A mining expert has questioned the decision by the government to convert the 20% shares ZCCM-IH stake in Kansanshi mine to a Royalty or revenue share of 3.1%, accusing the government negotiating team led by ZCCM – IH chairperson Dorika Banda of seemingly not understanding the value of governments 20% percent shareholding stake and how much it would accrue in terms of the investment in mine project.
On Tuesday Finance Minister Dr. Situmbeko Musokotwane announced during a press Briefing in Lusaka in the company of his counterpart Mines Minister Paul Kabuswe and ZCCM-IH Chairperson Dorika Banda that his government has decided to covert ZCCM – IH shares in FQM’s Kansanshi mine into a Royalty because it is more profitable that the dividends model.
Copperbelt based Mining expert Mwiya Songolo says government does not seem to understand the value of its 20% shareholding stake and how much it will accrue to in terms of the investment in mine project.
Speaking in an exclusive interview with Zambia Business Times – ZBT, Songolo said First Quantum Minerals – FQM recently announced a Multimillion dollar expansion project at Kansanshi and seems to have done their home work while the Zambian government is clueless on how to benefit from the investment.
He said the royalty model is good but government should have first understood the value that the 20% share stake would have given them before rushing into making a decision of converting it into a meagre 3.1 % Royalty adding that FQM cannot just announce a project of this magnitude without knowing how much they will recoup from it.
‘For FQM to be able to make a pronouncement that they are investing $1.35 billion dollars, they know the return on their investment, but government does not know how much that 20% should accrue in that investment, that is why they have accepted the 3.1 percent Royalty’.
He stressed that FQM knows exactly what they are getting into on the staggering $1.35 billion dollars investment but the Zambian government is in ‘no man’s land’ and that the agreement would have been more prudent if government had first established the value of the 20% with reference to the $1.35 billion dollar investment that the mine will commence.
During the press briefing Dr. Musokotwane explained that government only got $337 million dollars in dividends between 2009 and 2021 and that no money was received in form of dividends between 2016 and 2017 but had the Royalty model been in place, they would have gotten $671 million.
But Songolo said that in itself is an indication that the Minister of Finance and his team should have taken their time to study the value of the shares because the basis of his argument is that government will be getting better returns using the Royalty model from the same 20% shares. The fact that they have agreed to a revenue model that pays almost double should tell you something about the earning potential from the mine.
The New Dawn government has set itself an ambitious target to increase copper production from around 800,000 tonnes last year to 3 million by 2031. This has seen the new government announcing some sweeping reforms in the mining sector, a situation that has aroused deep suspicion as no annual breakdown or specific mine openings or projections of how this target of production has been shared.
The decision to convert the 20% ZCCM – IH shares into a 3.1 % Royalty is just among the many reforms government has embarked on. The new dawn government has made Mineral Royalty Tax deductible, which would result in a revenue loss of about $1 billion in five years for the treasury, which sparked an outcry among some stakeholders who feel the country is getting a raw deal from its mineral wealth and that some politicians may be corruptly benefiting from these transactions.
