4 September 2009
DRC mining review process struck down the contract, citing issues such as non-payment of royalties and failure to adhere to an agreed timetable.
At the beginning of August, the government of the Democratic Republic of Congo (DRC) announced that it terminated its copper and cobalt mining contract with First Quantum for the IFC-backed Kingamyambo Musonoi Tailings (KMT) project, following a review of 61 mining contracts. The review was launched in 2007 by the Congolese government in efforts to boost the country's revenues from the mining sector and bring contracts in line with international minimum standards. The government cited issues such as non-payment of royalties and failure to adhere to an agreed timetable as reasons for the cancellation. Meanwhile, the government has indicated that it is willing to consider renegotiating the agreement with First Quantum.
At the time of cancellation, the project was in the development stage and 65 percent complete. The $600 million project entails processing the tailings of previous mining activities. KMT would produce 70,000 tons of copper and 14,000 tons of cobalt at full production.
The International Finance Corporation (IFC), which has a 7.5 percent stake in the project, financed pre-feasability studies in 2005 - which were carried out at the time by the Canadian company Adastra before the project was taken over by First Quantum. The IFC classified the project as environmental category "B", meaning its environmental and social impacts will be limited, site specific, and reversable, despite concerns to the contrary. The IFC is currently considering financing the production stage of the project as well to the tune of $60 million.
According to Bloomberg, the IFC is taking advantage of the financial crisis to make more investments in the mining sector, particularly in Africa, and is considering financing 15 mining projects for the next year.
DRC's once lucrative mining sector, which benefitted from the commodities boom earlier in recent years, has been hit hard by dramatic falls in metals prices. Most of the 61 mining contracts under review were signed during the 1998 - 2003 civil war; a period plagued by corruption. The DRC is now looking to renegotiate the 61 mining contracts in order to increase its share of revenues from the industry.
Some observers have criticized the World Bank's involvement in the DRC's mining industry, questioning its emphasis on the privatization of the country's mineral resources as a driver of economic growth, as well as the Bank's apparent reluctance to use its leverage to help the DRC gain a fair share for its resources by supporting the contract renegotiation process.
Resources
Congo May Renegotiate Cancelled First Quantum Deal by Joe Bavier, Reuters, August 11, 2009
First Quantum 'Mystified' by DRC License Loss by Allan Seccombe, Miningmx, August 6, 2009
IFC Expects to Double Mining Investments as Banks Curb Lending by Anna Stablum, Bloomberg, June 26, 2009