When U.S. Secretary of State Hillary Clinton met last month with Joseph Kabila, president of the Democratic Republic of the Congo (DRC), she said that the DRC needs to improve its governance and crack down on corruption if it wants more international support.
But a controversial move Wednesday has raised concerns that the DRC is moving the wrong way.
Police showed up at First Quantum Minerals Ltd.'s DRC-based Kolwezi copper project and sealed it off, forcing the company to halt construction and lay off 700 people. The company believes that the move violates Congolese law.
It is a blow to both Vancouver-based First Quantum and the surrounding community. The DRC is one of the poorest countries in the world and needs investment from Western miners and the World Bank, which is part-owner of Kolwezi.
"Obviously investors are going to get a rather jaundiced impression of the Congo as a result of this," said Clive Newall, First Quantum's president. He added that negotiations with the government are continuing but there is no guarantee of a resolution.
The abrupt shutdown of the project follows a move by the government Aug. 4 to cancel the Kolwezi contract, claiming the terms were violated, which First Quantum and its partners deny. According to reports, the decision was made very quickly by cabinet when a lot of ministers were absent.
It has also re-ignited concerns about corruption.
"There's a lot going on here. Corruption is part of it, and non-respect of contracts is part of it," said Pierre Fournier, a geopolitical analyst at National Bank Financial.
The DRC has some of the richest mineral resources in the world, and foreign miners started to pile into the region early this decade once commodity prices took off and the country emerged from a bloody civil war.
Many of those miners have lived to regret it. Political risk, combined with outbreaks of violence that never really stopped, have left a cloud of uncertainty over the DRC. Companies have also had their mining contracts subjected to a controversial government review.
As the DRC government created problems for Western mining companies, it has jumped into the arms of another party: China. It signed a massive US$9-billion minerals-for-infrastructure deal with the Chinese that has already paid benefits for both sides. In China's case, it received two important mining concessions that used to belong to Toronto-listed Katanga Mining Ltd.
First Quantum is one of the very few Western companies to have success in the DRC. It has grown to be the country's largest taxpayer and one of its major employers.
First Quantum operates the DRC-based Frontier mine, and it has pumped $300-million into Kolwezi, its most important growth prospect.
Mr. Fournier said that the Chinese companies likely covet Kolwezi as well, and may pursue the project if First Quantum loses it.
"Any big mining company in the world would be interested in this asset," he said.
© 2009 The National Post Company. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.
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