Glencore has trimmed its tail of assets with the sale of a struggling Zambian copper business to the government in a $1.5bn deal.
The sale of its majority stake in Mopani Copper Mines comes after Glencore tried to mothball the operation last year, triggering a furious row with Lusaka, which threatened to revoke its licences and briefly detained its country head.
Under the deal announced on Tuesday, London-listed Glencore will transfer its 90 per cent stake in Mopani to ZCCM Investments Holdings, a state-controlled investment vehicle.
In return the government has promised to repay $1.5bn of loans from future output. Glencore will also retain marketing rights for the copper production until the debt has been repaid.
“This transaction removes a cash draining, problematic (high cost, poor safety, high country risk) asset from the [Glencore] portfolio,” said Deutsche Bank analyst Liam Fitzpatrick.
Mopani was previously one of Glencore’s “focus” assets and a key plank of a wider plan to turn round the performance of its African copper business, which includes mines in the Democratic Republic of Congo.
But despite heavy investment, the project on the outskirts of Kitwe, a city about 180 miles north of Lusaka, has continued to haemorrhage cash because of operational challenges and high costs. Glencore in August wrote down the value of Mopani by $1.1bn to slightly more than $700m, including tax rebates.
Glencore, which has just appointed a new chief executive and also has a large trading arm, has a sprawling assets base with more than 150 industrial operations worldwide, according to Deutsche Bank.
In that portfolio are a long tail of marginal assets that suck up management time and carry heightened environmental, social and governance risks.
Analysts have called on the company to sell these businesses and focus on 14 flagship operations that generate 90 per cent of its earnings before interest, tax, depreciation and amortisation. Glencore on Tuesday also exited the Kabanga nickel project in Tanzania, which it jointly owned with Barrick Gold.
Zambia’s decision to take on $1.5bn in debt comes in the midst of an economic crisis, with the government of President Edgar Lungu in default since last year. Africa’s second-biggest copper producer is yet to complete restructuring of about $12bn in external debt.
The country stopped servicing its $3bn of international US dollar bonds in November after talks on a standstill faltered. The government is seeking an IMF bailout, which bondholders have made a condition of restructuring, but is yet to strike a deal.
Mr Lungu is fighting for re-election this year in battlegrounds including the Copper belt province, a bellwether for Zambia’s politics.
The government says 15,000 workers would have lost their jobs if the mine was closed.
Despite Zambia’s debt challenges, Mr Lungu in December released an economic recovery plan that prioritised the state’s acquisition of “strategic” majority stakes in mines.
The government is also trying to find a buyer for the copper mines owned by India’s Vedanta Resources, which were placed into liquidation in 2019 and are now the subject of a legal dispute.
“Owning a stake in some strategic mines gives the state the leverage required to utilise the defined mineral resources to benefit the nation,” Mr Lungu said.
Situmbeko Musokotwane, an opposition politician and former finance minister, said the terms of the Mopani takeover meant that “history is repeating itself” with a mine nationalisation that was a bad deal for Zambians.
In particular, Mopani would be devoting a share of revenue to pay off the Glencore debt, he said.
“Whether Mopani makes profit or not, the first call on revenue is to pay Glencore. It is therefore easy to see that there will be times when core business activities in the mines will not be funded so that Glencore gets paid.”
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