Resource giants spar over Congo mine

2010-09-26 12:20

London - A bitter dispute between two London-listed mining giants over copper assets in the Democratic Republic of Congo has shone a spotlight on business risks in one of the world's most corrupt countries.

At the centre of the dispute are the rights to a copper mine in Kolwezi, in the southeast of the DRC, that were owned by First Quantum Minerals (FQM) before it was stripped of them by Congolese authorities in August 2008.

To make matters worse, a year later the rights to the mine were sold on at a bargain basement price to rival Eurasian Natural Resources Corporation (ENRC), which is listed in London but controlled by Kazakh capital.

London and Toronto-listed FQM has appealed to international tribunals and says it is suing ENRC for "billions" of dollars.

FQM says there is "no legal basis" for its ejection from the DRC market, which saw it lose the rights to three mines, and has alleged that it was ejected because it refused to pay bribes.

The company is waiting for a ruling from the International Court of Arbitration in Paris, and this week its chief executive Clive Newall said he would take the matter to the International Centre for Settlement of Investment Disputes in Washington, promising to "fight to the bitter end," according to a source close to the company.

For its part, Kinshasa has said it is examining "irregularities" in FQM's business and is investigating "information suggesting the leaders of the company were involved in embezzlement."

Despite some shareholders expressing public disapproval over its conduct, ENRC said that pragmatism sometimes had to prevail in the ruthless world of business.

It bought the mine for $175m in August 2009 through an Israeli subsidiary when copper prices were at a record high.

"There have been some questions involving morals. But I think we can defend our position clearly," ENRC chairperson Johannes Sittard told the Financial Times on Thursday.

A key figure in the dispute has been one of ENRC's directors, former GlaxoSmithKline president Sir Richard Sykes, a City veteran.

The Sunday Times last week accused Sir Richard of betraying the confidence of investors by approving the purchase of the Kolwezi mine.

The affair also highlights the dangers of doing business in the DRC, with the Sunday Times quoting a World Bank official as saying that it "raises the red flag."

Resource-rich DRC is plagued by instability and is ranked among the world's 20 most corrupt nations by governance watchdog Transparency International.