The Centre for Trade Policy and Development (CTPD) has expressed concern on the continued reduction of the ZCCM-IH influence in critical large-scale mines, stating that “With this new undertaking, we are afraid that we will see a mining sector where all the critical large-scale mines are run by multinational enterprises with maximum influence. This is contrary to the 2023 national budget where government intends to increase its golden shares in the sector.” He said.
This follows ZCCM-IH entering into a transaction with FQM where it will convert its dividend rights and 20 percent equity value in Kansanshi Mining Plc (KMP) into a life of mine royalty.
CTPD Research Associate Webby Banda said though the move will ensure the stability of revenue inflow into ZCCM-IH coffers because the royalty will be based on the gross value of production as opposed to dividends which are centred on profit, it is still mind-boggling to a common Zambian as the terms of the transaction speak to the conversion of dividend rights and equity stake into the “life of mine royalty”.
Banda noted that ZCCM-IH will also de-recognise its equity stake in KMP as an investment in associate and will recognise the acquired royalty as a financial asset. “An investment in associate simply means an investment in an entity in which the investor has significant influence but does not have full control like a parent and subsidiary relation.” He said.
Banda explained that this occurs when a party owns 20 – 50% of shares adding that by extension of this definition, it means ZCCM-IH will relinquish its significant influence and partial control in the asset at the price of a 3.1 percent life of mine royalty.
In a statement made available to the Zambian Business Times – ZBT – Banda who is also a mining Expert said it is not clear why ZCCM-IH has gone this route as an investment in associate equity stake by ZCCM-IH ensures a certain level of government involvement in the running of mining enterprises.
“With this new undertaking, we are afraid that we will see a mining sector where all the critical large-scale mines are run by multinational enterprises with maximum influence. This is contrary to the 2023 national budget where government intends to increase its golden shares in the sector.” He said.
He said the least expectation was for ZCCM-IH to convert its dividend rights and not necessarily its equity stake in the Mine into a royalty adding that the call over these years has been to transform the ZCCM-IH docile equity participation in these ventures into an active one and not necessarily to relinquish or covert them for a certain price.
Banda explained that the economic value of ZCCM-IH’s 20 percent equity stake in KMP will be realized through the VAT refunds which means post-transaction, the KMP burden of paying ZCCM-IH will be converted to a VAT refund when received by ZRA.
“It is still not clear why ZCCM-IH agreed to this mode of financing the 20% equity stake. What is expected in this regard is for the 20 percent stake to be raised through other financing methods. This is because this will further generate intricacies in the disbursement process. A critical question that needs to be answered in this transaction is whether late payment of VAT refunds to KMP by ZRA will delay the raising of the economic value of the 20% equity stake.” He remarked.
Banda said mineral resources are the strategic assets that the country have and therefore, they must be exploited for the benefit of the citizenry to steer socio-economic development. “This transaction offers some leverage to extract maximal benefits through the conversion of the dividend rights and equity stake into a life of mine royalty on extracted mineral products at KMP.”
“CTPD is however concerned with the continued reduction of ZCCM-IH control or influence in critical large-scale mines. A certain level of involvement improves the governance process of these assets. Therefore, some active equity interest must be retained. If this transaction is finally completed, it should serve as a litmus test for further undertakings in other assets.” He said.
