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First Quantum – Next DRC copper/cobalt project to go ahead

Despite having been under duress in the DRC, First Quantum announces $593m go-ahead for Kolwezi tailings project.

JOHANNESBURG - 

First Quantum (FM.TO, C$82.36 a share), the original new generation pioneering copper miner in the mineralised belts straddling Zambia and the Democratic Republic of the Congo, has announced the go-ahead for the Kolwezi tailings project in the DRC, with project financing of some US$593m. The announcement comes amid rising tensions in the southern Katanga Province, DRC, which hosts the northern and western parts of the central African copperbelt.

Various elements, some known and some not so well known, are known to be placing pressure on First Quantum, in attempts to push the group into actions that the group will not take part in. The broader background in southern Katanga Province is well known by now, with the recent DRC mining review remaining among top news items.

First Quantum currently produces copper at Bwana Mkubwa (Zambia) and mines at Kansanshi (Zambia), Lonshi and Frontier (DRC) and at Guelb Moghrein (Mauritania).

First Quantum and its partners at Kolwezi, the Industrial Development Corporation of South Africa and the International Finance Corporation, plan to finance or procure third party debt project financing totalling up to US$593m for the Kolwezi tailings project.

Kingamyambo Musonoi Tailings SARL (KMT) holds the Exploitation License to develop the Kolwezi tailings project. First Quantum owns 65% of KMT, Gecamines 12.5%, the IDC 10%, the IFC 7.5%, and the government of the DRC 5%.

Capital expenditure for the base case at Kolwezi is estimated at around US$553m, with plant tailings throughput of 2.5m tons a year. Initial annual production is targeted at 35,000 tons of copper cathode and 7,000 tons of cobalt hydroxide (about 4,200 tons cobalt equivalent). The plant will be designed to allow for both plant capacity and production to be doubled at a capital cost of US$40m. The project is expected to produce 70,000 tons of copper cathode a year for 22 years.

Commercial production for the Kolwezi tailings project is slated for the first quarter of 2010; project construction is expected to be completed in the third quarter of 2009, with commissioning scheduled for the fourth quarter of 2009. Production from Kolwezi will push First Quantum's copper production well above 300,000 tons a year, along with important by-production of cobalt and gold.

First Quantum acquired Bwana Mkubwa, near Ndola, in 1996. The grand old man of the Zambian copperbelt exhausted the last of its own ore reserves in mid-2002; those "reserves" in any event were poor quality tailings from previous operations. The mine had been worked on and off since its discovery in 1902. Bwana Mkubwa's state of dereliction and apparently hopeless future left it outside the mandate of the copper industry privatisation initiated by the Zambian government.

First Quantum was headed to ore reserve starvation from when it bought Bwana Mkubwa, and "rediscovered" Lonshi in 2000. The deposit had first been found by Belgian geologists in the 1930s, but had never been worked. First Quantum sunk the first drill holes into Lonshi in November 2000, and commissioned the $25m mine just eight months later.

Mining at Lonshi commenced in August 2001; the 36km road is used to haul ore from Lonshi to Bwana Mkubwa, near Ndola.  Lonshi was the first greenfields copper mine built on either side of the copperbelt in 33 years.

First Quantum also built the next one, a very big one, Kansanshi, at a deposit known since 1899, in Zambia. At this time, the copper price remained rotten: in 2002, Anglo American (AAL.L, £28.32) quit Zambia Copper Investments (ZCI) and its main interest, Konkola Copper Mines, at a cost of $34m, in addition to a $353m write-off taken in 2001.

First Quantum acquired mining rights for Lonshi in 2000, but it was only in mid-January 2003 when First Quantum acquired inalienable rights under the new Congolese Mining Code. The formulation of the code, regarded as world class, was heavily sponsored by the World Bank.

The code is clear and unambiguous, but included a six-month period of grace before First Quantum's rights at Lonshi became truly irreversible. Those rights were finally fixed in August 2003, leaving the company a lot more relaxed about its future.

The Kolwezi tailings project moved into the First Quantum stable in 2006, when 100% of Adastra Minerals was acquired by First Quantum for $273m. In the initial studies, First Quantum was looking at an initial 35,000 ton a year copper facility and 5,800 tons a year cobalt facility, designed to be expanded to 105,000 tons of copper a year and 17,400 tons of cobalt a year.