The 12-per-cent drop in First Quantum’s shares was compounded by another drop in base metal prices, including a 3-per-cent drop in copper, as investors continue to seek out safe investments such as gold.
While First Quantum expected its share price to fall on news that a Congo court annulled mining rights for its Frontier and Lonshi mines, company president Clive Newall said the drop was deeper than expected because of the volatile markets.
“There was already clearly a flight today from the perceived high-risk companies,” Mr. Newall said in an interview.
First Quantum said this week the ruling was an “obvious retaliation” for its decision to go to international arbitration over Congo’s decision to stop construction of its Kolwezi copper-and-cobalt project last fall.
Chairman Philip Pascall called the move an “orchestrated attack” for the company’s “refusal to resolve this dispute by agreeing to submit to arrangements with unspecified third parties.”
“The legal challenges facing First Quantum in the DRC appear to be moving from bad to worse,” TD Newcrest analyst Greg Barnes said in a research note. “This latest news with respect to Frontier and Lonshi only seems to reflect a further escalation of (First Quantum’s) challenges in the DRC.”
About 25 per cent of Vancouver-based First Quantum’s operations are in Congo, and Mr. Newall said it plans to stay there despite the political and legal issues in recent months.
”We still have faith in the future of the DRC,” Mr. Newall said. “We are very reluctant to be driven out of this environment that we put a lot into.”
The company has been in Congo since 1997, and operating mines there since 2000. It also has operations in Zambia, Mauritania, Australia and Finland.
The latest news out of Congo caused BMO Nesbitt Burns to cut First Quantum’s stock rating to “market perform” from “outperform” and its share price target to $65 from $110. “It introduces uncertainty into the company,” BMO analyst David Radclyffe said in an interview.
The worst-case scenario for First Quantum is that Frontier production could be cut. However, he noted that hasn’t happened and about 75 per cent of the company’s cash flow comes from outside Congo.
The company’s largest operation is the Kansanshi mine in Zambia. It also runs the Guelb Moghrein mine in Mauritania and the Bwana Mkubwa processing plant in Zambia, which processes stockpiled ore from the Lonshi mine.
He said the Frontier mine was still operating as of late Tuesday, but the threat of closing is there. The Lonshi mine is not currently in production, but the company is doing exploration work at the site.
The Congolese court ruled the Lonshi and Frontier copper mines were awarded illegally and should revert to state-owned Sodimico.
[Globe Investor]
l-) ”We still have faith in the future of the DRC,” Mr. Newall said. “We are very reluctant to be driven out of this environment that we put a lot into.”
Typical talk of an imperialist.
#:-s
Ama illegal transactions ayo – how did they get Kansanshi, and Bwana Mkubwa in Zambia? These guys seem to favour underground transactions. Watch the mess unwind – at least the DRC legal system seems to be awake.
These mining companies know very well that Africa is fertile ground for their investiments. Corrupting those in power is a sure way to get hold of the countries resources, they know it and busy exploiting it to the full.
The Chinese, Indians are well versed in this strategy Pa Zed. They promise campaign money for re-election of corrupt and inept leaders etc.
The Zambian govt needs to come into the fray, as jobs at Bwana mkubwa and kansanshi could be affected.
I applaud the DRC court for its firmness. You see, when a country allows its investors into their pants like we have done in Zambia, what remains about a country is nothing as a wife saying to her husband, “stop looking at girls but think about me as you think about vaginas” and you know men and V’s.
Am glad that in DRC, you will never find a chinese or indian owned mining firm like we have pa Z. Even then, they know their indigenous rights as congolese. Unlike pa Z, we give it all in the name of social and community development. I can see nothing of this like i saw in the days of Anglo American. We will awalys be blind while china puts us more in debts by there grants than we know and yet they are ripping us our resourses. Shame on us. DRC is learning from our mistakes and its…
I think the best thing we can do to avoid layoffs is to put up stringent measures for the benefit of our employed zambians in the mining sector. The lenience we have exhibited towards our investors smells ‘fishy’. Zambia can’t support the elderly, the yourths who are unemployed, our hospitals ‘ve no medicine, comodity prices are sky rocketing and civil servants get their pays beyond a month. Yet, we still afford to give away our valuable resources to people who have no other interest than build their own economies. It’s not about FQM nor the chinese but its about our approach to allowing these people who might have come to invest in zambia with good intentions but have discovered that it is easy to manupilate the Zambian leadership. Zim is doing it,DRC is doing it and we can. Well…
#2Eagle’s Wings- FTJ got a cut out of that deal.
I see that a lot of you people do not understand the DRC: IT IS IN A MESS.
These FQM people are being victimised for not taking the expected route for investors in the DRC i.e. bribery and lining the pockets of a few greedy people.
This is not something to be proud of. Over 2000 people were affected at Kolwezi and a further 1000 may be affected with this latest move. The Congolese people are suffering while a few greedy people orchestrate this circus for their own benefit.
Ba Bruce Lee: Come here to the DRC and see how people are suffering!!!
Doing business here is so risky that Banks will not lend money to invest in DRC. Without the Banks my friend, even the indigenous people are struggling to operate here . . . .in fact there are no mines to speak of in the DRC inspite of all the natural resources that country is endored with.
Finally a country that will stand up against the mining companies are puts the interests of the people who elected them above the interests of the mining companies.
6 bruce lee, ” I think the best thing we can do to avoid layoffs is to put up stringent measures for the benefit of our employed zambians in the mining sector. ”
The biggest ensurance against unemployment is to have a diversified economy. A lot of the miners can be trained in agriculture, and go to agriculture when metals prices are low. (They could easily make more money at it too.)
For urban areas, we should have a lot of factories.
And the way to get to diversification is to tax the mines for a billion USD a year or more.
flee of investors from fqm is normal because they want to protect there intrest .beside’s fqm in DRC they don’t respect the government,people and human rights.because we know that they are contrubutors of war in congo before signing any contract.how can you put the landlord to court when the matter is just to negotiate finish.let them suffer the concesquences.