Fight for giant Congo copper mine heats up

By Frik Els / November 03, 2016 / www.mining.com / Article Link

In May Freeport-McMoRan Copper & Gold (NYSE:FCX) announced the sale of its Tenke Fungurume copper mine in the Democratic Republic of the Congo to China Molybdenum (CMOC) for up to $2.65 billion, a crucial part of the Phoenix-based company's debt reduction program.

Central to the deal is a right of first offer owned by Toronto's Lundin Mining (TSX:LUN) which through a Bermuda-based company indirectly owns 24% of Tenke.

Then there's DR's state-owned Gecamines, a 20% direct owner of the mine, which opposes the Freeport-CMOC deal and is asserting that it also has a pre-emptive right to acquire Freeport's 56% stake.

"As long as the rights of Gecamines are not respected, THERE WILL BE NO DEAL," Yuma wrote in a text message to Reuters

Fast forward six months and the different parties, including the DRC government, are still locked in discussions over the high-grade mine that last year produced 203,965 tonnes of copper and just over 16,000 tonnes of cobalt that would satisfy all parties.

Reuters reports the DRC's prime minister Matata Ponyo Mapon this week came out strongly in favour of the Freeport-CMOC deal saying he " strongly hope this involvement (by China Moly) will be rapidly put in place and see no obstacle preventing it":

Matata offered unconditional support for the deal, saying it represents "the best and most certain solution for the Congolese workers and their families", referring to China Moly as "a solid partner" for the heavily indebted Gecamines.

Gecamines expressed displeasure with the Freeport-CMOC deal ever since its announcement in May. Apart from seeking international arbitration in Paris, the company is pressuring parties to come to an alternative arrangement going so far as to say it could block the deal:

"As long as the rights of Gecamines are not respected, THERE WILL BE NO DEAL," Yuma wrote in a text message to Reuters

Lundin's strategy

Last month Freeport extended Lundin's ROFO for the fourth time to November 15 suggesting a larger deal involving CMOC, Gecamines and perhaps others may be in the works.

If Lundin manages to secure the same terms as the Freeport-CMOC agreement its stake could be worth in the region of $1.2 billion, but the extension suggests a new deal could be negotiated that could see Lundin become a major shareholder (and perhaps operator) together with Gecamines and CMOC.

Lundin, which this year is forecast to produce around 250,000 tonnes of copper including its share of Tenke, has been on the acquisition path and in March made a deal to acquire the promising Timok copper project in Serbia owned by Freeport and Canada's Reservoir Minerals.

A contemplated expansion of Tenke would likely boost production capacity towards 500,000 tonnes and catapult Lundin towards the top tier of copper producers

At the time Lundin CEO Paul Conibear said that Timok, would "fill Lundin's copper pipeline", but a few months later the deal fell through, ironically through a ROFO exercised by Reservoir Minerals which now owns 100% of Timok after a takeover by Nevsun Resources.

In July Conibear told Bloomberg that after losing the eastern European property, Lundin would like to be active in M&A but was holding back due to a lack of quality targets.

Tenke did not make it into that conversation, but Lukas Lundin in a wide-ranging interview at the end of August said "the best opportunities are in base metals" and he's keen to see Lundin Mining of which the family owns about 13%, "resume its acquisition spree.":

"China Molybdenum would likely be "OK" as a partner "but it's a different culture and they're not very experienced miners so I'm sure it's going to be more work for us," Lundin said.

Apart from suggesting Lundin Mining could be appointed operator of the mine over the Chinese, the Swedish billionaire added that "bigger is better," when asked what size asset he's hunting for.

In its second quarter results Lundin Mining recorded an asset impairment related to its interest in Tenke of $772 million which could indicate that the company is going to play hardball when it comes to negotiating a price for whatever additional portion of Tenke it would be buying.

Even in its current form Tenke is a prized asset notwithstanding its location in one of the more difficult mining jurisdictions in the world. But a contemplated expansion of the mine would likely boost copper cathode production capacity towards 500,000 tonnes per year and catapult Lundin towards the top tier of producers.

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