July 25, 2011 / 11:43 AM / 6 years ago

Court hears ENRC bid to strike out $2 bln lawsuit

* First Quantum suit seeks $2 bln damages for revoked Congo asset

* ENRC units petition to strike out lawsuit over jurisdiction

* Decision could pave way for settlement over Kolwezi equipment

By Clara Ferreira-Marques

LONDON, July 25 (Reuters) - A British Virgin Islands court will on Monday consider an application from units of Kazakh miner ENRC to strike out a $2 billion claim filed by Canadian rival First Quantum Minerals over a disputed Congo copper project.

Legal sources said the hearing, which follows an application from the ENRC units in March to have the case dismissed on grounds of jurisdiction, was scheduled to last until Tuesday. The court is expected to reserve judgment.

The dispute between First Quantum and ENRC over the copper-cobalt project, Kolwezi tailings, taken from the former has emphasised the difficulties faced by miners as they are pushed into tougher regions by a scarcity of low-cost, high-quality projects, high metal prices and avid demand.

Kolwezi has been one of the most high-profile examples of resource-hungry miners buying licences expropriated from rivals, just months after Brazil’s Vale bought rights to a Guinea iron ore deposit which had been stripped from Rio Tinto.

First Quantum held an exploitation licence for Kolwezi until it was revoked by the Democratic Republic of Congo government in August 2009.

Control of the licence was passed by Kinshasa to a joint venture controlled by a cluster of British Virgin Islands-based companies, known as the Highwinds Group.

In August last year, and despite an international court of arbitration freezing any transfer of the permit, London-listed ENRC bought a majority stake in Camrose -- a company which in turn controlled the BVI-based firms and the Kolwezi licence.

ENRC has been fiercely criticised for its decision. Its shares fell 10 percent in the days following the deal and have underperformed since.

But the miner has said it carried out full due diligence, including probes into provenance of the licence, and will defend itself in any legal action.

A decision by the BVI court to strike out the claim could end one of several legal avenues First Quantum is pursuing to seek compensation for the revocation of its Congo licences.

It could also pave the way for a settlement with ENRC over equipment at Kolwezi, machines which First Quantum technically owns and which are critical to ENRC starting work there.

ENRC investors will hope the start of work at Kolwezi could prompt the market to look again at ENRC assets such as its Congo deposits, which are widely recognised to be undervalued.

Analysts say it will also have to solve broader governance concerns for a full re-rating of the poorly performing stock.

First Quantum, which says it invested $430 million in the copper-cobalt project by the time it was confiscated, filed its suit against the BVI-based units last year, and is claiming, alongside its partners, $2 billion in damages.

The BVI court cannot reinstate the licence.

In its statement of claim, filed in December, First Quantum said DR Congo and state mining body Gecamines breached their contracts, and argued the asset was revoked as part of a plan.

First Quantum is also fighting Kinshasa’s decision to revoke the licence for Kolwezi, along with two other subsequently revoked projects -- Frontier and Lonshi -- in international courts of arbitration.

The Canadian miner acquired the Kolwezi licence after it bought miner Adastra in a hostile takeover in 2006.

It holds 65 percent of Congo Mineral Developments, the operator which ran Kolwezi until 2009.

The World Bank’s International Finance Corp private sector arm owns 7.5 percent, South Africa’s Industrial Development Corp 10 percent and Gecamines the remainder.

The project, one of the world’s largest cobalt resources, has two dams with almost 113 million tonnes of oxide tailings containing copper and cobalt.

It was 75 percent complete when it was expropriated and was estimated to have a 22-year mine life at an annual output rate of 70,000 tonnes of copper. (Reporting by Clara Ferreira-Marques; Editing by David Hulmes)

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