Phelps OK’s DRC copper mine

US$650 million Cost to build Tenke Fungurume

400,000 tonnes Tenke Fungurume’s potential annual copper output

US$6,819/tonne Copper price at presstime

40 Estimated years of production

Vancouver — U.S. giant Phelps Dodge (PD-N) has handed a newly elected government in the Democratic Republic of the Congo (DRC) a vote of confidence by tentatively agreeing to begin construction of the US$650-million Tenke Fungurume copper-cobalt mine.

The decision means patience has paid off for its Vancouver-based partner, Tenke Mining (TNK-T, TNKDF-O), which has held onto the project through years of civil war and chaos, hoping that it would eventually make it into production.

“This is an excellent decision for ourselves and for the country,” says Paul Conibear, president and CEO of Tenke, which is 19%-owned by the Lundin Group stable of companies.

When production begins in late 2008, Tenke Fungurume is expected to rank up there with the world’s largest copper mines, producing at least 115,000 tonnes of copper and 8,000 tonnes of cobalt annually, during a projected lifespan of 40 years.

But Conibear says the scale of the project will likely get much larger, potentially pushing the rate of copper production to 400,000 tonnes per year, once the necessary railway and power infrastructure is in place.

Development is about to begin after Joseph Kabila was sworn in this week as Congo’s first democratically elected president in more than four decades, a move that raises high hopes for peaceful change in a country tormented by years of war and dictatorship.

The electoral commission had announced last week that Kabila won the election, taking 58% of the votes against 42% for rival Jean-Pierre Bemba.

The 35-year-old former guerrilla commander, who became the unelected leader of the DRC in 2001 after his president father was assassinated, won a 5-year mandate through the ballot box in a tense Oct. 29 presidential run-off.

Phelps Dodge appears sufficiently confident in the political climate to kickstart a project that will employ roughly 3,000 people during the construction phase, and about 1,000 directly once production begins.

The mine will be the largest taxpayer in the country, generating $100 million in tax royalties and duties that will be split between provincial and federal governments.

Phelps Dodge, currently the target of a US$26-billion takeover bid by U.S. rival Freeport-McMoRan Copper & Gold (FCX-N), holds just under 58% of Tenke Fungurume.

The balance is held by Tenke, with just under 25%, and Gcamines, a DRC state-owned mining company, with 17.5%.

Conibear says Freeport’s move to swallow Phelps Dodge would be a boost to the project because it could come equipped with the expertise it has gained by operating the giant Grasberg copper mine in Indonesia.

“The mine and related processing facilities represent a major building block for the future of our company,” says Phelps chairman and CEO Steven Whisler, who is set to retire once the takeover is completed next year.

Whisler says the project will be an engine for industrial growth in the DRC, a major contributor to infrastructure development, and a stimulus for creating small businesses and improving hospitals, clinics, schools and agriculture in the DRC’s Katanga province.

“We are pleased to partner with Gcamines and Tenke Mining to bring this project to life,” he says.

A final decision to move to construction is contingent on the consortium’s ability to obtain governmental approval of agreements recently reached with Socit Nationale d’lectricit (SNEL), an electricity provider in the DRC.

Conibear says Phelps is in talks with a consortium of banks in a bid to secure financing and political risk insurance for the project. Under previous agreements, Tenke is obliged to contribute 30% of the project capital costs, with the balance coming from Phelps Dodge.

Prior to Wednesday’s announcement, Tenke shares rose 66 to $16.78 in Toronto. In New York, Phelps Dodge rose US6 to US$122.46 per share.

During a Dec. 7th conference call with analysts, Conibear was asked why the initial copper production rate is being limited to just 115,000 tonnes per year.

He attributed the restriction to concerns that the banks would not be prepared to lend into the DRC and that the partners might have to finance the project on their own.

Phelps Dodge is also mindful that byproduct cobalt production from Tenke Fungurume could disrupt the cobalt market, if they started out at a higher throughput rate.

But now that the political climate appears to have improved, “it is everyone’s intention to expand the facility,” Conibear said.

“Phelps Dodge is not in this for 40,000 tonnes or 115,000 tonnes a year,” he said. “They want to get much larger.”