JOHANNESBURG (miningweekly.com) – TSX- and LSE-listed First Quantum Minerals has recorded a 16% drop in third-quarter profits, while announcing that it continued to seek a “negotiated solution” with regard to its Kolwezi contract, in the Democratic Republic of Congo (DRC).

Its net profit fell to $123,8-million in the quarter ended September 30, 2009, compared with $147,5-million in the third quarter of 2008, while diluted earnings a share dropped to $1,50 a share, compared with $2,13 a share in the third quarter of the previous financial year.

The copper-miner noted that it had suffered a $40,4-million hedging loss during the quarter, after copper prices increased to $6 134/t by September 30, 2009.

Given the uncertain economic outlook and the steep drop in copper prices during the fourth quarter of the previous year, the group had entered into hedging contracts to “protect” it against possible further price declines.

Its earnings a share, excluding the hedging loss, would have been $1,95 a share.

First Quantum increased its copper output by 14% to 93 486 t, compared with 82 187 t the year before, while production for the first nine months of the year was 15% higher at 275 412 t, compared with the 238 780 t of copper produced in the first nine months of 2008.

It had also recorded record quarterly copper sales volumes of 105 154 t, the company reported.

Simultaneously, it had reduced the average copper unit cash cost of production by 23%, owing to its cost-savings initiatives and lower process input costs.

Further, First Quantum had increased its gold output by 68% to 43 357 oz in the quarter, compared with 25 811 oz of gold produced in the third quarter of 2008.

Gold production for the first nine months of the year increased by 71% to 130 609 oz, compared with the 76 533 oz of gold produced in the first nine months of 2008.

These improvements were achieved as a result of the modifications done at its Guelb Moghrein and Kansanshi gold plants in the first quarter of the year, the company stated.

First Quantum expects its copper output for the full year to reach 380 000 t, while revising its gold production target for the full year downwards to 205 000 oz.

KOLWEZI CONTRACT

Meanwhile, the copper-miner said that it was continuing to seek a negotiated solution with regard to its joint-venture Kolwezi copper/cobalt tailings project, in the DRC, but highlighted that it might have to file for arbitration proceedings.

In September, the company suspended construction work at the project in response to an order by the General Prosecutor of the Katanga province to seal the Kingamyambo Musonoi Tailings (KMT) facilities, following a mining contract review in the country.

The DRC had, in 2007, initiated a review of 61 mining agreements it had entered into with foreign companies in the decade before that, including the Kolwezi mining convention, also called a contract of association.

However, First Quantum’s subsidiary, Congo Mineral Developments (CMD), and its partners, South Africa’s Industrial Development Corporation and the International Finance Corporation, had obtained legal advice that the Kolwezi contract of association is valid and binding.

The contract also provided for a dispute resolution mechanism through international arbitration, the copper-miner said.

However, despite CMD’s attempts to reach a negotiated resolution, it was told by the DRC Prime Minister, in a letter, that the exploitation permit held by KMT, which was formed to pursue the Kolwezi project, be returned to La Générale des Carrieres des Mines (Gécamines), which had formerly held a stake in the project.

The Prime Minister had pointed out in his letter that this decision was made as a result of: a misdated KMT decree issue, failure to commence commercial production within 44 months, failure to respect the terms of the initial tender offer, refusal to agree to pay increased royalties, and refusal to agree to cancel the management fees provided for in the contract of association, stated First Quantum.

“First Quantum remains firmly of the view that none of these reasons have any legal basis,” the copper-miner said.

It added that local proceedings in the DRC were filed by CMD and KMT to seek protective relief pending resolution by international arbitration.

The company noted that it has finalised its arbitration preparation should this be required.

By the time the project was halted, $440-million had already been committed to the project. If construction is restarted, the company estimates the capital cost to be $515-million, lower than the initially budgeted $553-million.

The project, which had a life-of-mine of 22 years, was expected to produce an initial 35 000 t/y of copper cathode and 7 000 t/y of cobalt hydroxide when completed.

This could be doubled to 70 000 t/y of copper cathode during the first year, if a budgeted $40-million is spent.