Zambia and Glencore at “cross purposes” over Mopani

Zambia and Swiss-based Glencore are at “cross purposes” over Mopani and ZCCM-IH aims to increase its shareholding in Mopani to 51% “or even more”, from 10% currently. This is according to Zambian Mines Minister Richard Musukwa who announced this recently.

According to two sources close to the proceedings, Glencore is likely to sell its entire 73.1% stake in Zambia’s Mopani Copper Mines to the government’s mining investment arm ZCCM-IH rather than becoming a minority stakeholder.

Glencore’s plans to put Mopani on care and maintenance prompted the Zambian government to threaten in April to revoke the firm’s mining licences.

Sources with direct knowledge of the negotiations said Glencore is looking to exit the asset entirely.

“As of now, we are discussing a potential sale of their stake in Mopani,” said the sources.

A Glencore spokesman declined to comment. First Quantum, which owns 16.9% of Mopani, did not respond to a request for comment.

The move by ZCCM-IH to take control of Mopani is part of its strategy shift away from minority stakes and towards running mines as an operator.

Glencore wrote off the value of Mopani by $1.144-billion in its half-year earnings report earlier this month, saying the estimated recoverable value was $704-million, including tax receivables.

Mopani’s total liabilities exceeded its total assets by $2.562-billion in 2019, the company reported in a financial statement, indicating “a material uncertainty concerning the going concern assumption”.

Mopani produced 51 275 t of finished copper in 2019 including purchased materials – accounting for 13.9% of Glencore’s African copper output and 3.7% of its overall copper output.

Glencore, which reported a first-half loss due to the impact of the pandemic, will not reap the benefits of-billions spent on expansion projects over the last three years if it sells to ZCCM-IH but investors see this as a way for the miner to cut its losses.

“Mopani has been a big headache for Glencore, the mine has never delivered anything for shareholders,” a Glencore shareholder, who asked not to be identified, said, citing numerous accidents and operational issues.

A major hurdle to clinching the deal is Zambia’s lack of funds to pay for the stake and fund the mine’s running costs, sources say.

Glencore’s stake in Mopani is worth $514.6-million, according to its valuation. Mopani’s 2019 financial statement shows operating expenses of $931-million.

Zambia’s total foreign exchange reserves stood at $1.43-billion at the end of June, equivalent to just 2.3 months of import cover, according to the central bank.

ZCCM-IH’s cash and term deposits together amounted to 828.9-million Zambian kwacha ($43-million) by March 31 2019, according to the latest financial statements on its website.

A ZCCM-IH spokeswoman did not reply to Reuters’ questions about how it would finance the stake purchase.

“The state’s cash constraints point to an amicable solution,” said Eric Humphery-Smith, Africa analyst at global risk advisory firm Verisk Maplecroft.

“The government may have threatened expropriation in the past, but the need for copper revenues likely precludes that option.”


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