First Quantum must continue case against DRC-court

* Congo court refuses FQ request to drop legal action

* Company disputes government decision to cancel project

* Experts say case could go to international arbitration

By Joe Bavier

KINSHASA, Oct 21 (Reuters) - A court in Congo rejected on Wednesday a request by First Quantum Minerals (FM.TO) to drop legal action against the government and state agencies over the cancellation of one of its copper and cobalt mining projects.

Democratic Republic of Congo cancelled the Canadian miner's $500 million Kingamyambo Musonoi Tailings (KMT) project in August as part of a government review of 61 mining deals.

On Aug. 26 and Sept. 3, KMT and Congo Minerals Development (CMD), a wholly owned subsidiary of First Quantum (FQM.L), filed three suits against Congo, state miner Gecamines and the mining regulatory agency, CAMI.

However, on Wednesday, lawyers for KMT and CMD told a court in the capital Kinshasa that the companies no longer wished to pursue the case but were being forced by the defendants to continue.

"They've insisted that KMT and CMD summon Congo, CAMI, and Gecamines. Why? In whose interest? It's no longer in our interest. So why do they keep pushing this?" said Patrick Moninga, a lawyer for the plaintiff company.

Under Congolese law, both the plaintiff and defendant must agree to drop a civil case.

"When you come before the court, you come to defend your request, not to run away from it," Nghenda Lukombe, a lawyer for Gecamines and CAMI, told the court.

"It's in our interest that the trial continues. We haven't come before the court to play. We're here to defend ourselves, and we want to defend ourselves," he said.

INTERNATIONAL ARBITRATION?

Many analysts expect First Quantum to bring the case before international arbitration in order to defend its investment, while Congo would prefer to have the matter decided in its own court system.

"First Quantum are less inclined to pursue their chances in a Congolese court and will prefer to go to international arbitration. But it remains to be seen what impact these Congolese court wrangles will have on that prospect," said Gregory Mthembu-Salter, central Africa specialist with the Economist Intelligence Unit.

First Quantum's KMT operation is so far the only major mining project to be cancelled by the review, set up to boost state revenues from deals signed mostly during the chaos of a 1998-2003 war and the transitional government that followed.

Shortly after the decision to withdraw KMT's mining permit, First Quantum wrote to the Congolese government, asking it to review and reverse the decision.

Earlier this month, however, Mines Minister Martin Kabwelulu told an investors' conference in Kinshasa that First Quantum had refused to return its mining permit and the dispute would now be settled in the courts.

Freeport-McMoRan's (FCX.N) giant Tenke Fungurume (TFM) mine, believed to hold the world's largest undeveloped copper and cobalt reserves, also failed to clear the review. Officials from the U.S.-based firm are currently in Congo with the aim of negotiating a settlement to the protracted contract dispute.

(Editing by Daniel Magnowski)