First Quantum chairman and CEO Philip PascallLYLE STAFFORD
Investors fled copper miner First Quantum Minerals Ltd. Tuesday amid worries it could lose control over more of its operations in Democratic Republic of the Congo.
The 12-per-cent drop in First Quantum's shares was compounded by another drop in base metal prices, including a 3-per-cent drop in copper, as investors continue to seek out safe investments such as gold.
While First Quantum expected its share price to fall on news that a Congo court annulled mining rights for its Frontier and Lonshi mines, company president Clive Newall said the drop was deeper than expected because of the volatile markets.
"There was already clearly a flight today from the perceived high-risk companies," Mr. Newall said in an interview.
He said the Frontier mine was still operating as of late Tuesday, but the threat of closing is there. The Lonshi mine is not currently in production, but the company is doing exploration work at the site.
The Congolese court ruled the Lonshi and Frontier copper mines were awarded illegally and should revert to state-owned Sodimico.
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First Quantum said this week the ruling was an "obvious retaliation" for its decision to go to international arbitration over Congo's decision to stop construction of its Kolwezi copper-and-cobalt project last fall.
Chairman Philip Pascall called the move an "orchestrated attack" for the company's "refusal to resolve this dispute by agreeing to submit to arrangements with unspecified third parties."
"The legal challenges facing First Quantum in the DRC appear to be moving from bad to worse," TD Newcrest analyst Greg Barnes said in a research note. "This latest news with respect to Frontier and Lonshi only seems to reflect a further escalation of (First Quantum's) challenges in the DRC."
About 25 per cent of Vancouver-based First Quantum's operations are in Congo, and Mr. Newall said it plans to stay there despite the political and legal issues in recent months.
"We still have faith in the future of the DRC," Mr. Newall said. "We are very reluctant to be driven out of this environment that we put a lot into."
The company has been in Congo since 1997, and operating mines there since 2000. It also has operations in Zambia, Mauritania, Australia and Finland.
The latest news out of Congo caused BMO Nesbitt Burns to cut First Quantum's stock rating to "market perform" from "outperform" and its share price target to $65 from $110. "It introduces uncertainty into the company," BMO analyst David Radclyffe said in an interview.
The worst-case scenario for First Quantum is that Frontier production could be cut. However, he noted that hasn't happened and about 75 per cent of the company's cash flow comes from outside Congo.
The company's largest operation is the Kansanshi mine in Zambia. It also runs the Guelb Moghrein mine in Mauritania and the Bwana Mkubwa processing plant in Zambia, which processes stockpiled ore from the Lonshi mine.