By Patrick Barta
The Wall Street Journal
Thursday, August 17, 2006

SOLWEZI, Zambia -- Just below the dusty topsoil here in the scrubby African bush are some of the richest copper deposits in the world.

Many of the world's largest mining companies, including Phelps Dodge Corp. of Phoenix and Anglo American PLC of London, have done business here. They eventually went home, stymied by official corruption, crumbling infrastructure and often violent political unrest.

Now, copper prices are close to records, and the world's mining giants are looking for new sources of the metal. But in this part of Africa's interior, the dominant players these days are such companies as First Quantum Minerals Ltd., a little-known Vancouver, B.C., company that hung on here even when copper prices plunged a few years ago.

First Quantum, whose Toronto-listed stock has been rising (it also trades in London), is one of a number of smaller mining concerns rushing to develop more copper, nickel, and other commodities as their big-name counterparts, including Phelps Dodge, BHP Billiton and Rio Tinto Ltd., struggle to meet demand.

The production of these "junior" miners is hard to quantify but has implications for prices. For now, their output is small: First Quantum expects to produce about 200,000 metric tons of copper this year. In Chile, the world's biggest producer, that much is mined every 15 days.

Over time, analysts predict, junior miners will play a bigger role, and possibly help bring commodity prices back to earth.

According to Metals Economics Group, a Canadian research firm, juniors have accounted for 57 percent of the $3.2 billion increase in exploration spending worldwide since 2002. Last year, they accounted for 63 percent of the increase, a figure that many analysts think will keep climbing.

Some investors worry that the sudden emergence of more juniors, when the rest of the mining industry is consolidating, suggests that a commodity bubble could be developing. Some smaller companies, which include Vedanta Resources PLC of Britain, Ivanhoe Mines Ltd. of Canada and Equinox Minerals Ltd. of Australia, didn't exist a few years ago, and many are flush with cash invested by speculators. For now, the risk of a glut seems slim. Demand continues to outpace supply for many metals, and analysts say, more junior exploration successes are needed just to prevent prices from going higher.

Events in central Africa's Copper Belt spotlight the juniors' bigger role. The region, which includes Zambia and Congo, formerly known as Zaire, was once one of the world's biggest copper suppliers. In the 1970s, those two countries produced more than a million metric tons a year, more than 10 percent of worldwide output.

Corruption, political unrest and mismanagement of state-owned mines drove foreign investors away. In the Congo, upheavals in which as many as 4 million people died in recent decades intensified in the 1990s.

By 2000, Zambia was producing less than 260,000 metric tons a year; Congo's output fell to almost nothing. First Quantum smelled opportunity amid the gloom.

"It's like the old story: If you want to shoot elephants, you have to go where the elephants are," said Matt Pascall, a British citizen born in Zimbabwe who is First Quantum's director of operations near the Zambia-Congo border.

Philip Pascall, Matt Pascall's brother, founded the company in the mid-1990s after a hunting trip in the region. With cash raised in part through a South African bank, his first target was Bwana Mkubwa, a decrepit mining operation near the Congo border that Zambian officials closed in the 1980s. The area lacked reliable electricity and paved roads. In 2001, copper prices fell to multi-year lows. Anglo American, the big miner that also had invested in Zambian mines in the late 1990s, decided to leave after losing more than $500 million. First Quantum had no other major assets, so it stayed. Now, copper prices are about five times higher, about $3.50 a pound on the New York Mercantile Exchange, up from less than 70 cents a pound in 2001.

First Quantum is riding high, with two mines in operation and others in development. The company reported profit of $205 million in the first half of this year, up 265 percent.

Environmental activists and labor advocates fear that companies in Africa are able to sidestep basic environmental and safety standards. They also contend that it is almost impossible to operate in the Copper Belt without paying bribes.

Some areas along the Zambia-Congo border are a wasteland of clear-cut forests, belching smokestacks and assorted industrial activity. Several mining projects, including one in which First Quantum holds a small stake, have had work-related fatalities.

First Quantum officials say they follow international environmental and financial standards established by the World Bank and that they haven't had any fatalities at facilities they operate. The company also says it doesn't pay bribes and has established its own international border crossings, which help it bypass bribe-taking government agents at official border stations.

First Quantum is particularly bullish on a mine called Kansanshi, near the town of Solwezi. The site was mined in the early 1900s and includes a graveyard filled with the bodies of early European prospectors who died of malaria. The mine has been largely abandoned in recent years.

First Quantum is spending $70 million to upgrade processing facilities there, with plans to produce as much as 150,000 metric tons next year, up from 70,000 last year and none in 2004.

A few years ago, "this place was dormant," said Probby Chama, 35-year-old manager of Janki Enterprises, a dry-goods store that supplies the Kansanshi mine. Since 2000, his sales have more than doubled.

Thanks in part to First Quantum's investments, Zambia is inching back to its 1970s copper-output levels. Other companies and some Chinese investors, are entering the region.