Anglo-American has driven a hard bargain for the mines it acquired in the Zambian Copperbelt last week
In a historic ceremony last Friday in Lusaka, Anglo- American regained the major mines of Zambia’s Copperbelt, including Konkola Deep.
A consortium led by First Quantum Minerals (FQM) acquired the Mufulira and Nkana mines on the same day, thus bringing to a conclusion the tortuous process of privatising the state-owned Zambia Consolidated Copper Mines (ZCCM), that began in earnest in 1997.
Zambia’s copper mines were nationalised by former president Kenneth Kaunda in the 1970s and began a 30-year life as the government’s cash cow. The mines, amalgamated into ZCCM, paid for almost the entire range of social services on the Copperbelt, and for Zambia’s spending on education and health-care.
Unknown sums swelled the accounts of the politically well placed, so that hardly any profit was ever left over for ZCCM itself. The result was that the mines decayed, production tumbled, new exploration stopped, and ZCCM’s debts mounted to more than $800-million, assisted by spectacular falls in the global copper price.
It was thus fitting that Kaunda should chose the same week to retire from Zambian politics, since with the social sector gains obtained in the 1970s largely reversed already, the conclusion of ZCCM’s privatisation represents the last stage of the systematic dismantling by current President Frederick Chiluba of Kaunda’s political legacy.
Kaunda has retired before and then changed his mind. However, last week Kaunda remained firm in the face of scores of weeping party supporters begging him to stay on, and this time it looks as if he has quit for good.
Anglo-American has driven a hard bargain for the mines. Its new company, Konkola Copper Mines (KCM) is paying just $30- million for the mines up front, and then another $60-million in instalments from 2006.
Meanwhile, Anglo-American is selling its 27% stake in ZCCM to the Zambian government for $30-million. Anglo has also secured a remarkable range of tax breaks, and has unloaded the cost of mine worker retrenchments to the World Bank, which is contributing over $60-million. In addition, Anglo has ruled out taking on any of the ZCCM-funded local schools and hospitals, which today face a bleak future.
Anglo points out, however, that given the sorry condition of the mines, and ZCCM having lost $1-million a day for the past two years, it is not the purchase price but KCM’s investment commitment that is significant. KCM will invest at least $208-million in Zambia over the next three years and potentially another $523-million depending on the global copper price.
FQM and Switzerland-based Glencore International also paid a lowly $20-million for Mufulira and Nkana, with another $23- million due after 2003. Once again, however, the investment commitment of the newly formed Mopani Copper Mines was the main concern – $154-million over the next three years.
Still, the sale price for the mines is undeniably low. Ironically, in November 1997 the ZCCM privatisation team, led by Francis Kaunda (no relation), rejected as “peanuts” an offer for Nkana and Nchanga alone from a consortium of international mining houses of $220-million in cash, investment commitments worth $750-million and $250-million for social commitments.
Despite the controversy about the price, the mines sale and anticipated new investments are still welcome news for Zambia. There will soon be increased copper production in Zambia just at a time when the global price is rising, meaning more export revenue and more money for social services. Although the agreement exempts KCM from paying duty on most imports, effectively encouraging it to buy from outside Zambia, Zambian manufacturing industry will still benefit from increased orders resulting from the privatisation. And when the current mine owners do buy something, they will have the money to pay for it, unlike ZCCM. In addition, hundreds of millions of dollars of donor support which has been frozen until ZCCM was sold can now be released.
The IMF says the ZCCM sale will enable Zambia to qualify for substantial debt relief later this year. Already, the World Bank has released $63-million. Britain has committed $81-million to renovate the smelter at Nkana, though it is still holding back some money, to the Zambian government annoyance, because of concerns about “good governance”.
Zambia has been hit badly by the recent catastrophic rains in the region and the March 31 mine sale came at a good time. The wild card in all this is, as usual, the Democratic Republic of Congo. The Zambian Copperbelt runs right along the border with Congo, and is vulnerable to attack. The Zambian government is praying, and KCM and Mopani are gambling, that the fighting in the Congo war will not get that far.
At the same time, KCM and Mopani are positioning themselves for the moment when it is safe to invest in Congo’s copper mines, which are far richer than Zambia’s. Though the risks are many, the potential rewards for Anglo and Mopani are great.