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Democratic Republic of CONGO - INTERVIEW 
Interview with Matt Pascall
CEO of First Quantum

Matt Pascall, CEO: Everything really started here in Zambia with Bwana Mkubwa. Bwana Mkubwa has been the first investment from the private mining sector in Zambia for the last four decade, starting with a relatively a small investment of $ 30 million. We wish to see a similar development in the Democratic Republic of Congo (DRC), just like the success we have had here.
It is always a struggle because the copper price decreased and stayed down from the beginning, but despite that we made money and made further investment with Lonshi, where we have been expanding for $ 30 or 40 million in total. We also extended to Kansanshi and the investment there exceeded $ 250 million. Anglo American had looked to some investments of about $ 400 million and would have struggled to get that because it was perceived to be bigger than the risk the bankers had to take in Zambia.
But the image of Zambia being submitted to political risk has decreased now, and therefore, bankers are less reluctant to lend money. As a matter of fact, the overall country limits on borrowing has increased. We started with a small investment, then slowly it has been developed and we have been ever since gaining the confidence of everybody including investors, the bankers and other lending institutions. We hope to have a similar course in the DRC.
We were the first investment in Zambia but we are not the first investor in DRC, there has been big things happening there especially close to Lubumbashi with different private entrepreneurs, but from our perceptive Lonshi was originally a small investment of $ 7 million and now it has increased to $ 30 million in three sizes.
The next step will be the "Frontier" project, close to the border, with an investment of approximately $ 100 million (with all partners included). What is good about it, is the fact that it is closer to the border and that makes operations easier, mainly the access and the infrastructure is much better from Zambia.
We are doing a lot of explorations within the DRC, under the supervision of two managers: one is based in Lubumbashi with a whole team and the other is based here but he operates mainly in the DRC, in the Southern sector. That's a very promising ground for copper. Like the saying: "If you want to shoot elephants, it's better to go to the elephant country because that is where you can find them"; so when it comes to copper mines, you must go to the copper country and really this whole region -known as the "copperbelt", from Lubumbashi to the Southern Congo- is a very prospective ground for copper. The geological structure along the border has both younger and older rocks associated.
If there is a need to construct a bigger project with more infrastructure, one would have started to create the level of confidence with investors and that can happen. The "Frontier" has the advantage of being closer to the border and we will build part of the processing plant within the DRC, not like Lonshi which is just a mine and it sends everything away. With Frontier, we will have a mine and a concentrator built in the DRC and that is why this investment is significant here. The concentrate will come out of the DRC and will be treated wherever there are smelters or other alternative processes available. We are talking about probably another $ 300 or 400 million dollars. And that will be too much to chew off for investors and lenders. We see the future of the DRC as coming from a small beginning, increasing the confidence level and taking it bigger and bigger. The DRC is extremely important strategically for the company because a very significant portion of all our exploration activities and holding are within the DRC.

Summit Communications: How extended is your area of exploration within the Copperbelt?

Matt Pascall, CEO : We had to drop some of the areas but it is at least 11.000 square km and I think that in the West, near Kolwezi, we will find more mines there. But it is a lot more difficult to operate there as long as the DRC is not settled down. One of our advantages is that it is closer to the infrastructure offered by Zambia and it is also a long way from the trouble that occurs in the DRC. Rwanda, Burundi and Uganda are nearly 2.000 km away, and that is the distance from Stockholm to Madrid. If a bomb blasts in Spain it does not mean there are any problems in Stockholm. It is extremely difficult for anybody who comes here without realizing this, especially if he gets discouraged because there aren't any roads, railway, nor communication. But this place is quite secure because of the geographical location and the size of the country.
Besides, there are some great projects lined up for Kolwezi despite the lack of infrastructure, like Adastra for example. It is their first operation and what is amazing is that it is a big operation at once, while we have taken the time to grow bigger and bigger.
And again, we wish good luck to all other investors in the region, as we don't see them as competition since they will not affect the copper price or anything like that. We are convinced that the more investors are coming, the better the region will behave for future investment. Furthermore, the security issue will improve and the region will settle down, the infrastructure will improve and hopefully the government will improve as well because there will now be more taxes which will allow the government to move forward.

Summit Communications: Apart from Zambia and DRC, do you find such success in the other countries where you operate?

Matt Pascall, CEO: Our operation in Mauritania is a relatively small plant, it will produce about 30.000 tons of copper, 50.000 tons of gold a year, and it is in a region that is again potentially very interesting geologically. If we are lucky, we may find additional old bodies and that was the prime reason for picking these resources up there, it was well known, there was no question whatsoever related to them.
We have done an operation in Chile, our previous exploration manager had been there for 5 years and he was very comfortable with the region and obviously that is where they have got the biggest "elephant". But the cost of entry in Chile is high because everybody has put their marks on the ground. If you want to come in, first you have to deal with somebody who owns the ground, and they will obviously ask for a lot of money before you can start prospecting.
We are definitely not restricted in any way to these three countries and we will be happy to expand geographically. On the other hand, we are not restricted to copper, and we could be more comfortable with gold, or nickel.
We are bringing a new technology into the country, regarding the copper processing which is called "pressure leach". We bought three units from a second-hand plant out of America. Two out of the three units will go to Kansanshi, and one will come here at Bwana Mkubwa. That will allow us to treat our own concentrator and avoid losing third party smelters, which is much more environment friendly. It could also find other applications in certain nickel deposits, and so on. So that technology could be used to treat other minerals as well. Our exploration program in the West of the Copperbelt turned out to be rather disappointing, since we thought there would be a big deposit but there wasn't. And in the Eastern side, we have just finished doing a prospection and we will see whether that develops into another mine.

Summit Communications: Coming back to DRC, you seem to manage quite well the risk of the country and to navigate with the political risks which are very high. What are the main challenges that you have regarding the country and how do you manage this country risk with your bankers?

Matt Pascall, CEO: There is a number of different risks among which the political risk is beyond our control. Besides, there are obviously a security and an infrastructure issue. The country risk is largely out of one's control and the way one hopes to influence it, if one can, is to keep the Embassies involved in whatever we are doing. In that regard, we work a lot with the Canadian Embassy due to our Canadian company nationality and we often use them to set up meetings with ministers. Fortunately, they have been very cooperative and they even come with us to these meetings, which gives us a lot more credibility.
The new Mining Code set up with the help of the World Bank has been a vast improvement on what previously existed, and was launched as the main rules to follow in order to operate in DRC. Such initiative therefore dispelled a lot of the risks associated with the mining hazards. Now, the rules are very clear: if you want to come in as an investor, you have one document to read, which tells you everything about the rules, the fiscal regime, what you have to pay at various controls and so on. That has been a huge advance and we are putting a lot of pressure on Zambians to come up with a similar document. In Zambia, we basically operate under the "Common Law" system, which is sound but it isn't particularly orientated to create attractive incentives for investment. With the privatization of the copper mines in Zambia there was a need to make the development agreements fairly attractive, and they had various fiscal arrangements as well as a stability period that guaranteed at least 15 years of stable fiscal regime.The main reason to set it up was exactly because they needed to create an incentive to get investors in and buy those assets.
We told them that they needed a document to help the investors to understand how to deal with everything once they come in. Some progress has then been made.

Summit Communications: It looks like from what we have seen and what we have heard, that First Quantum is like a pioneer in the Copperbelt. What is the vision of your company regarding the region?

Matt Pascall, CEO: We do not want to play any particular role on the Copperbelt but we are determined to make sure that whatever land is available for exploration, we will do the grassroots exploration and if that leads to any discoveries, we will then step in. With our interest at Kansanshi, Bwana Mkubwa and with the development of Frontier, we will without any doubt become the biggest copper producer in what used to be one of the major copper zones in the World.
The particularity of our operational procedure is that we do things one at the time, properly and take them to their logical conclusion. By doing so, we have quickly constructed a different project that then allows us to get out to the next one. Following the feasability study on the Kansanshi mine, the capital projection was about $ 600 million, but we have built something bigger for less than $ 250 million, and a lot quicker as well!

Summit Communications: Your investment in Kansanshi is about $ 250 million and that was invested only one year ago. With regards to the financial progression of the company, you have made a profit of $ 18 million. How do you explain this success, and could you say you have reached your return of investment?

Matt Pascall, CEO: The development of Kansanshi and our ability to finance it was really created out of our track record at Bwana Mkubwa and what made it possible was a lot of the risks you were referring to earlier about the DRC. Politically, people were relaxed about Zambia; the project risk had been taken care of by the fact that we have built a very similar plant at Bwana Mkubwa.
When we were originally involved, people thought were crazy because nobody had invested in Zambia for thirty or fourty years. Many people told us it would take years to set up and that we were going to have all sorts of problems at the borders. In fact, we built it in 11 months and we also built the expansion which was a bigger game. So, the project risk had been largely taken care of, and everything that we have done at Bwana Mkubwa was replicated over Kansanshi, technologically speaking.
One thing that we have always insisted on at Bwana Mkubwa, was that the banks had to get paid first at all times, no matter what. Therefore, they knew that once they lend their money, they will get it back on schedule, which gave us a good credibility.
When we needed to finance Kansanshi, we had a good name and the financial institutions were able to put that package together. For the return on investment, it is too early to measure it, since it is strongly depending on the copper price. As far as Kansanshi is concerned, it is likely that we will be able to pay back certainly under two years with the current copper price, and that will create a huge return. If the copper price drops to a dollar, that goes out to three or four years but it is true they will get their return because that project had a great return in the feasibility studies.

Summit Communications: And what are the perspectives for the evolution of the copper price at the moment and for next year?

Matt Pascall, CEO: All experts say it is going to come down but they are already wrong because they predicted it before, although it has been sitting at about a $1.60. The fundamentals are still in place and it doesn't indicate that there is any real reason why the price should fall. And that is because China is the main demander now and there hasn't been any new mass production coming on. The copper consumption per year is now over 15 million tons. If there comes a 2 % increase in demand, it represents 300.000 tons of copper, which is the production of two Kansanshi mines that need to be developed every year.
We then tried to diversify our interest in Napani because we had a security right to Kansanshi and those two things came at the same time which is an operation that we control at 100 % and we feel a lot more comfortable with that.
Meanwhile, we bought the right to Mauritania which we will have another 40.000 tons of copper, Kansanshi will get to about 140.000 tons next year, but at that time Mauritania should produce about 30.000 tons.
During next year, we will construct Frontier with the idea of bringing it into production about 100.000 tons the following year. We are very much in the hands of the exploration program but it has been pushed hard and there are a lot of prospective project targets that we are doing this year. We will probably draw at least 10 different targets.

Summit Communications: With a project a year, your developments are very ambitious and quite motivating as well. How do you manage this very fast expansion given the local environment?

Matt Pascall, CEO: The key thing is that we put a lot of emphasis on the people, you can only develop as fast and as good, if your people are well taken care of. We have brought a team of expatiates for expertise and the reasons for that is simply because within this region, Zambia and the DRC, many copper mining industries have gone bankrupted over the last 30 years and so has the skill development in many aspects. A lot of the technology is outdated and so is a lot of the work force. What happened was that they have increased the work forces to a very large number which was part of the socialist dreams and then as the production dropped, there was a need to reduce the work force which they were incapable of doing, because they could not afford to pay them to leave.
So, they have been left with a very large work forces and a very small production. By the time the privatisation happened in Zambia, the production hasn't dropped as catastrophic as it has happened in DRC but the labour force was also generally old because they had been employed 10 or 20 years earlier and they were too many. The opportunity then to keep bringing new young blood in was restricted because all the positions were filled in with the old people and that has really caused some significant problems to the development of skills within the country.
And as a result, all of the qualified young men over that period left the country because they were no other opportunities here, so they have gone elsewhere. One of our objectives is to bring Zambian qualified people back in Zambia. But until today, we have not been so successful since they are reluctant to return, not necessarily because of the better salaries earned abroad, but also for their lifestyle over there.
We are obviously trying to develop the skills as quickly as possible within Zambia. We are busy instituting a scholarship system and a technician training company which we will certainly be running by the end of this year but it is a very slow process and before you see the benefit, you can not guarantee anything. If there are other investors with a similar attitude, things would slightly turn around. I think a better development will always be a challenge and this region has a history of mining.

Summit Communications: How would you compare the quality of manpower between DRC and Zambia?

Matt Pascall, CEO: It has been very similar at Lonshi, some of our operators and mechanical people have been working very well. Possibly in the DRC there is a greater pool of graduate skills available. In Zambia the younger graduates have all gone. In the DRC that might be a little bit easier but fundamentally, it is the same issue and one of the areas the governments need to take care of is precisely that. One doesn't bring expatriates in here for racial reasons because they are very expensive and one would like to have as few of them as possible.
Besides, there is a mistaken view that every expatriate here is taking a local job and therefore, we often have quite significant problems obtaining the work permit. The fact is that a place like Bwana Mkubwa probably has 38 expatriates and employees in total of over a thousand people. So, the ratio is almost thirty locals for an expatriate, as direct employees, plus a lot of sub-contractors doing our tracking. So, the overall fact is that there is a huge multi-plan for every expansion.
The government should help effectively investors in bringing in skilled people because at the moment it is not easy. We had senior guys' work permit turned over and it takes a lot of management efforts going and trying to address those situations and that is potentially one of the limiting factors to development and growth.
The other area is the defective infrastructure and road systems. Indeed, the more you increase your production, the more materials you need to bring in, and the more product you have to ship out. And today, the road system is not capable of handling that effectively.
I feel that all these G8 countries are willing to give more money to Africa, but haven't got the clue on how they are going to do it. I guess that the infrastructure issues are paramount and if there are roads, and power supplying, the people wouldn't have to burn the trees to make charcoal for a living. Besides, education is obviously fundamental as much as access to clean water. Our view is that the government should not feel ashamed if their companies come and do the work. They will employ lots of local guys which is good for the local industries. The government should make sure that the work is being done, controlled and the money is not misappropriated.

Summit Communications: How do you feel about the transparency, good governance and issues related to corruption in the mining sector. Do you feel that the measures are in place, well-adapted and sufficient at the moment?

Matt Pascall, CEO: I think it comes on two levels. It's possible to operate in both countries, completely legitimately and obviously a company such as ours and any western company have to operate 100% legitimate. It just cannot be involved in any form of bribery or all that sorts of acts. So, at that level it is possible to operate and we have done it over the years, in a successful and quick manner. Lonshi was a huge undertaking and it happened very quickly.
But on another level, lots of things happened which have not been so clean. When you leave this building you can go outside, you look at 4 smelters that are around here and it has been constructed by people who got the environment licences even though they pump untreated smoke, they have no resource on which they call for their feedstock and basically their feedstock is stolen. And all that is stolen from us. So, one has to have a huge security effort to safeguard our staff because otherwise it would become feedstock for these other and small operations and they can only have got their licences which they got very quickly by methods which will not be accepted elsewhere.
The same happens to exploration rights, you can go through it and you get your exploration right fine and then you hear of somebody that has got some exploration ground where we have got staff sitting and waiting for 18 months trying to get approvals. Theirs is done in a week. And they have no track record, nor any experience in Zambia. So, there is an under current and it undermines the fabric of the system. I just guess the attraction of bribes for the officials involved is just overwhelming. It is not to the good of the country, it definitely discourages possible other investors.
But I am not very sure whether the will to get rid of that is so strong. I guess this is one of the things that people who give aid in any form need to look at before they can pour their aid into the country... Maybe in the form of proper administered salaries, for public workers especially, so that once they are paid correctly every end of the month, they can be able to refuse any bribes. That is one of the imaginative ideas that can be put in place to reduce corruption and help the country to go ahead.

Summit Communications: Since you are listed on the Toronto Stock Exchange, what are your main shareholders'concerns about your operation here? Is that considered as a high or medium risk placement?

Matt Pascall, CEO: It is quite a big effort to promote this part of the world as a safe investment destination, and to that end we encourage people to come here to Zambia and see some of the positive sides of it. And also to dispel the ignorance that exists. Our share price has performed better than our paid bills, which has largely been driven by the copper price.
I know that as soon as you stop expanding, the shareholders can say that they know exactly what this company is about and how much money you are going to make until the rest of your life. There is an interest because they watch the outside and it does not matter how wealthy that might be, there is no blue sky... I think we have a very good exploration portfolio that offers a lot of blue skies, which is attractive to investors.

Summit Communications: What piece of advice would you recommend to some new investors looking at DRC or Zambia as a potential investment place?

Matt Pascall, CEO: On one hand, the main thing to strike is that they have got a huge potential, and that should encourage future investors. On the other hand, it takes a lot of energy to operate here, it is not straight forward and there has already been some investors who got discouraged after a short while and left. Working here really requires a huge amount of energy because there is always a follow up; you have to push as hard as possible in many others areas. We have built this big project in about a year, Kansanshi in just over a year. The energy that was involved there by the team was huge but they never felt it, they stuck to it and at the end we did it. So, it's possible.
And I think that is the message, it must go from the beginning with your dealing with the government. All processes through the studies to construction and exploitation and have to be exclusively done by yourself. It is not easy; you have to work hard on it. But the opportunities are there and therefore our view has been that it was worth the effort. One just has to make sure that he has got the right people on the ground, and that they are used efficiently.
The potential here is excellent, so we would like to see more investors of different types, whether it is mining industry, agriculture, tourism or whatsoever. Because the more activities they are, the more opportunities there will be for the local Zambian workers, the more the education system will improve, as well as the infrastructure, and so on. Some of the problems will go away or it will get easier. So we will encourage any investor to come; everybody is worried about the climate, but it is the best climate of the world.

Summit Communications: You were saying that we need to be courageous, hardworking. What would be the ideal profile of the company to come here in terms of business model?

Matt Pascall, CEO: Generally, it is easier for a small company to operate here, because it is more flexible. But that does not exclude the big companies since there is some big investment to be made here. But I think that big companies coming here need to be reduced to small ones, in such a way that they can operate here effectively. Indeed, a small operation with fairly an autonomous management structure, would gain in flexibility. I'm not saying that a company outside cannot work here but they just need to change their ways of running. Because I am sure there will be some operations here like Tenke Fungurume that need those big investments. They are very welcome but they need to be more flexible.
What we would like to see in Zambia is something similar to the DRC, such as the mining code. I think these investors would like to have something so practical, which tells them what there is to know about working in Zambia. Such a document would make their life a lot easier, especially for sectors like engineering work, farming, and tourism. All these matters should not be negotiated on a one to one basis. It takes too long, the country has a huge tourism opportunity at the moment, a lot of tourists would like to come here for facilities but you can not wait for 10 years to get the facilities because the situation will change by then. It is the same with farmers: the production is growing very strongly but some of the farmers have had problems which are not necessary, they could have made that easier. I am not saying that everybody doesn't have to pay their dues in terms of taxes and whatever, but just in terms of support and knowing what the rules are.