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Mopani deal: Expert’s perspective.

IN JANUARY, Government’s investment arm, Zambia Consolidated Copper Mines – Investment Holdings (ZCCM- IH), agreed to buy Glencore’s majority stake in Mopani Copper Mines Plc in a US$1.5 billion deal, and yesterday, during an extraordinary general meeting, the transaction was finalised, with shareholders overwhelmingly endorsing the deal.

The acquisition of Mopani from the Swiss mining giant, Glencore, is without doubt the biggest takeover deal by a local company in recent history, definitely not after Frederick Chiluba’s privatisation era of the 1990s, which saw the end of the country’s biggest mining conglomerate, ZCCM.

The deal has, inevitably, generated a lot of public debate. The questions surrounding the deal mainly centre on the ability of the new mine owners to run it successfully and pay the debt owed to Glencore, while some have accused Government of influencing the off-take deal in order to save thousands of jobs in an election year.

For others, perhaps it is just a case of déja vu, remembering how the mighty ZCCM Ltd was dismantled, with devastating results that remain to date.

But one of the country’s well- respected mining experts, Sixtus Mulenga, has defended the deal, saying it was a purely business and not political transaction which will benefit the country in the long run.

He describes the deal as a “step change”, made after the realisation that Zambia did not participate in the exploration of its mineral resources after privatising the mines.

“That move of buying shares is normal international business practice; companies buy shares from each other, and the reason ZCCM-IH did itis that Glencore had wanted to put the mine under care and maintenance, so it was important for ZCCM-IH to safeguard jobs
for the Zambian people and to protect the assets because once you put an asset on care and maintenance, it begins to deteriorate and lose value,” he says.

Dr Mulenga, who is a mining geologist with over 35 years experience, says Glencore’s decision to put the mine under care and maintenance was a contradiction, considering the price of copper, which had nsen to impressive levels last year.

Currently, copper is trading at over US$8,000 per tonne, which should spell boom time for producers such as Zambia.

Dr Mulenga says projections show that the global demand for copper will remain high up to the year 2030, with a global shortfall of 10 million tonnes.

He says the demand is driven, in part, by low investment during the global pandemic period, as well as climate change mitigations, including the push to cut fuel emissions by producing electric cars.

He also says concerns about the huge debt owed to Glencore should not cloud the deal.
“This deal is effectively ‘vendor financed’, meaning the seller is effectively providing the money for the buyer to purchase the operation. ZCCM-IH is not paying upfront and Glencore has effectively provided ZCCM-IH with the loan for the acquisition of Mopani. As would be the case with a loan from a bank, that loan must of course be repaid, and in this case, the loan is being repaid from the proceeds of the

asset over time,” he explains. ZCCM-IH itself has addressed concems over the huge debt owed to Glencore by stating that “the US$1.5 billion is a commercial loan to Mopani and a loan of this nature is not unusual for a mine of this size”. It also says the repayment terms provide some relief to Mopani in years when the copper price is depressed or when the operations are not profitable, and that the royalty payment is fixed for the first three years and thereafter is linked to the copper price, meaning when the price goes down, so does the royalty. ZCCM-IH also denies assertions that in the event that Mopani fails to pay the US$1.5 billion debt, it will be passed on to Government, saying the mining firm is well able to settle the debt from its cash flows. According to ZCCM-IH, 33.3 percent of cash flows are applied to debt repayment, leaving the company with 66 percent of cash flows to finance its operations.
And of course the mine sits on assets exceeding US$1.5 billion. Mining champion
Dr Mulenga also views ZCCM-IH as a good investor because of its status as a publicly-listed company that thrives on good governance.

“ZCCM-IH 1s a good home for Mopani in that ZCCM-IH is a publicly-listed company, providing many investors with the comfort that comes with the improved governance and transparency practices typically associated with listed companies,”

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