By Mrs. Bernadette Deka Zulu – PMRC Executive Director
On Tuesday the 19th of January 2021, the Zambian Government, through its mining investment arm Zambia Consolidated Copper Mines Investment Holdings (ZCCM-IH), completed the 100% acquisition of Mopani Copper Mines (MCM) following its negotiations with Glencore Corporation. In April 2020, Glencore Corporation had announced its intention to place the mine under care and maintenance sighting the impact of the COVID-19 pandemic and low copper prices. However, this was rebutted by Government because it would have resulted in the loss of employment for 15,000 employees.
ZCCM-IH has acquired the 90% shareholding of MCM previously held by Glencore Corporation through Carlisa Investment Corporation (73.1%) and First Quantum Mining (16.9%), giving ZCCM-IH 100% control of Mopani. The Government of Zambia and Glencore Corporation signed an off-take arrangement deal. An off-take arrangement is simply an arrangement between the producer and a buyer to purchase or sell all or portions of the producer’s forthcoming goods/commodities to the market. This sort of agreement is commonly done with the mines to secure a market for their future production purposes. In this case, Glencore Corporation has agreed to sell 90% of its shares to ZCCM-IH, which will fully own the mines after the transaction has been fully settled. This is because ZCCM-IH and Glencore deal is based on a no-cash transfer basis.
The deal is priced at $1.5 billion which will be funded by a loan that will be repaid from sales and profits moving forward. The loan is estimated to be repaid in a period of 10-17 years depending on copper prices which are currently at $8000 per tonne on the London Metal Exchange. For the debt to be paid, the Government and Glencore have put up terms and conditions as stipulated below. Firstly, the interest of the transaction debt will be capitalized for the first three months, implying that it will report to the balance sheet and not the income and expenditure sheet and thereafter, paid quarterly at the London Interbank Offer Rate which is at 3%. The principal outstanding payment will be paid using a dual mechanism approach. Firstly, 3% of the gross revenue of Mopani copper (2021-23) and thereafter, 10-17.5%. Secondly, 33.3% of the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) minus (taxes, changes in working capital, royalty payments, and payments in the first mechanism).
The 100% acquisition comes with many socio-economic benefits such as employment security for the 15,000 mine workers. This will have a trickle down effect on their communities and the nation as large. The acquisition also provides an opportunity for local mine suppliers and contractors to conduct business with the mines. It is envisioned that this move by Government will increase the number of local contractors within the mining sector, which will enhance the establishment of local mining supply chains. Additionally, the deal comes at a time in which the price of copper has increased on the global market, trading at $ 8,014 per tonne as of the 20th of January 2021, with a projection of above $7000 per tonne in 2021. Government will therefore generate revenue which will not only be used to pay off its acquisition loan but will also be used to enhance economic development in the country.
In order for Government to maximize from this acquisition, there is need for them to amend the Mines and Minerals Development Act No. 11 of 2015 to ensure that Zambians benefit from the mining sector. The amendment of the Act will ensure proper coordination and an adequate legal framework governing the mine. Secondly, poor corporate governance has led to the fall of many private and stated-owned enterprises around the world. It is for this reason that PMRC strongly recommends that principles of corporate governance be embedded in the running of MCM.
This article has not looked at the cost of the acquisition to the government and what are the implications of this on the already stressed treasury? A research institute should be able to objectively analyze the deal and make recommendations for government not to act as a spokesperson for government!!
The PMRC boss sounds like a spokesperson for the government than a researcher……No objective analysis presented by this research institute in terms of who will pay for recapitalization of the mine, who will pay for the operation and maintains certain cost? What is the price of the offtake ? How much reserves are in the mine, will these reserves amount to the debt amount plus profit? Are these reserves already confirmed? Why was glencore about to put the mine on C&M?? Implications of the takeover on the debt sustainability, long term job security, sector sustainability? And above all how do the envisaged benefits fare with the expected costs in the long run.
Leave it leave it leave it leave it to the experts. Not fye uwaufwa ichilaka at mopani. Otherwise we are still studying the statement that government is now looking for an equity partner. Let’s hope Tema chinese.
This deal is rotten to the core. Glencore were struggling already and saving 15000 jobs does not justify the government taking on extra debt. We all know the new partner will be the Chinese and they will come in and milk it for all its worth while Glencore continue receiving 2% of sales for the next 18 years. We have very dull advisors in the PF government.
KAIZER ZULU please don’t comment on issues you do not know stick to cadre issues.
Nothing groundbreaking here mwe.
This is a great move by the government
Really laughable…this little girl again from Cavendish University
What university did you attend that led you to seeking asylum abroad and failing to make it in your own country of birth. Ba bully
That’s my beautiful girl Bernadette.very intelligent and analytical. We haven’t seen each other for a long time baby. I miss you. No strings attached. We are just friends before you haters get any ideas
Just a repeat of what we already know so far , nothing new.
Government owns the mines but it is not the one that has borrowed the money. Is that how the IMF will see this deal?
Belly analysis not an intellectual analysis.
An article worth a litter receptacle!
That’s right madam Deka …that framework is need …with people who are highly qualified to carry out management of the mine
Surely how can this little girl who can not manage her own personal finances be in a position to know the pros and cons of this deal.
Surely how can an old f00l like you fail to make it in Zambia such that you are forced to clean toilets and old people abroad
This will be full of cadres
What is new about what Mrs Bernadette Deka Zulu saying. everything she is talking about has been previously by Mr Webby Banda and other experts. If this was a university submission it will be plagiarism. It would have been better if she came up with her own analysis. Dr Lubinda was one of the first few people who gave the analysis. Now getting the same copy and paste analysis, Pa Zambia napo awe sure
PRMC! you did not do your research professionally.What you have done is simply reporting what Musukwa said and leaving out somebody the hidden issues.
Do you know that ZCCM will be selling its copper to glencore only at $2300/tonne?
Are you aware that ZCCM has obtained all the debts glencore had?
First ZCCM will need to source a $300 million to complete all the stopped projects to turn its pruction competitive.
Am a lay man!