Konkola Privatisation (KCM Vedanta) - Zambian Copperbelt (sitios de interés)

 

80% Vedanta Resources Plc

 

 

 

65% Zambia Copper Investments (ZCI) subsidiary of Anglo American Plc (AAC)

7.5% Commonwealth Development Corporation Group Plc (CDC)

7.5% International Finance Corporation (IFC)

 

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BACKGROUND:
The ZCCM assets which are the subject of this privatisation comprise the mining, concentrator and metal treatment assets of the Nchanga Divisions together with the Chingola Refractory Ore Dumps and Konkola Divisions including the Konkola Deep Mining Project (KDMP) and the Nampundwe Mine. During the Financial year 1998/99, the Nchanga Division was the largest producer of copper and cobalt in ZCCM with the ore sources including the Nchanga Open Pit and the Nchanga Underground Mine, which form part of the assets in question. Ore from all sources is treated at the Nchanga Concentrator.
At the time the GRZ embarked on the privatisation programme of the ZCCM assets, the company had been going through a critical stage in its operations mainly because of the high costs of production and over employment in these ZCCM Divisions. The ZCCM realised that there was an urgent need to inject fresh investment capital into ZCCM to avoid the possible collapse of the entire mining sector. There was need to rehabilitate the existing operations and development of the Konkola Deep Mining Project (KDMP), exploration drilling and evaluations on the Nchanga deposits both underground and open pit with a possibility of extending its life, and extensive evaluation of the Chingola Refractory Ore Dumps (CROs).
However, the ZCCM did not have access to the capital which was urgently required to rehabilitate and develop the assets. GRZ and ZCI, the two largest shareholders in the company, confirmed that they were not prepared to provide the requisite funding to allow such rehabilitation and capital investment to be undertaken by the company.

 

SUCCESSFUL BIDDER:
A consortium comprising, ZCI, IFC and CDC. At close, these assets were vested into a new company, Konkola Copper Mines Plc (KCM), a company jointly owned by the consortium (80%) and ZCCM (20%). The transaction was completed on 31 March 2000.
COMMERCIAL TERMS:
a) Cash consideration at close - US$ 30 m
b) Future Cash Payment of US$ 60 m (To be paid in 6 equal annual installments, starting from year six after close)
c) Future copper and cobalt price participation US$ 125 m (over the life of the operations)
d) ZCCM Retained interest - 20% (55 free and 15% repayable from dividends)
MAJOR PROVISIONS OF THE SALE AND PURCHASE AGREEMENT AND THE DEVELOPMENT AGREEMENT
a) Investment Commitments - US$ 208 m (For the rehabilitation of the existing Operations over the first 3 years from close).
b) KDMP Investment Commitment- US$ 523 m (For the development of the KDMP,scheduled to begin within 18 months from close and take approximately 6 years)
c) A Call Option Agreement has been negotiated under which ZCCM will have a right to repossess the Konkola Division (including the KDMP and all the information on the project) at no cost,, if KCM fails to develop the KDMP as contemplated in the Development Agreement.
d) Agreed Fiscal Regime
GRZ has agreed to provide KCM with some fiscal concessions and stabilise the regime for a period of 20 years from close. This is normal practice in similar transactions the world over. Most of these concessions have been offered to the other privatised mines; but some are specific to KCM.
The following Fiscal Regime will apply to KCM:
- Company Income Tax will be levied at the rate of 25% from the current rate of, 35% for normal level and 30% for companies listed on the Lusaka Stock Exchange (Luse);
- Tax losses carry forward extended from 10 years to 20 years;
- Mineral Royalty Tax reduced from 2% to 1% on net back value basis;
- No excise duty on electricity (Rural Electricity Levy), currently at 10%;
- No withholding tax on interest, royalties, management fees and dividends payable to shareholders and lenders; and
- Exemption from customs and excise duties on consumables imported for the operations, and mineral royalty, for the first year up to US$16 million and for each of the next 4 years up to US$15 million;
e) Environmental Liabilities
- Environmental liabilities in the mining industry could result into very large claims. All the mining investors have expressed concern on this matter, especially that they consider ZCCM to be non-compliant with environmental laws.
- Historic environmental liabilities have been assumed by GRZ. The company has also been indemnified from on-going environmental liabilities while in compliance with its environmental management plans.
d) Legislation Amendments
- In order to provide legal backing for the concessions provide, relevant amendments to the legislation were effected. These amendments mainly affected the Mines and Minerals Act, the Income Tax Act, the Customs and Excise Act and the national Pensions Act.
e) Employment issues
KCM has take over 9,866 employees, together with their associated accrued terminal benefits. Those left out are being retrenched under the GRZ/World Bank retrenchment programme for ZCCM.
The company will, within 12 months, prepare a Human Resources development Programme and is committed to providing social services of the required standards.
KCM has recognised the Mine Workers= Union of Zambia
f) Local Business Development Programme.
KCM to prepare, within 12 months, a Local Business Development Programme acceptable to GRZ.

 

The Purchaser:
A consortium comprising, ZCI, IFC and CDC.

 

ZCI had requested to manage and operate the Nkana Smelter and Refinery on a management contract for a period of 5 years from close. The first 3 years will be with an option to purchase, while the last 2 years will be with a right of first refusal should other bids be received.
The rationale for this request is premised o the fact that KCM would be the largest producer of copper in Zambia and that it would be necessary for them to control their smelting and refining route. During this period they will be evaluating the viability of introducing an alternative long term metal processing route.
The assets belonging to the Nkana Smelter, Acid Plant and Refinery have been incorporated into a wholly owned subsidiary of ZCCM (ZCCM SmelterCo Limited) which being managed by Anglo American Plc.
MCM has been granted a second option on SmelterCo.
b) Option Price/Commercial terms
An option price of US$ 7 million has been agreed.
Further, all the SmelterCo loans/liabilities as at the option date would be assumed by the buyer.
c) Funding of operations
The British Government has given GRZ a grant of US$ 81 million for onward lending to SmelterCo for capital and operating expenditure.