Democratic Republic of Congo starts arbitration against Bermuda company

The Democratic Republic of Congo has turned to the International Court of Arbitration in a bid to force Freeport-McMoRan Inc. and Lundin Mining Corp. to restructure the terms of any exit from one of the country’s biggest mines.

Gecamines, the Congo state-owned mining company, filed a complaint with the International Court of Arbitration in Paris last week against TF Holdings Ltd., the Bermuda-based holding company through which Freeport and Lundin own the mine.

Gecamines is demanding, among other things, that any change to the indirect ownership of the Tenke Fungurume mine, known as TFM, be blocked unless authorized by the state miner.

Gecamines had previously issued a public warning that any decision by Lundin Mining Corp. to withdraw from the Tenke Fungurume copper mine could scupper Freeport McMoRan Inc.’s proposed sale of its stake in the project.

By exiting at the same time as Freeport and transferring full ownership of the project to new parties without securing Gecamines’ approval, Lundin and Freeport would further violate the state-owned miner’s rights, Chairman Albert Yuma had said, indicating that Gecamines must be permitted to match any offers for Lundin’s stake, or it could block the deal.

Freeport announced in May 2016 that it had sold its indirect 56 percent stake in Tenke Fungurume to China Molybdenum Co. for $2.65 billion.

Gecamines, which owns 20 percent of the mine, said that it hadn’t been informed about the transaction and would investigate the deal in order to “assert its rights.”

As Freeport’s partner in the project, Lundin had an option that expired on 29 September 2016 to match China Molybdenum’s offer. Lundin plans to exit the venture, however, and has held talks with China Molybdenum and other companies about offloading its 24 percent stake.

Chairman Albert Yuma is reported to have said that “Any simultaneous withdrawal by Lundin and Freeport in favor of CMOC or other buyers will be problematic and would in fact actually reinforce the suspicion of fraud to Gecamines’ and the state’s rights”. The transaction “will remain in a deadlock, unless Lundin and Freeport respect Gecamines’ and the state’s rights”.

Freeport, based in Phoenix, Arizona, argues that China Molybdenum is acquiring ownership via its 70 percent interest in Bermuda-based TF Holdings Ltd., not the local operating entity in which Gecamines is a shareholder, and, that, as a result, it is not subject to the state-owned miner’s approval or pre-emption.

Canada’s Lundin Mining, which owns the rest of TF Holdings, has a Right of First Offer, or ROFO, on Freeport’s stake that has been extended twice as it assesses its options. Gecamines says it should also have a ROFO and that its pre-emption rights are further strengthened if Lundin sells, one of a series of options that could see new parties take full ownership of the project alongside the state-owned miner.

Gecamines has said that it had submitted a competing bid to TF Holdings that included an offer for either Freeport’s stake or for all of the holding company’s 80 percent interest in the project,  and it insists that its proposal must be considered.

 “The obvious solution remains for Lundin and Freeport to accept Gecamines’ offer to restructure the TFM joint-venture with new partners selected by Gecamines,” Chairman Albert Yuma has said.

Gecamines had debt of $1.58 billion as of June 2016, but it says that it has a group of investors ready to fund a bid for the project, details of which it has not yet provided.

Gecamines is well-known to readers of the law reports, who may recall the 2012 decision of the Privy Council (on appeal from Jersey) on the applicability of state immunity to state-owned corporations: La Generale des Carrieres et des Mines v Hemisphere Associates LLC (Jersey) [2012] UKPC 27.

For more information, see:

http://www.bloomberg.com/news/articles/2016-10-18/congo-miner-seeks-arbitration-over-freeport-sale-of-copper-mine

http://www.bloomberg.com/news/articles/2016-09-23/freeport-s-congo-mine-sale-faces-more-objections-from-gecamines

http://www.bloomberg.com/news/articles/2016-05-09/freeport-to-sell-interests-in-tf-holdings-to-china-molybdenum

 

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