drc govt takes on first quantum, page-4

Yes a very interesting development.



* Declares force majeure on Kolwezi, stops construction

* Shares end down nearly 6 percent (Adds details, government and analyst comment)

By Cameron French

TORONTO, Sept 16 Source: Reuters - First Quantum Minerals (FM.TO) said on Wednesday it has stopped construction of its Kolwezi copper project in the Democratic Republic of Congo after authorities ordered it shut down.

The Canadian miner's shares closed nearly 6 percent lower following the announcement. However analysts said the project would likely suffer a long delay but would eventually go ahead.

First Quantum said its decision to stop construction follows an order by the general prosecutor of Katanga province to seal the facility, and also a letter from the DRC government last month withdrawing the company's license for the project.

First Quantum said it has declared force majeure on Kolwezi and will have to lay off 700 people. It will put off indefinitely its planned start-up, which had been targeted for May 2010.

"The company has been advised by its lawyers that such an order is illegal," First Quantum, which operates mainly in DRC and Zambia, said in a statement. It said it would seek international arbitration.

Kolwezi, a tailings recovery operation, is expected to eventually produce 70,000 tonnes of copper and 14,000 tonnes of cobalt per year. Construction of the project is about two-thirds finished.

First Quantum's shares dropped as much as 9 percent on the news, but rebounded a bit by the close to end down C$4.43, or 5.9 percent, at C$70.35 on the Toronto Stock Exchange.

TWO-YEAR CONTRACT REVIEW

The review of the Kolwezi contract is part of a massive review of more than 60 DRC mining contracts the government launched in 2007 to boost state revenues.

A top DRC mining official said First Quantum's license had been withdrawn due to "wrongdoings and shortcomings" and that a court hearing would be held on the issue.

Analysts said they doubted that First Quantum would be forced to cancel the project outright.

"While the government of the DRC may be interested in renegotiating the terms or payment conditions on the project, First Quantum remains firm with respect to the terms of the project," Macquarie analyst Pierre Vaillancourt said in a note.

"While we believe that a resolution will ultimately be worked out at Kolwezi, the process could take time."

Wed Sep 16, 2009
First Quantum Minerals Suspends Construction at Kolwezi Project

First Quantum Minerals Ltd. ("First Quantum" or the "Company", TSX Symbol "FM", LSE Symbol "FQM") announces that as of September 16, 2009, it has suspended construction at its Kolwezi Project in the Democratic Republic of Congo ("DRC").

The Kolwezi Project exploitation permit is held under the terms of a Contract of Association, by Kingamyambo Musonoi Tailings SARL ("KMT"), which is owned by the Company: 65%; La Générale Des Carrières et Des Mines ("Gécamines"): 12.5%; Industrial Development Corporation of South Africa ("IDC"): 10%; the International Finance Corporation ("IFC"): 7.5%; and the Government of the DRC: 5%.

The suspension follows the issuance of an order by the General Prosecutor of Katanga to seal KMT's facilities. The Company has been advised, by its lawyers, that such an order is illegal, for the following reasons:
the General Prosecutor is not allowed to order such measures, especially without a court order;
the order is referring to the "spirit" of the letter of the General Attorney of August 21, 2009 as its basis, which is not a proper legal basis especially as the Attorney General's letter does not provide for such actions;
sealing is usually associated with financial matters, like non-payment of taxes, which is not the case with KMT.

The Company has filed notices of force majeure, effective immediately, under both the DRC Mining Code and Contract of Association, which were necessary in response to actions taken by the DRC government to cancel or revoke the exploitation permit and interfere with the Company's activities.
The government's actions followed a letter sent to the Company with respect to the KMT Project and the DRC mining contract revisitation, which purported to try to establish the basis on which the Kolwezi Project may be cancelled.

Construction of the Project is at an advanced stage (approximately 65% complete) and was on schedule to start commissioning in May 2010. Initial production rates are expected to be 35,000 tonnes copper and 7,000 tonnes cobalt per year, rising to 70,000 tonnes copper and 14,000 tonnes cobalt within 2 years.

The Company regrets that the suspension will result in the immediate loss of approximately 700 jobs in the Kolwezi area, loss of tax revenues to the DRC government, and an indefinite delay in commissioning of the Kolwezi Project, which was targeted for May 2010.

The Company and the Kolwezi Project's other contributing partners, the IFC and the IDC, remain firmly of the view that the DRC government's actions have no legal basis. While the Company is preparing to file for International Arbitration pursuant to the Contract of Association, it will continue to seek an alternative solution to the claims, which have resulted from the mining contract revisitation process, and will provide further updates as warranted.

On Behalf of the Board of Directors
of First Quantum Minerals Ltd.