ZCCM-IH chief executive officer Mabvuto Chipata says Glencore Plc will be collecting 80 per cent of copper sales over the next 10 to 17 years in order to pay off the US $1.5 billion Mopani Copper Mines owes its outgoing parent company.
And Chipata has refuted claims that the company has no capacity to run Mopani and emphasised that they have the capacity, manpower and expertise to run the mine.
Speaking during an interview with Hot FM in Lusaka, Friday, Chipata announced that Glencore would be collecting 80 per cent of copper sales over the next 10 to 17 years to offset the US $1.5 billion Mopani owed its outgoing parent company.
The Swiss-based commodities and minerals trader is selling its stake to ZCCM-IH, with an elaborate payment structure being implemented over a near-two decade period.
“The debt is sitting on Mopani. Now, the background to that is that Mopani had borrowed a total amount of US $4.8 billion from Glencore and its affiliates and associates. So, this was a debt sitting on the books of Mopani. So, when we started finalising the transaction, we saw that Mopani cannot sustain this level of debt of US $4.8 billion, so we negotiated and based on that analysis, we concluded that Mopani can be able to repay the US $1.5 billion debt and also meet all its operational costs and also have a return to ZCCM-IH as a shareholder. The US $3.3 billion is written-off, that is a debt that Glencore loses. This debt has been planned to be paid over a period of between 10 to 17 years and if, as we operate in Mopani and if the copper prices are what they are today and we do the things we plan to do in order to improve efficiencies in the mine, we should be able to repay this debt much earlier,” Chipata said.
“And the way the debt is being paid is that from the sales of copper coming from Mopani, we have structured this in such a way that 80 per cent of these sales will be taken up by Glencore based on the off-take agreement we have with them. 20 per cent of the copper will remain within Zambia, this is available for local companies to buy and be able to do value addition. Value addition means that this copper can now be used to make copper cables, wires and other industries that are based on the copper industry. So, out of that 80 per cent, which Glencore will get, they will take out the amount that is required to pay part of their debt and they will give back the balance to Mopani. In the first three years, three per cent of that value is what Glencore will get, the balance of the money will be paid back to Mopani Copper Mines, that’s the way it’s structured.”
And Chipata insisted that ZCCM-IH was up to the task and would not underestimate the huge task of running the mining operation as they will employ Zambian experts.
“To the contrary, KCM (Konkola Copper Mines) has been running much better than when it was under Vedanta a year ago. If you look at all the numbers, the statistics at KCM now, you see improvements in production, we have seen improvements in payments to suppliers and the situation can only get better. So, I do not agree with you that KCM is being run down, that is to the contrary. There is a clearly structured plan that is going on at KCM, which has managed to preserve jobs, the suppliers now are being paid. Make no mistake, we are not underestimating the task that we have taken, we know very well that this is a big step, we do not underestimate the task that is ahead. But we believe that with the willingness that we have as Zambians, with the support that we have from government and all the stakeholders, I tell you and I can ask you the question, can Zambians, all of us if we decide, that this elephant we must kill it, can we fail to kill it and eat it? The answer is no. But we are not taking chances, we are doing everything possible, we have studied the asset, we have our experts on the ground working with us to make sure that we leave no stone unturned,” he said.
“20 years ago, all the mines were run by Zambians, when you come today, the question is: does ZCCM-IH have the skills within the company currently to run the mine, the answer to that is, yes. ZCCM-IH have got a combination of mining engineers, geologists, metallurgy, investment experts, financing experts within the company. Secondly, within Zambia itself, if we need to get any more resources to join ZCCM-IH, we believe that this resource is still available within Zambia. Secondly, as well tied to that, globally, there are a lot of Zambians, who are still working in the diaspora whom if we call upon them, as I speak today, at Konkola Copper Mines, we have seconded our mining engineer Mr Moses Chibambe, who has been working there to support the team at Konkola Copper Mines. At Kansanshi Copper Mine, we have recently recruited a Zambian, who is the general manager there, who was in the diaspora.”
He added that it was normal for mining companies to run on debt as funding typically emanated from the copper resource.
“Mining is a global industry so, yes, we are already talking to possible strategic partners to join us in raising the finance and there is nothing peculiar about this, all mines are funded by debt. If you look at most of the mines in Zambia, look at their balance sheets, their financial statements, you will see that all mines are funded by debt and where does the source of funding come from? It only comes from the resource. So, as long as there is copper at Mopani and copper is demanded, and the copper price as we sit today is increasing, we should not have a problem in raising the necessary capital to fund that particular mine. So, that is the least of our worries,” he added.
“We have studied the mine, yes, over the next two years. Mopani will need a total of US $300 million in the first year; US $100 million, second year; another US $100 million and the third year, US $100 million. So, if you heard from the (Mines) Minister’s (Richard Musukwa) speech, we are immediately getting into phase two of looking at a strategic equity and financial partner to join us in order to be able to bring in the necessary finance and partner with us, possibly in the area of technical expertise given that Mopani is a high tech company, we cannot assume that we do not need partners to work with.”
He further noted that an investor did not need a majority stake to secure their investment.
“There are many ways in which an investor can ensure that their investment is secure. It does not only come from having a majority shareholding of 51 per cent, you could have an agreement where the shareholder has got a minority interest and because they want to be able to have oversight over their investment, you could give them certain positions within the company that enables them to be able to oversee their investment. So, these are possible structures in investment. So, we do not see a challenge with that as we stand,” said Chipata.