ZAMBIA

MINE PRIVATISATION HITS SNAG

The privatisation of the mines belonging to Zambia Consolidated Copper Mines (ZCCM) seems to have hit a major snag with the pull out of three major foreign mining companies from the sector.

By Anthony Kunda/NPfs 926 words

Early this year Ivanhoe Capital Corporation pulled out of a bid to buy Chambishi mine, citing the financial market crashes in the Far East, and the falling copper prices as the reasons for the pull out. Fortunately, a few weeks after the pullout a Chinese company known as Non- Ferrous Construction and Industrial Company (NFC) immediately pledged to invest more than US$30 million, however negotiations for the sale are still in progress.

Hardly a month later, Falcon Bridge Mining and Exploration of Canada pulled out of the Konkola Deep Mining Project in which it was engaged in partnership with Zambia Copper Investments Limited (ZCI). The managing director of ZCI Anderson Mazoka said Falcon Bridge has stated that this follows a review of its priorities and commitments with regard to other projects and is in the light of lower copper prices forecasts. Mazoka somewhat optimistically said a bankable feasibility study was close to being finalised, and negotiations with the ZCCM Privatisation Team led by Francis Kaunda and the Zambian government will continue.

The managing director of ZCI added that the feasibility study and negotiations were expected to be completed by June 1998. ZCI intends to finalise the feasibility study and to continue with the negotiations noting that all they were waiting for is a new partner.

Despite his optimism, things are decidedly at a stand still. As though there was not enough disenchantment in the industry, negotiations for the sale of the consolidation s biggest mines- Nkana and Nchanga-which account for 65% of ZCCN s assets have collapsed almost irredeemably.

Negotiations

The negotiation between Francis Kaunda s ZCMM Privatisation Team and Kafue Consortium comprising of Avmin Ltd of South Africa, Noranda Mining and Exploration of Canada, Phelps Dodge of United States and Commonwealth Development Corporation of the United Kingdom- fell through.

Francis Kaunda noted that the Kafue consortium made impossible demands such as 100% tax exemption from mineral royalty tax for seven years. They also wanted a 100% exemption from import declaration fee. They demanded a 100% from excise duty on electricity for five years and 100% exemption on import duties on fuel if they decided to import finished fuel products. Kaunda says the Kafue Consortium also cut down the debt takeover from the initially agreed US$ 75 million to US$ 35, with the additional US$40 million to be taken over the next five years, provided the average London Metal Exchange price of copper over the next five years is 95 cents or higher something which is almost unattainable.

The Kafue Consortium also put the lifespan of the Nkana mine at 10 years which Kaunda and his team contested was too short. The price projections were also too conservative for Zambia Consolidated Copper Mines. The Consortium put the prices at 80 to 90 cents per pound and US$ 8 per pound for cobalt in comparison to the current price of Cobalt in the US ($20.5) which is not expected to fall below US$ 15.

Policy on privatisation

Moses Banda chairman of the Economic Association of Zambia (EAZ) says the problem was in the grouping of all mines under one association. He said We had four big mining companies bidding as a group for five units.

If the units were offered for sale as single units, they could in their own rights have attracted many bidders and the competition between buyers could have made us a good return on our investment.

Gideon Phiri, Executive Director of the Zambia Association of Chambers of Commerce and Industry agreed that the collapse of the talks was a great disappointment. He noted that there is need for a more serious approach and for stakeholders to sit and review what went wrong. We must stop this idea of government having to borrow to keep mining operations running.

The Chairman of the Zambia Association of Manufacturers (ZAM) Mr Mark O Donnell said that the failure of the talks could adversely affect several sectors of the economy, especially those that depend on the mines. The mines are desperate for new capital investment. The sale is being handled in a manner that is doing great damage to the economy. There will be many bankruptcies before the mines are finally sold, he said.

However, Francis Kaunda said that although the breakdown of the negotiation was a major disappointment, the negotiation team had a duty to get good value for the assets and would soon open new negotiations with

interested parties.

Luke Mwananshiku, the Chairman and Chief Executive of ZCCM similarly noted that the company was committed to the successful disposal of all its operating assets. This company believes this will be in the best interests of its shareholders and in line with the government's policy on privatisation. We will therefore continue to pursue all expressions of interests in these assets in order to obtain the best value, he said. Meanwhile ZCCM refuses to disclose names of other interested parties and say that these will help them not to weaken their bargaining position.

However Noranda of Canada which was part of the Kafue Consortium is still interested in Nkana and Nchanga mines despite the breakdown of negotiations with the government. Noranda s Vice president for projects Lance Tigert says We submitted a bid, which has been rejected by the Zambian government, but we are still interested in this project.