Building a stronger Canadian export-oriented economy
In 2010, Canadian mining company First Quantum Minerals Ltd. had its three mines in the Democratic Republic of the Congo expropriated without compensation and transferred to other businesses under irregular conditions.
The company was faced with the loss of assets valued at $2.5-billion (U.S.) after years of work developing greenfield mining projects in one of the riskiest countries in the world.
First Quantum Minerals had been a model corporate citizen in the Congo – its mines were the country’s largest taxpayers and it followed corporate social responsibility guidelines and international good practices, co-operating with efforts to promote good governance and transparency. Even these actions, based on complying with international norms, proved insufficient to protect its assets in a challenging jurisdiction.
When the Congolese government announced a contract review for mining companies in 2007, First Quantum Minerals felt it was on strong legal grounds to defend tax and contract terms. Offers to settle the issue by irregular means were refused. First Quantum Mineral’s General Counsel, Christopher Lemon, states that, “The company’s policy is that it will not enter into unethical practices.”
What followed were a series of rapid decisions described by First Quantum Minerals as “an orchestrated attack.” Its mines were expropriated and transferred to state companies before being sold, at a fraction of the value, to a foreign businessman with close ties to the country’s president.
With the value of its former Congo assets written down to zero, and legal avenues in the Congo exhausted – it was also levied a $12-billion (U.S.) fine by a local court – First Quantum Minerals fought back based on international recourse.
The company opened arbitration under the International Chamber of Commerce International Court of Arbitration in Paris, disputing the grounds for seizure and lack of compensation. It also launched legal action against the Congolese government at the International Centre for Settlement of Investment Disputes in Washington, D.C. “The company always knew that it would win arbitration; although, recovering a judgment from a sovereign government would be more difficult,” says Lemon. The cases were expected to continue for years.
First Quantum Mineral’s recourse strategy began to pay off when it opened litigation in 2010 against Eurasian Natural Resources Corporation plc (ENRC), a company listed on the London Stock Exchange that purchased one of the disputed mines. ENRC was accused of accepting stolen assets and of material breach for failing to disclose the disputed status of its asset purchases. A complaint was lodged with the U.K.’s Financial Services Authority, and an investigation of ENRC was opened by the Serious Fraud Office. ENRC eventually agreed to settle, accepting to pay First Quantum Minerals $1.25-billion (U.S.) in January 2012.
Valuable lessons were learned from the Congo misadventure about operating in jurisdictions with weak commitment to the rule of law and the success of a mitigation strategy that conformed to good practice. “We are proud of how the company conducted itself in a challenging situation and stuck to a defendable strategy,” says Lemon. “We followed recourse even when it looked like we would not get anything out of it.”
Five years later, First Quantum Minerals is a larger and more successful company, operating more mines in more countries. It has moved on from the Congo situation, something that might have once sunk the company. The mines there accounted for one quarter of its production at the time of the seizure and would have accounted for half had they eventually reached full output. “The real tragedy is for the Congo. Kolwezi, the largest mine taken from First Quantum Minerals, is still not operating five years later,” says Lemon. “We do not counsel unprincipled things; it is a downward spiral.”