January 5, 2012 / 6:49 PM / in 6 years

First Quantum, ENRC settle Congo mine dispute

LONDON (Reuters) - Kazakh miner ENRC ENRC.L said it has agreed to a $1.25 billion settlement with Canada’s First Quantum Minerals FM.TO to end a long-running dispute over ownership of the Kolwezi project in the Democratic Republic of Congo.

ENRC said on Thursday it will pay $750 million plus a deferred consideration of $500 million as part of the settlement with First Quantum, the former owner of Kolwezi until its license was revoked by the DR Congo government in 2009.

It also said the deal would enable it to start developing copper-cobalt deposits at the Kolwezi tailings project, while also raising its exposure to DR Congo through the acquisition of additional assets.

The London-listed company hopes the deal closes a tumultuous chapter after its controversial acquisition of the disputed Kolwezi project led to repeated reports of internal disagreements and prompted several directors to quit.

First Quantum launched legal claims against ENRC after it bought the expropriated asset in 2010. The dispute had been expected to go to trial after a court upheld First Quantum’s $2 billion damage claim in September.

Shares in FTSE 100-listed ENRC jumped 5.9 percent to 703.5 pence at 1533 GMT after the deal was announced, topping Britain’s bluechip leader board .FTSE. First Quantum’s FQM.L London-listed shares rose 7.8 percent to 1,416 pence.

First Quantum stock was up 4.3 percent at C$21.96 by early afternoon on the Toronto Stock Exchange, after having risen as much as 9.5 percent early in the day.

Analysts at Citigroup called the deal a “win-win” for both companies, seeing “pure upside” for First Quantum, since analysts had attributed no value to the assets, and providing a green light for ENRC to begin commissioning Kolwezi.

“More importantly, it removes a legal overhang for ENRC,” Citi’s Anindya Mohinta said.

“While the agreement undoubtedly marks a pyrrhic victory of sorts for First Quantum, I had assumed, and judging by the stock performance this morning, the market had also assumed far less in compensation,” said Morningstar analyst Daniel Rohr, adding that First Quantum was certainly not getting full value for the assets.


ENRC Chief Executive Felix Vulis said he was not worried about DR Congo’s high political risk profile, illustrated by contract wrangles over China Minmetals Resources’ 1208.HK recent acquisition of Anvil Mining AVM.AX and violence around the disputed presidential election.

“We are pretty confident that this relationship (with the DR Congo) will have no problems in the future ... There is obviously some risk involved, but as at this moment we are pretty comfortable,” he said on a call with analysts.

The DR Congo appeared to give its blessing to the deal.

“The government of the Democratic Republic of the Congo welcomes the transaction as it was announced today, which should benefit the country through employment and increased revenues,” said South African Ambassador Bene M‘Poko, who acts as a government spokesman on mining affairs.

ENRC said it will need to invest between $100 million and $200 million, a figure which includes working capital and capital expenditure, over 12 to 18 months to bring the Kolwezi plant into operation.

The Kazakh company added that the deal involved it acquiring all of First Quantum’s assets in the DR Congo, boosting its presence there through the acquisition of the Frontier mine and the Lonshi mine.

Vulis said ENRC would be able to restart production at the Frontier mine within 12 to 18 months, at an estimated cost of $150 million, but conceded it needs to acquire the mining license before doing so as it currently owns only the property.

“The mining license for these properties belongs to a Hong Kong-based company. By closing this transaction it will allow us to discuss potential situations with the license holder of these specific assets,” he said on a call with analysts.

The identities of the owners and ultimate beneficiaries of the Hong Kong-based company are unclear.

Vulis also said that ENRC would clarify its plans for its copper assets in Africa upon completion of the deal.

First Quantum President Clive Newall called the deal a compensation agreement.

“We have no idea what we are selling because we are not sure what is left of the assets,” he told Reuters in an interview.

Completion of the deal, which requires third party approvals as well as the settlement of three arbitrations, is expected by the end of February, said ENRC.

Additional reporting by Clara Ferreira Marques and Euan Rocha; editing by Matt Scuffham, David Cowell and Rob Wilson

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