DRC Minister cites contract breaches for Kolwezi tailings project

In contrast to the relatively straightforward responses reported earlier today, First Quantum Minerals has received a letter from the Minister of Mines advising of the results of the Congolese Government’s Mining Contracts Review Commission revisitation of the Kingamyambo Musonoi Tailings Sarl (KMT) Mining Convention. KMT is owned by First Quantum 65%, Gecamines 12.5%, Industrial Development Corporation of South Africa (IDC) 10%, the IFC 7.5% and the Government of the DRC 5%. Breaches of provisions and the tender offer have been declared.The Convention was one of over 60 contracts reviewed by the government. A translation of the letter indicates the following:

1. Reproaches

1.1 The creation of KMT has been carried out in breach of the provisions of the Royal Arrêté of June 22, 1926 on SARL, in particular article 1.1, as the Decree N° 04/020 of 15 March 2004 authorising the creation of KMT is dated before the incorporation of the company (authentification of the articles of association of March 16, 2004)

1.2 The terms of the tender offer’s submission have been breached, in particular in relation to the price of the transfer of the mining rights from Gécamines to KMT lowered from $130 millions to $15 million, of which $5 million have been paid as of today;

1.3 The shares have been set arbitrarily in the absence of a feasibility study capable of identifying the resources and of determining the participation of each party in the share capital

1.4 Since the conclusion of this partnership in 1997, the prospecting works only begun in 2007, thus leading to the freezing of the deposits

1.5 The grants of the majority of the shares to CMD was made against a simple undertaking to search for the financing, the repayment of which is however to be borne by the joint venture.

The Government requests the termination of this contract to the best interest of each party. However, considering the arrival of the new partner First Quantum, this partnership can be maintained, under the following conditions, The Government says:

  1. To regularise the incorporation of the company in strict conformity to the Congolese law on commercial companies

  2. To respect the terms of the initial tender offer and its implications, in particular the up-front payment (pas de porte)

  3. To transmit to the Government the feasibility study of the project. This feasibility study shall, inter alia, identify and evaluate the real contribution of the parties to the company in order to achieve an equitable allocation of the shares

  4. To propose a schedule of the social actions which have a visible impact

  5. Gécamines must have an active role in the day-to-day management of the company.

First Quantum says it has advice that the Convention is valid and binding and that KMT has complied with all its terms. The Convention provides a dispute resolution mechanism through international arbitration. The company will liaise with its financially contributing partners the IFC and IDC and, as invited by the Minister, will through KMT respond to the letter shortly and arrange to meet with him in due course.