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Monday, 30 March 2009

A greater GRZ mining stake? 2nd Edition

The initial proposed 25% government stake in mining companies has now become "up to a maximum of 35%". According to the Mines Minister Maxwell Mwale, there are no plans nationalise the copper mines :

Zambia to raise stakes in copper mines, Reuters, News Report :

Zambia, Africa's top copper producer, will raise its stake in foreign-owned copper mining firms to up to 35 percent to have a bigger say in their running and prevent mine closures, a cabinet minister said on Monday.

Maxwell Mwale, Zambia's mines and minerals development minister told Reuters the country did not plan to nationalise the copper mines, but would negotiate with the companies and seek to convert debt owed to government into equity.

He gave no timeline on when the government would implement the move to increase its shareholdings, but said Zambia would inform mining firms of the new plan soon.

Unions have urged the government to take a bigger stake in mines to exert influence, prevent mine closures and save jobs.

Mwale said Zambia would target a stake of between 25 to 35 percent from the average of 15 percent it holds in copper firms.

"We want to have a maximum of 35 percent shareholding so that we can have influence in decision making," Mwale said in an interview. "Only by taking 51 percent would it amount to nationalising the industry."

"Even the existing mines, if they have (financial) obligations to the government, we will liquidate the obligations through converting liability into equity," Mwale said.
London-listed Vedanta Resources Plc
, Canada's First Quantum Minerals, Equinox Minerals Ltd and Glencore International AG operate in Zambia.


"It is desirable for the government to have at least 25 percent shareholding," Mwale said.

"We are first targeting those mines which are closing down. Any mine like in the case of Luanshya, when reselling the mine, we will have at least 25 percent."

Mwale said Zambia would offer a 75 percent stake to new foreign investors bidding to run the shut Luanshya Copper Mine (LCM), which it expects to take back from its owners by April.

LCM had been targeting copper output of 80,000 tonnes by 2010 from about 24,000 tonnes but shut its Baluba mine and Chambishi Metals Plc, the country's largest cobalt producer.

LCM also put off the $354 million Mulyashi copper project, which was due to start producing 60,000 tonnes copper in 2010.

Mwale said copper output would rise this year compared with last year, partly due to tax incentives and a stronger price.

He said Zambia's copper production this year would be above 600,000 tonnes. The country produced 569,887 tonnes last year, according to a Treasury report seen by Reuters.

Mwale said Zambia expected higher output due to stronger copper prices and the scrapping of a controversial 25 percent windfall tax.

"The price of copper has picked up significantly, we closed at $2,800 per tonne in December and now the price is at $4,000. The message is that the price is good ... the problem is they have inefficient operations," Mwale said.


  1. Kanshanshi Mine, 80% owned by First Quantum Minerals (LSE: FQM, TSE: FM) of Canada, has announced that they will not only increase their copper production this year, but also their jatropha bio-diesel "social responsibility" project. Their fact sheet can be accessed here:

    I suspect that they are able to do this because they bit the bullet and announced that they will raise CN$300 million by selling more common stock to the public.

  2. We've had too much government in our lives in the last 44 years of our so called independence. When is the govt going to develop a real capital market and promote economic participation by ordinary Zambians? Rather than the govt increasing its stake in these mining companies can we please have the 20 or so percent floated on LUSE. Its either this or the govt shouldnt bother! Besides all successive Zambian govts have been economic failures!

  3. Yakima FQM intention to sell more common stock to the 'public' i.e Americans and Canadians is the kind of thing that makes my blood boil. And this is the 'deal' with all mining companies in Zambia. They are all owned by foreign capitalists and their counterpart 'foreign' public in Mumbai, Toronto, London, New York and Sydney. Why didnt the Chiluba and Mwanawasa insist on having a percentage of mining stock to be listed on LUSE? Seems we've been asleep since 1964; the way things are going I dont know if we'll ever wake up.

  4. Frank,

    I sympathize with your sentiments, I would also prefer to see more ownership over these industries in Zambian hands. Technically, though First Quantum is based in Canada and traded on the Toronto and London exchanges, that does not actually prevent anyone in other countries from buying shares. I agree with you that more listings on the LuSE could help bring more prominence and volume to the exchange. For the moment ZCCM does represent partial ownership of many of the ongoing mining operations in the country. It is not much, but it is at least something to use as precedent.

    The good thing about the new stock issue by FQM is that they aren't loading up on more debt, but are actually raising capital that they don't have to pay interest on. As I tried to outline here, when mining companies finance their capital requirements by selling stock instead of borrowing from foreign banks, the Zambian taxpayer benefits.

  5. I would like to add a few points

    1) Public ownership vs foreign ownership

    Just because stocks are publicly traded, even in Zambia, doesn't mean they end up in the hands of Zambian investors. With 70% of the population living on less than $1,-, exactly who would be buying up those shares? I would say that government ownership creates a greater ownership of these shares by the public, as this is democracy and the government are our representatives, than having them publicly traded.

    The key should be government openness, transparancy and accountability for how they spend public resources, not share ownership by individual Zambians.

    If the government uses gains from the mines not to shore up it's massive democracy, but reduces it's size and increases services to the public (universal healthcare, universal education, security, public amenities and other services to the public), that is a more efficiency than lots of people owning shares.

    2) Commodities Exchanges

    Why doesn't Zambia have it's own commodities exchange? It exports copper, cotton, grows maize - why shouldn't all these things not be traded in Zambia itself?

  6. The solutions are many...

    The key issue is to define the objective.

    What is it that Zambians want.....just the money, ownership, residual control, Zambianisation, wider empowerment, protecting workers or preserving jobs ? all of the above?

    Some goals will conflict by the way...

    Anyway...once you define the goals...then you can say..okay what models gives us that...

    By the you do that...key is to avoid UNINTENDED full ownership could drive us into some other areas etc....which have been heavily trailed on this blog..this post Zambia mines debate : a warning from history.... from 2007 just been one...

    The more I read the old posts..the more I think we have been here before..

    Anyway...if we take Frank's solution, I may be wrong but that looks to me as focused on EMPOWERMENT of ordinary Zambians...not preserving jobs (I am not saying preserving jobs should be goal...I am merely illustrating). Now some people may not like that... we have massive unemployment on Luanshya and other places...someone would need to articulate to people why we should sacrifice those jobs and pursue empowerment...along Frankian model, if I may coin it as such..assuming of course that is indeed the Frankian model..

    On the other hand...if our goal is ownership...then we need to consider all other issues etc..

    Bottom line....???

    Define Goal, Assess the constraints, Propose Policy and Look Out for the Law of Unintended consquences.

    By the way, MrK.. the agriculture commodities exchange...ZAMACE will soon go online..official launch next month...

  7. Cho,

    Just checked out your hint, and ZAMACE are online now. I'll put a link on my blog.

    This is very exciting. It is only a small exchange now (turnover of about $10mn), but imagine if all maize was traded throught it instead of to the FRA, and what that could do for price discovery for ordinary farmers. It would also massively increase ZAMACE turnover.

  8. Its always wonderful to find that you are still sane...when I checked the link to the post..Zambia mines debate : a warning from history....
    ..and read through the fantastic comments...I found my comments...and I am relieved to say my position hasn't change...I oppose full nationalisation and prefer higher taxation within the context of A human approach to the "mining debate".

    I particularly liked this :

    "Full nationalisation does not encourage an atmosphere of collective government. Concentrating resources in the hand of Government may prove a bad thing down the line if a new chap takes over and he happens to be nice. We should always favour private ownership over state ownership as a way of hedging against such things.

    My proposal therefore is that Government should do all it can to encourage private ownership of mines on a lease basis [E.g. the current 25 years] but must set higher taxes. The 50% suggested by the UN is a good start and one we should be assessing."

    I'll stop here in case I continue in a recursive mode of quoting myself...but old posts are nice to read!

    Anyway..none of this takes away my initial post..we need to :

    Define Goals, Assess the constraints, Propose Policy and Look Out for the Law of Unintended consquences.

    MrK thanks for the link...

  9. oh...typo there....

    it should read " he happens NOT to be nice"....

  10. Here is another interesting link. The Chicago Climate Exchange trades carbon credits (1 carbon credit = 1 tonne of carbon).

    If they eased up their rules and allowed compensation for the total amount of carbon that is sequestered (instead of calculate the carbon sequestration by type of farm on a per hectare basis), this would be a fantastic way to finance commercial organic agriculture.

    Even if they don't it is still a way to finance at least some capital goods tractors, stocks, etc.

    Chicago Climate Exchange

    "Full nationalisation does not encourage an atmosphere of collective government. Concentrating resources in the hand of Government may prove a bad thing down the line if a new chap takes over and he happens to be nice. We should always favour private ownership over state ownership as a way of hedging against such things.

    I still believe that the real key is the professionalisation of the civil service. That is as great a hedge against political interference in the case of parastatals than privatisation. Plus, I think it is easier to keep the civil service accountable, than it is to keep a foreign investor accountable. Especially if it is a private company. And you keep all of the profits.

  11. MrK,

    I think I will play devil's advocate on this one. While the "Cap & Trade" approach to greenhouse gas emissions control is probably the only way to get people who only care about their own short term financial gain to pay attention to the long term costs of their behaviour, it does not change the simple fact that they don't care about anything but the money. These exchanges (the ones in Europe are significantly more robust than elsewhere) emphasize how much carbon they trade, how much money they make, the fact that they are trading in poison doesn't enter into the discourse. I just spent 45 minutes searching the European Climate Exchange website for any mention whatsoever of the size of emission caps, and apparently they don't care. Certainly nothing about projections of caps being lowered over time. They are perfectly happy to act as though a 1 tonne carbon dioxide future that changes hands 100 times is 100 tonnes. After all, they are in the business of exchange, and the argument is always that the trading must be established before the caps can really be brought down. Africa will not benefit from being relatively unindustrialized via carbon credits unless the caps on the industrialized world are sufficiently low.

    This month saw the introduction of daily futures trading, something the ECX is thrilled about, and will allow speculative day traders to grab a share of the market, but does zero to reduce emissions or reward grassroots carbon sequestration by farmers or other businesses. The week of President Obama's inauguration, Barron's ran a story about "How to (Maybe) Make Money Out of Thin Air, A host of ways to cash in on the effort to reduce greenhouse gases." Certainly there is money to be made from trading carbon, and perhaps I am overly cynical on the subject, but the lion's share of whatever gets made seems likely to go to the brokers. Frankly, I fail to understand why we want to trust the same architects of "exotic credit derivatives" that brought us the current global financial crisis with responsibility for designing a system that will deal effectively with Climate Change. What's wrong with simply taxing the emissions sufficiently to pay for clean-up and encourage sustainable methods?

  12. Yakima,

    I get all your points from an environmental point of view.

    My view is strictly from the point that it can massively finance commercial organic agriculture in Africa. :)

    The West is going to emit toxic substances anyway, so why not turn that act into organic farms in Zambia? And by the way we should be cleaning up emissions and environmental pollution in Zambia itself, through legislation.

  13. MrK,

    Thanks, I get where you are coming from too, I just wanted to make sure the other "side" of the C&T argument got in there. Africa needs to make sure that greenhouse emission trading isn't yet another global market to which it has no access.


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