IRIN Focus Report on doubts over the sale of strategic copper assets

The proposed sale of some of Zambia Consolidated Copper Mines (ZCCM) loss-making assets to the South African mining giant, Anglo American for US $90 million, has been criticised by local analysts as a “give-away” by the government. Under an agreement signed nearly two weeks ago, the South African-based conglomerate will pay US $30 million in cash to ZCCM to acquire the Konkola group of mines. These include the Konkola Deep Mine project, the Nchanga copper mines and the Nampundwe pyrite mine. The outstanding US $60 million will be paid out over three years. In a parallel but related deal, Anglo will sell to the government its 27.3 percent stake in its subsidiary, the Zambia Copper Investments (ZCI) for US $30 million. The sale, however, excludes the Nkana smelter and refinery, which Anglo will manage while buyers are still sought. “The Zambian government will come out of the deal with no cash to show for the sale,” a government mining source told IRIN. “This transaction amounts to a swap.” Anglo’s long history in Zambia Anglo’s acquisition of 80 percent of ZCCM’s assets is viewed by commentators as a return to the Copperbelt by a company whose copper assets were nationalised by Kenneth Kaunda’s government in 1969 following a wholesale nationalisation programme of major economic assets. The Zambian government assumed a major ownership of the mines, leaving Anglo only with the 27.3 percent share held through ZCI. Anglo had previously owned all Zambia’s copper mines since around 1928. In more recent years the company has kept a close watch on developments since President Frederick Chiluba’s Movement for Multiparty Democracy (MMD) won the first democratic elections in 1991 and embarked on a programme of privatisation to kickstart an economy that had stagnated with a highly bloated public service. In a process aimed at reducing the state’s involvement in a wide range of industries, Chiluba’s government had by 1998 privatised or sold off more than 200 entities, most of them to foreign-owned companies. The new agreement The new agreement commits Anglo to capitalise the mines at a cost of US $208 million within 18 months of the start of the agreement in January. A regional mining analyst in the Zambian capital, Lusaka, told IRIN that the Zambian government will have to borrow US $170 million from the World Bank to pay for capital expenditure for the mines to cover the US $208 million bill. The analyst pointed out that the government is losing an estimated US $1 million a month to keep the mines running. He said: “The true picture is that only US $38 million will come from ZCI and the balance of US $170 million will be a loan from the World Bank to the Zambian government, which will increase the country’s current external debt estimated at US $7 billion.” Other concerns Reservations have also been raised about the possibility of Anglo becoming a monopoly in the Copperbelt region to the detriment of other parties. “If Anglo is allowed to manage the Nkana smelter and refinery, as the agreement proposes, the implication is that Anglo will squeeze all other competitors out of the Copperbelt and set itself up as a virtual monopoly,” added the source. The significance of the deal is that the Zambian Copperbelt, especially the Konkola area, is one of Southern Africa’s major high grade copper resources. If taken together with the copper resources in the adjacent Shaba province in the Democratic Republic of Congo (DRC), it represents one of the most important long-term repositories of copper and cobalt in the world. The analyst also argued that the ore body at Nchanga has a lifespan of more than 20 years, but Anglo reportedly put this at only four years. The analyst estimated Nchanga’s current potential value is estimated at more than US $500 million. Minister says ZCCM assets still for sale At the same time, an official in Zambia’s mines ministry confirmed to IRIN that mines minister, Syamukayumbu Syamujaye, had said the ZCCM assets that Anglo had offered to buy were still on the market. Syamujaye said the government had received bids from three other international mining investors. Although he welcomed the deal between Anglo and ZCCM, the government would consider all bids and the best bidders would finally buy the mines. Although Syamujaye did not name the bidders, sources identified them as Cyprus Amax of America, First Quantum Investments of Canada and the Metorex Mineral Corporation. The regional mining analyst explained that the agreement with Anglo does not necessarily mean the deal is done, which, he said, could explain Syamujaye’s remarks. “Should another bidder offer a higher price than that offered by Anglo, ZCCM and government negotiators can go back to Anglo to press for a better price,” said the analyst. The Anglo American view In Johannesburg, a spokeswoman at Anglo American headquarters, however, said as far as she was aware, Anglo, through ZCI has reached agreement with the ZCCM to buy the mines. “If it’s true that the Zambian government is considering other bids, this is in contradiction of the agreement,” the spokeswoman told IRIN. She added that as far as Anglo is concerned the only other ZCCM assets that are still on the market are the Nkana smelter and refinery. “The three other companies would therefore be bidding for the acquisition of these remaining assets,” the spokeswoman said. In any event, added the spokeswoman, the agreement has been ratified by Zambia’s government and signed by the finance minister. “Although the heads of agreement are not legally binding, they form the basis of a binding agreement that is currently being drafted,” said the spokeswoman. She said the company hoped the new agreement would come into effect not later than January. Activist group also concerned at the price and transparency of the deal Jubilee 2000, the pro-debt cancellation group, said in a statement to IRIN it welcomed the sale of the mines as these had become a strain on government finances. However, the group expressed disappointment at what it called a low price at which the mines have been sold. “The sale is welcome but this has not been the best transaction, taking into account that the mines are Zambia’s single largest asset,” it said in a statement. It also objected to a lack of transparency in the privatisation process. Said the group: “The largest public property is being sold off without the people understanding what is happening. Funds from the sale of public entities should go towards developmental programmes to benefit the majority of citizens.” It added that the exclusion of other civil society groups, like trade unions and opposition parties in the privatisation process, had compromised the levels of transparency and accountability required of the government in handling public assets and resources. Jubilee 2000 was critical of the proceeds of the sale being used towards debt servicing or “fattening individuals’ pockets”.