Freeport finalizes Tenke contract for shares and cash

By Katrina Manson

KINSHASA (BestGrowthStock) – Freeport-McMoRan Copper & Gold Inc (FCX.N: ) has completed a protracted contract review with the Congolese government, allowing it to retain most of its controlling interest in the $2 billion Tenke Fungurume copper and cobalt project.

The agreement requires Arizona-based Freeport-McMoRan and Canadian partner Lundin Mining (LUN.TO: ) to hand over a combined 2.5 percent interest in the project to state mining firm Gecamines, which increases its stake to 20 percent, and pay the Democratic Republic of Congo more than $70 million in fees.

The increase to Gecamines stake had been a main sticking point had held up negotiations and the agreement ends a drawn-out process that began in 2007 to review 63 mining contracts in Congo.

The entire mining review process has netted Congo in excess of $300 million, Congo’s mining minister said, but it has increased concerns about doing business in the vast central African country.

“Our discussions continued over this last year and we are also very pleased to announce a conclusion of the contract re-visitation for Tenke Fungurume,” Mark Mollison, executive vice-president of Freeport-McMoRan, told reporters at a news conference held jointly with the ministry of mines on Friday.

Freeport-McMoRan CEO Richard Adkerson told reporters on a conference call later on Friday the deal would pave the way for a planned expansion of the mining operation, which could see copper output eventually double.

A Congolese mining official had told Reuters late on Thursday a deal had been reached that would see Gecamines increase its stake in the project.

Under the new agreement, Freeport-McMoRan’s stake dips to 56 percent from 57.75 percent, and partner Lundin’s stake declines to 24 percent from 24.75, percent, executive vice president Mollison said.

The deal also requires a payment to the government of $36.55 million — or $1.2 million for each 100,000 tons of copper discovered at the mine, retroactively, Mines Minister Martin Kabwelulu said.

Additional payments for a series of new fees such as discovery charges, will total more than $35 million, he said. These payment do not include the standard taxes, including 30 percent income tax, a 2 percent royalty rate and a 1 percent export fee.

“BASIS FOR GROWTH”

Freeport-McMoRan’s Mollison said the process has been “a give-and-take dialogue,” adding: “We now have a clear basis to continue our growth there.”

Congo launched its mining contract review in 2007 and Freeport-McMoran was the last of more than 60 contracts to be finalized.

Another mining firm, First Quantum Minerals (FM.TO: ), failed the review and its Kolwezi concession has been resold.

Kabwelulu said the financial impact of the comprehensive contract review process was significant and the government had secured extra payments of $307.3 million, of which the Congolese state had already received $87.7 million.

However, it has deepened Congo’s already bad reputation as a risky place to do business. It is currently rated 182nd out of 183 countries for ease of doing business, according to the World Bank’s index for 2010.

The Tenke project has one of the world’s biggests known reserves of copper and cobalt.

Earlier this year, Freeport-McMoran said Tenke had produced 29,000 tons of copper and 2,300 tons of cobalt in the first quarter of 2010, on track to break a year-end target of 115,000 tons of copper and 8,000 tons of cobalt.

The project, estimated to have reserves of 119 million tons with average ore grades of 2.6 percent copper and 0.4 percent cobalt, produced 70,000 tons of copper and 2,600 tons of cobalt in 2009. It reached full production in October last year after testing began in March.

(Writing by David Lewis and Richard Valdmanis; Editing by David Cowell)

Freeport finalizes Tenke contract for shares and cash