The world’s biggest mining companies, hungry for metals increasingly tapped out in developed countries, are plunging into risky new terrain. Mining executives are setting up operations in some of the most violent, politically turbulent places, like the Tenke Fungurume copper and cobalt mine Phelps Dodge approved here in December.

Expatriate homes for the Tenke staff have panic buttons and full-time guards. Workers do role-playing exercises in which fake armed authorities detain them.

One of the first to arrive was Jeff Best, a a fifth-generation PD employee hired to help head up operations.

It didn’t take long for Best, along with his wife, Stacy, and their two daughters, to realize the unpredictable nature of their new setting — a once grand provincial capital with crumbling cobblestone streets. On Stacy Best’s first visit, the power went out for seven hours. Another day, a man wandered onto their street carrying an AK-47 and a rocket-propelled-grenade launcher.

“I was a little on edge,” she recalls. “You get used to it.”

During much of the current worldwide commodity boom, mining companies focused large parts of their operations on countries with low political risk and reliable infrastructure, such as the U.S., Canada, Chile and Australia. But deposits in those places are being depleted. That leaves companies little option but to press into more volatile zones, especially Africa.

Congo’s recent civil war Until a few years ago, the Congo was home to a civil war that left as many as 4 million people dead. Recently, U.S. State Department travel advisories warned visitors of “unofficial” armed militias that “pillage, carjack … kill extra-judicially, rape (and) kidnap.” The World Bank rates the Congo as the world’s single worst place to do business — more difficult than Iraq and Afghanistan.

But mining companies need to feed the world’s raging demand for commodities, especially in industrializing China, where consumption of copper, nickel and aluminum has at least tripled over the past decade. Some analysts predicted China’s raw-material orders would have fizzled out by now, but they’ve soared. Over the past year, Chinese copper imports shot up nearly 50 percent.
If all goes according to plan, the Tenke Fungurume mine will yield 250 million pounds of copper a year with production starting as early as 2009. The cost of the project: more than $600 million. And the Congo, which also has huge deposits of gold, tin and other metals, could represent a lucrative new frontier for the mining industry now that safer fields are running out.
Western mining companies previously stayed away from large projects in high-risk areas, in part because they worried that metals prices might not stay aloft. Now, confident that growth in China will keep demand strong for years, they are charging into all sorts of difficult areas, including Sierra Leone, Liberia and Papua New Guinea. Some have even mulled investments in a giant copper mine in Afghanistan.

In the Congo alone, more than a dozen other major mining companies are at work, and others are looking to invest there. Tenke Fungurume was a major draw for Freeport-McMoRan Copper & Gold Inc., which acquired Phelps Dodge in a $26 billion transaction in March.
John Fenn, Phelps Dodge’s senior vice president for Africa, acknowledges that doing business in the Congo is “especially challenging.” But he adds, “As a resource company, the way you grow is you have to go after the resources.”

First discovered in 1917, Tenke Fungurume is estimated to contain ore that is in some cases 10 times as rich in copper as what’s found in similar mines in other places, where most of the easy-to-mine copper has already been extracted.
Mine officials say that means the mine can be profitable even if copper prices fall to $1.50 a pound from more than $3 now. In some areas, the Congolese copper is so close to the surface that it spills out onto the ground and is visible from satellite images.
In the 1970s, investors including former U.S. oil company Amoco Corp. poured more than $250 million into the site before bailing out because of the Congo’s chronic instability and shattered infrastructure.

Helped tame Wild West

Founded in 1834, Phelps Dodge had once specialized in frontier territories. It helped tame the Wild West by building railroads, hospitals and schools at mines in Arizona, New Mexico and Mexico.

PD had never developed a major new project in Africa but saw that things were looking up in the Congo after a 2003 peace deal that ended most of the fighting. The government, with help from the World Bank, passed a new mining code to attract more investors.
Phelps Dodge had taken out an option to invest in Tenke Fungurume in 2002, and started building up its team in the Congo in 2005, when the region’s worst violence was largely finished. That year, the company paid $15 million to the government and agreed to make sizable future payments and investments, giving PD a 57.75 percent stake in the project.
The remaining shares are held by Tenke Mining Corp., a Canadian company, and Gecamines, Congo’s state copper-mining company.

In late 2006, Phelps Dodge’s board gave conditional approval for the initial phase of the project, pending an agreement with Congolese authorities to improve power supplies in the region.

Politically less tense

Political tensions in Congo have eased in recent years. Last year, the country held its first multiparty elections in more than four decades.
But other big problems remain. Congo has one of the world’s most dysfunctional economies, with a fragile government, little in the way of basic infrastructure and widespread poverty and desperation. Conflict continues in some areas, especially places with natural resources, and corruption is endemic, exposing foreign companies to routine requests for bribes. Basic amenities like banks and reliable medical facilities are scarce.
Mining companies face the additional problem of dealing with tens of thousands of “informal” mine workers who park themselves on old or abandoned mines and eke out a living by prying out small quantities of raw minerals, often in dangerous circumstances. When foreign mining companies take over, they typically improve safety standards and boost production. But they can’t afford to employ all the informal miners, setting the stage for unrest.
At least two mining workers have been killed in recent years and numerous others attacked or harassed.

“We know there are going to be some ups and downs a country this size will go through,” says PD Vice President Fenn. “When you’re a company like this, you just have to mitigate those risks.”

Advocacy groups in the Congo and elsewhere are pressing the Congolese government to revise or cancel its contracts with foreign mining companies. They believe the contracts were signed without sufficient transparency and don’t provide enough benefits to the local population. The Congolese government has said it is reviewing the contracts for problems; Phelps Dodge officials say their legal footing remains secure.
Still, the Tenke partners have yet to finalize a deal with the Congolese government to upgrade power supplies — upgrades that must be made before the project can be completed. Mine officials say they are confident all necessary agreements will eventually fall into place, and they are proceeding with construction in order to meet the schedule they have laid out for the project.