How First Quantum recouped its seized mine – by Matthew McClearn (Canadian Business Magazine – January 19, 2012)

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In 2007 the government of the Democratic Republic of Congo announced it would autocratically tear up and renegotiate contracts with foreign mining companies. The price Vancouver-based First Quantum Minerals paid for resisting: the forcible seizure and resale of its properties in the country, including two operating mines and another on which construction was nearly complete.

The DRC investigated First Quantum for what it called “suspected widescale misconduct.” Its courts, which are not independent, slapped a stinging US$12-billion judgment on the company. The government transferred the properties for nominal sums to close associates of DRC president Joseph Kabila, who promptly flipped them for significant profits; Eurasian Natural Resources Corp. (ENRC), a large London-based company dominated by Kazakh owners, paid just US$175 million for the Kolwezi project, which cost First Quantum nearly $800 million to purchase and construct.

First Quantum immediately sought redress, but its hand seemed weak. ENRC CEO Felix Vuilis had maintained his company owed nothing to the former owners. “Any dispute that First Quantum has is with the relevant DRC authorities,” he declared shortly after the purchase.

Equity analysts covering First Quantum typically ascribed little or no value whatsoever to its residual DRC claims, reflecting the general view of the situation. But under an arrangement revealed in early January, ENRC will pay US$1.25 billion to First Quantum in exchange for uncontested ownership and the cessation of all legal hostilities.

How did First Quantum get its money back? Riyaz Dattu, a partner at Osler, Hoskin & Harcourt LLP in Toronto who has served as counsel in dozens of international trade remedies proceedings, says foreign states cannot seize properties thus. “A sovereign state cannot get away with taking unlawful actions under international law,” he says.

“Even Venezuela’s Hugo Chavez, when he takes action that results in expropriation, has been paying compensation.” First Quantum demanded arbitration before the International Chamber of Commerce in Paris, as it was entitled to under its investment contract.

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