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Disquiet over ENRC’s purchase of Congo assets

September 7, 2010

“Anger is growing among London’s investor community over the decision by a FTSE 100 miner to buy a disputed copper project in the Democratic Republic of Congo.

Eurasian Natural Resources Corp, the London-listed Kazakh miner, last week bought a majority stake in a collection of Congo mining assets that includes the controversial Kolwezi project.

First Quantum Minerals, a Canadian copper miner, is fighting what it sees as the Congo government’s expropriation of Kolwezi and other assets. First Quantum and its partners spent $700m developing Kolwezi until September 2009, when a government prosecutor shut down the project citing contract violations. “

Source: Financial Times, September 3, 2010

Observations:

  • ENRC paid $175mln for a controlling stake of the asset that has been partly developed by Quantum Minerals. The government of Congo seized the asset after Quantum invested $700mln. The company and the government disagreed on the rights given to the company for prospecting and/or mineral extraction.
  • ENRC is strongly integrating vertically, buying mining assets around the world. The potential IPO of Zamin would make the ENRC benefit from the capital this would free up to develop the Bamin iron ore deposit in Brazil, one of the most important projects.

Implications:

  • Though the Kolwezi asset is a financially attractive asset many miners refrained from bidding as the government’s action against Quantum was regarded to violate the business code. Many miners will have been afraid of similar future action of the government in case they would buy the asset.
  • This year the government of Guinea decided to take part of the rights to the Simandou deposit away from Rio Tinto, saying the company did not honor the investment agreements made earlier. Redistribution of these rights have not yet led to a reaction in the mining industry that would hurt the reputation of a future owner of the rights.

©2010 | Wilfred Visser | thebusinessofmining.com

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