Although a lawsuit has delayed substantial maneuvers, interested parties are moving into Congo
Mining company Eurasian Natural Resources Corp (LSE: ENRC), announced that it had reached a £804m settlement with Canadian company, First Quantum Minerals, over a disputed mine in the Democratic Peoples’ Republic of Congo. The settlement was announced after a lawsuit brought by First Quantum alleged that ENRC colluded with the Congolese government to take over the mining industry in the country.
Moving into Congo
Eurasian Natural Resources Corp had been planning its expansion into the Congo for some time. The Congo is among the countries with the highest volumes of natural copper available for mining, making it an extremely desirable location for any natural metals company. However, First Quantum already had an established foothold in the region, having been in the Congo for several years. The on-going civil war taking place in the DRC also posed a challenge to ENRC’s hopes of expanding in the country.
Purchasing the Kolwezi Mine
Despite First Quantum’s history in the Congo, Eurasian Natural Resources Corp was able to procure an especially desirable copper resource by purchasing the Kolwezi mine from the Congolese government. The problem was that the mine was originally majority owned by First Quantum until the DRC government seized it, accusing the company of violating its contract. For its part, First Quantum said that the seizure was unjustified, but was unable to take action against the government. Later, the DRC sold the confiscated mine to Dan Gertler for $60m, who then sold it on to ENRC for $175m.
Settling the First Quantum Lawsuit
The timing of the purchase seemed suspicious to First Quantum executives and the company filed a lawsuit worth £1.28bn against Eurasian Natural Resources Corp. In the documents, First Quantum accused ENRC of spending months conspiring with the government of the Congo to purchase the Kolwezi mine, which it went on to seize and then sell for an unusually low price to Gertler, who acted as the middleman for the transaction. First Quantum also alleged that ENRC had financed the sale of the mine via a multi-million pound loan from its shareholders.
While ENRC refused to acknowledge any wrongdoing, the company did eventually settle the suit by agreeing to pay First Quantum £804 m to purchase the rest of the its copper mining assets in the Congo. According to executives, the payment was more of a settlement than a purchase, since First Quantum was unsure how much copper was left within its remaining mines after the seizure.
Despite the negative publicity surrounding the Kolwezi transaction, the overall result is a net gain for Eurasian Natural Resources Corp. The purchase of all of First Quantum’s assets in the Congo gives ENRC the biggest share of copper resources in the country and places the company well on its way to becoming the largest copper mining company in the world. The stock values of both corporations rose after the settlement was announced.