Chibamba Kanyama

 

ECONOMIST Chibamba Kanyama says while both teams are winning in the Mopani Copper Mines deal, the whole deal works well for Glencore.

On Monday, mines minister Richard Musukwa announced that the government had completed the acquisition of Mopani Copper Mines (MCM).

ZCCM-IH, on behalf of the government of Zambia, would now hold a 100 per cent shareholding in MCM.

Before the shareholding takeover, Carlisa had 90 per cent shares while 10 per cent was owned by the ZCCM-IH.

Carlisa shares in MCM were broken down as 73.1 per cent for Glencore and 16.9 per cent for First Quantum Minerals (FQM).

On Saturday, The Mast quoted Kanyama saying Zambia needed to assess its own capacity beyond just producing copper.

Of late, government officials, especially President Edgar Lungu, have been suggesting that Zambia’s mines could now be run by citizens.

The Mast asked Kanyama to comment on such continued intimations by government officials, and what risks, if any, were associated with such veiled preference for nationalisation of mines – especially now when the national economy is unstable.

Kanyama said his position has always been that the ZCCM-IH approach, “where we have a hands-off approach to mining operations, but own shares,” was presently the best model.

He said where space allows, the ZCCM-IH could keep increasing its stake but without taking the risk of absolute ownership and mine operations.

“Zambia will need to assess its own capacity beyond just producing the copper. Copper mining is a challenging value chain industry that should not only be assessed within the context of ability to produce it,” Kanyama said then.

Sharing his thoughts on the absolute shareholding purchase, Kanyama said “the real winner in the transaction is Glencore.”

He explained that Glencore, an Anglo-Swiss multinational commodity trading and mining firm headquartered in Switzerland, wrapped up the deal well.

“On one hand, this is a leveraged or debt-financed deal from which Glencore will start earning interest after a period of time and will also have other gains accruing to it on the principle amount (being US $1.5 billion it has borrowed from itself!),” Kanyama said. “Second, until all outstanding amounts are repaid, Glencore will have control of copper sales through a purchase off-take and this presumed to be at a fixed price of copper. The arrangement is beneficial to government given the huge fluctuations in the copper price.”

He also explained that the deal was somewhat unavoidable given the threats made by Glencore to shut-down some of the operations under its care in Kitwe and Mufulira towns.

Kanyama noted that such a move would have led to loss of about 13,000 jobs.

“Given the context of high unemployment levels in the country, the shutdown would have had serious economic, social and political consequences,” he noted.

Kanyama said ZCCM-IH showed determination to go ahead with the transaction, despite strong voices not to proceed.

He added that that somewhat demonstrated the company and government itself had better information on the whole deal than the rest of Zambians.

“We only hope that the country will not come back 10 years from now questioning the wisdom of the transaction/negotiation team and advisors,” Kanyama said. “I should add that I saw great leadership over the whole Mopani issue in past one year. The transaction has happened at a time the price of copper is over US $8,000 per tonne, implying we are in for good returns should this price be sustained for longer periods or even exceed the projected US $10,000 per tonne.”

He further pointed out that shareholding acquisition in MCM was a significant step on the government’s part, to own strategic assets.

Kanyama said the transaction reduced the existing suspicions around transfer pricing, as well as private (undeclared) foreign currency remittances from which the government would have gained in foreign exchange reserves.

“The mine under total government ownership will now directly improve the country’s fiscal position albeit in the long-term,” he noted.

Kanyama also loosely likened the MCM deal to an “outgrower scheme” where farmers were financed through fertiliser, seed, technical advice and chemicals to grow tobacco.

“The financier is also the buyer at a fixed price. Both teams are winning but the financier/buyer is the absolute winner and that’s why this whole deal works well for Glencore,” Kanyama explained. “It also means Zambia has acquired a new debt worth about US $1.5 billion (take away other costs) for the ownership of Mopani Copper Mines.”

He, however, noted that the consolation was that Zambians would not pay that money from tax revenue.

“The asset is projected to finance itself. What worries me though is that it all depends on what happens to copper production and the price during the life of this deal,” Kanyama said. “The comparison is an American mortgage which you service over 25 years without having absolute ownership to the property. First, it makes it difficult for you to access fresh capital to recapitalise the building because someone has absolute ownership to it.”

He added that many things would change before finishing paying.

“That’s how many American mortgagees have lost property on which they had already serviced a significant portion,” Kanyama said. “I am sure the IMF and other creditors are following this transaction very closely and how it affects the planned programme negotiations.”

Kanyama further explained that though the government would have a case to explain, the debt was not on the treasury but on ZCCM-IH.

“Those Washington colleagues read between the lines and they will still bring the number on the government loan book and prove to government that Zambia has moved deeper into debt unsustainably,” Kanyama, an ex-communications advisor at the IMF, said.

Kanyama, “on the whole”, congratulated the government for saving MCM, keeping the jobs, and owning the Mopani asset totally.

“All we can do now is to continue to advise about how to manage this asset and make it more profitable than Glencore did. We can learn from the mistakes of the old ZCCM and build on the previous failures to beef-up our national coffers,” said Kanyama. “Let there be no political interference in the operations of this mine. Otherwise, seven years from now, it will be the same old sad story. I wish all the people of Zambia well in this deal. It should be good for the country.”

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