courts to intervene.

The company is in the midst of an international arbitration case over, what it says, was the wrongful cancellation of its Kolwezi claims. It had been seeking to ensure that no liquidation of assets would occur until an international court had made its ruling.

First Quantum does have some muscle behind it thanks to the World Bank’s International Finance Corp. and the Industrial Development Corp. of South Africa being partners in the project.

Both groups have said that their legal investigations show no wrongdoing by First Quantum and that the government’s actions should be deemed illegal.

It’s been rumoured that the Kolwezi issue was at the heart of the World Bank and the International Monetary Fund nearly holding back on an $8-billion debt relief program for the country.

There is little doubt that the DRC government has become more aggressive towards the company ever since First Quantum took its case to the International Chamber of Commerce in Paris for arbitration.

Since then, DRC courts not only made the US$12 billion in damages ruling but also cancelled the mining contracts for two other First Quantum projects in the country.

In Toronto on Aug. 4 — the day the liquidation news was released — First Quantum shares were off $1.61 or 2% to $65.76 on 287,000 shares traded. The company has 80.6 million shares outstanding.