Zambia’s state miner on lookout for deals

Zambia’s state mining company is on the lookout for further deals as it prepares to complete its acquisition of a majority stake in Glencore’s struggling copper business in the country.

ZCCM Investment Holdings chairman Mabvuto Chipata said the company would consider any opportunities to increase the minority shareholdings its owns Zambia-based companies.

“We think that operating a mine will allow us to extract more value,” Chipata said in an interview with the Financial Times. “We need to make sure we have participation in the mining sector, which controls the larger part of this economy.”

ZCCM became an investment company in 2000 when Lusaka privatised the country’s mining industry, selling off controlling stakes in its prized copper mines to large mining groups. That process created Mopani Copper Mines, the business ZCCM is buying from Glencore, and Konkola Copper Mines (KCM), which is owned by Vedanta Resources.

Last year, ZCCM announced a change in strategy and said it would focus on mining and energy with the ambition of operating assets rather than just being a minority shareholder.

That has aligned the company with Zambian president Edgar Lungu’s pledge to buy “strategic” stakes in the country’s mineral wealth. Zambia is Africa’s second biggest copper producer.

ZCCM agreed to buy Glencore’s majority stake in lossmaking Mopani earlier this year, taking on $1.5bn of debt to finance the deal.

The acquisition came just months after the government defaulted on its debt, in the middle of fraught negotiations between Zambia and its bondholders about restructuring. The government also recently held talks with the IMF for a bailout.

Zambia will hold presidential elections in August and the country’s mining heartland — known as the copperbelt — will be a key battleground. Glencore had been trying to mothball Mopani, which employs 15,000 people and has been haemorrhaging cash because of low copper prices and high costs.

Chipata said the elections were not a factor and its decision to acquire Mopani was in line with its plan to move away from minority shareholdings. “The fact that this is an election year does not mean we should suspend our strategy,” he said.

Asked about KCM, which Lusaka moved to liquidate two years ago claiming Vedanta had breached the terms of its licence, Chipata said ZCCM would not do anything until a legal battle between the government and Vedanta was resolved.

Vedanta has 80 per cent of KCM with the balance controlled by ZCCM. It has always denied it breached its licence terms.

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“KCM is one of the big mines in Zambia,” said Chipata. “It’s one of these assets that if an opportunity came up we would be happy to talk.”

Chipata said ZCCM’s focus was to stabilise Mopani, which produced almost 41,000 tonnes of copper last year. It would then look to complete three expansion projects that could boost output to as much 160,000 tonnes, including processing third-party ore.

The cost of those projects has been put at up to $300m and Zambia’s mining minister Richard Musukwa has said ZCCM could bring in an outside investor to bear some of the costs. However, Chipata said it was possible that Mopani would be able to pay for the projects if copper prices held up and its performance improved.

On the financing of the Mopani deal, Chipata claimed the transaction was “self-financing” because the loans would be repaid from future copper output. “We believe the reserves and resources at Mopani are more than adequate to cover the debt and give a return to shareholders,” he said.