The Zambian Government has been urged to this time around, take extra steps to ensure that a proper price based on proper assessments, with due care and skill is done before agreeing the final price for additional shares in Mopani Copper Mines.
This follows the announced strategy to increase ZCCM IH stake in Copper Mines. Both Glencore and ZCCM IH have confirmed talks that if successful, would lead to ZCCM IH increasing its stake in Mopani Copper Mines.
The government of Zambia has already taken over the management of Konkola Copper Mines – KCM from Vedanta after the later was consistently failing to pay both employees and contractors on time. This sounds as a rational alternative to the current governance process of the mining sector by having a reference benchmark mine, but care must be taken to ensure that this is not another trick where the country will end up losing billions of dollars.
The Center for Trade Policy and Development (CTPD) encourages government to tread carefully in its agenda to take over Mopani Copper Mine by first undertaking a proper due diligence exercise to verify technical and financial facts on the ground.
Although Glencore plc (which is currently the main shareholder) has actively financed the sinking of a new shaft, the Government needs to ascertain that the reserves are of sufficient tonnage and quality to sustain operations when ZCCM-IH eventually takes over the mine .
However, it should be noted that the mining industry is loaded with information asymmetry. This essentially means mining companies have greater advantage over the information pertaining to their projects both at financial, technical and at operational level.
Secondly, government through the due diligence process needs to undertake a financial and legal investigation to assess the property, the risk of the acquisition and ensure that it will not be inheriting liabilities. This could place ZCCM-IH in the precarious position of having to borrow funds through the state to dismantle the inherited arrears.
This will add further strain to the debt burden of country and ordinary Zambians will harshly feel the impact which comes from financial distress on an already strained economy. Government needs to appreciate the fact that mining is a high cost, capital intensive, high-risk business venture and therefore requires an appropriate mix of technical competencies and financial resources.
CTPD advises ZCCM-IH to participate actively in the mining operations of the entities in which it has a stake by providing finance to these mining companies in return for the dividends it receives. This will promote sharing of risk between ZCCM-IH and its partners and above all, it will strengthen its voice as far as board decisions are concerned at mining project level.
While the size of equity is important, it should be noted that the rights attached to the equity are crucial as these can be negotiable and strengthened through active participation in mining projects at financing and operational level.
