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Tuesday, 6 April 2010

Are mining companies LuSE bound?

The Post reported that Government plans to compel mining companies to list on the Lusaka Stock Exchange (LuSE) to enabled Zambians to own equity in the companies. In a veiled criticism of Ministry of Mines, Mr Mutati (Commerce Minister) is alleged to have observed : “Mining groups are operating outside the fences of LuSE and it is a failure by GRZ Plc (the government) to compel them, but we shall rectify that failure”.It would be interesting to see how this evolves, but I doubt this is genuine.

Government already owns shares in some of these mining companies through ZCCM-IH e.g. FQM’s Kansanshi and Vendata’s Konkola. We have known for a while that ZCCM –IH has not been receiving meaningful dividends from its jointly owned projects. A fact which led to rumours last year that government was planning to convert these financial liabilities into equity, thereaby raising substantially its stake in the mines. That the government recognised this possibility is a clear testament that the ZCCM-IH model has not worked.  Indeed, what seems to concern many people is that ZCCM - IH is not "empowering" ordinary Zambans. If ZCCM-IH was owned by ordinary Zambians a potential argument can be constructed that some money does filter back to ordinary Zambians via the "theoretical dividends". It is difficult to see how government can force mining companies to list in Zambia if they cannot even empower people through ZCCM-IH. Although it is listed on Lusaka ,London, and Euronext Stock Exchanges, the government owns 87.6% shareholding, with the remaining 12.4% held by private equity holders largely abroad.

Incidentally, we are told by the LuSE Chairperson Friday Njovu that listing mining companies on LuSE would encourage transparency and accountability in the way business was conducted : “Being listed is a mark of excellence. It is the willingness to be transparent and responsive to one stakeholder. It is the willingness to adhere to and be compliant with standards way beyond your own and to an authority way above your own. Dealing with a company that has high accountability levels is much simpler". Except of course that ZCCM - IH is on LuSE and its not very transparent!  According to foreign private equity holders in ZCCM-IH the company has never published its financial report for nearly 4 years!  Its inventories are also not formalised! Remarkable for a listed company!  In short, if transparency and empowerment is what government is after, it  would do well to start with ZCCM-IH.  It beggars belief that many Zambians do not even realise that ZCCM-IH is a huge part of the reason Zambia is not benefiting from its vast reserves of copper. As one potential investor in ZCCM-IH remarked on this website, "people of Zambia seems held in complete ignorance of the riches in the country". I couldn't agree more.

19 comments:

  1. issues are even stronger now!

    For a year now, the windfall tax has been canceled ... GRZ and not talking about the ridiculous situation of ZCCM-IH ...

    - The windfall taxes are a gift of $ 450 million to foreign groups

    - Dividends are not paid to ZCCM is a gift of $ 750 million in three years to the foreign groups

    who is taking advantage of this situation?

    - Miners and their $ 250 per month ?
    - Shareholders of Vedanta, FQM and Glencore ?
    - Someone else ?

    and during the silence of the GRZ, and $ 8,000 per tonne of copper, the situation continues, the hundreds of millions of dollars are earned by foreign groups, while Zambians expect to live until the end of the month with their $ 250 per month

    The GRZ prefers to ask the IMF money to show that it can support its people with its ore

    This is the choice of GRZ now, what is it for that to change?

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  2. what a mess indeed...

    When foreign companies took over state-owned companies and especially the copper mining industry ( kansanshi in 1997, kcm in 2000, equinox/lumwana in 2005...), they "negotiated" Development Agreements which prevent gvt from raising taxes for 20 years ... and taxes have been capped on the pretext that copper price was low

    Former president Mwanawasa's gvt (Minister Magande) was going to renegotiate these DAs because of high copper prices...

    Why this gvt cannot be able to do this ??? level copper price is so high today despite the last crisis !!!

    DAs were concluded while IMF hold a gun at zambia’s head, and certainly with "generous gifts". At this time, there was low copper price and foreign companies doubted the stability of Zambia.

    Today it’s invalid, the gvt must tackle this spoliation and scrap these DAs

    It seems to be powerless

    another example of spoliation

    2004 : the gvt (zccm) sold 51% KCM to sterlite(Vedanta) for $50 million
    2008 : zci sold 28,4% KCM to vedanta for $223 million
    today financial analysts evaluate KCM at least $3,6 billion
    $2,9 billion part of vedanta 79,4%
    What a marvellous bargain for Vedanta!!
    Vedanta is going to list kcm on the LSE and not on the Luse contrary to the will of the gvt !!
    what powerless Mr Mutati!!

    How many Zambian workers will get shares in order to reward the sweat of their labor ????
    How many ???
    unnecessary to answer... you already know the answer... none of them

    zambian assets were sold off to foreign companies whereas zccm could develop it
    Interest of these foreign companies is to leave ZCCM-IH in agony, no money for developing Zambia by zambian people

    Enough talking, enough fine words, now it’s time to act !!

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  3. It isn't that these Development Agreements are written in stone. I thought they had already been scrapped.

    However, if they aren't, all the government needed to do, is pass a law that states no contracts between the GRZ and a foreign corporation are legal, unless they have been discussed for at least a week and ratified by parliament, and make it retro-active.

    That would scrap all Development Agreements at the stroke of a pen.

    However, the problem is that the mining companies are making at least $2.5 billion a year in profits, and are shuffling $100 million a year to the MMD (my estimate, based on how much they are willing to pay in taxes, and what they consider the 'cost of business' for not paying taxes).

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  4. First Quantum Minerals has been using its Zambian investments as a goose for expansion into Australia, Mauritania and DRC. FQM convieniently pays dividends every year to its shareholders in Canada. ZCCM IH either gets peanuts or nothing for its 20% stake in Kansanshi Mine arguably FQM's most valuable asset. Profits that are supposed to accrue to ZCCM IH have been used to buy a Nickel Mine in Australia and other projects around the world. Unfortunately ZCCM IH has no claim on proceeds from these investments built with profits that were supposed to accrue to them.

    Equinox Resources has also unilaterally postponed the payment of $36m to the tax man. Fred Bantubonse is also singing about the 'very high' taxes of 30% corporate tax and the 3% mineral royalties. He fears for the country! He expects the country's mining industry to collapse if these taxes are not rescinded! Never mind that corporate tax levels are more or less similar to Australia and Chile. The two actually take more in terms of royalties. Royalties in Australia are a whopping 8.5% and 4% in Chile.

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  5. Now all we need is a government that actually upholds the law that everyone has been abiding by, and forces FQM and Equinox to pay their shareholders.

    This really proves that this has nothing to do with the rule of law. It has to do with the illegal bribes the MMD are taking from the mining industry.

    I say nationalise the mines and end this nonsense.

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  6. Nationalise the mines or take 51 % in each of them, and ZCCM-IH will have the choice for new investments.

    The problem for the foreign groups is that if ZCCM-IH receive money, Zambia could develop itself the new projects...

    For increase their company, The foreign groups need a poor zccm-ih, a poor zambia

    But for the moment, the GRZ is silent on this situation

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  7. I yet to hear opinions far fetched from reality as those above. Are we talking about the same Zambia or there is another outer space?

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  8. enkormoi said...

    Nationalise the mines or take 51 % in each of them, and ZCCM-IH will have the choice for new investments.

    The problem for the foreign groups is that if ZCCM-IH receive money, Zambia could develop itself the new projects...

    For increase their company, The foreign groups need a poor zccm-ih, a poor zambia

    But for the moment, the GRZ is silent on this situation


    And why are they silent? I think the mines are parting with $100 million a year to the MMD to avoid them having to pay taxes.

    Zambia should just develop it's own resources on it's own. That way all the money would be kept inside the country, which will never happen as long as the mines are foreign owned.

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  9. I agree Mr K

    Also you have to know that the GRZ did not want to answer questions from Mr simusa in parliament, the March 23 !

    I received a message from Mr simusa and the Minister of Mines replied only two unimportant questions, other questions remained unanswered!

    the GRZ is silent as guilty?

    Where are the 100 million diverted to Mauritius?


    http://www.parliament.gov.zm/index.php?option=com_content&task=view&id=1140&Itemid=87



    W28 Mr Simuusa (Nchanga) - to ask the Minister of Mines and Minerals Development:

    (a) how many companies the Government has engaged to undertake oil explorations country-wide and what their names are;

    (b) whether ZCCM-Investment Holdings is participating in the oil explorations; and

    (c) whether any oil has been discovered in the country and, if so, in which area and province.

    W29 Mr Simuusa (Nchanga) - to ask the Minister of Finance and National Planning:

    (a) how much stock of ZCCM Investment Holdings (IH) shareholding is quoted on the Lusaka Stock Exchange Market;

    (b) how much was paid by ZCCM-IH as dividends to its shareholders from 2006 to-date by shareholder and by year;

    (c) whether there are any outstanding dividends due to shareholders from 2006 to 2009; and

    (d) what measures the Government and ZCCM-IH have taken to ensure that minority shareholders are protected.

    W30 Mr Simuusa (Nchanga) - to ask the Minister of Mines and Minerals Development:

    (a) in which mines the ZCCM-Investment Holdings holds shares, mine by mine;

    (b) what the net income was in those mines from 2006 to-date, mine by mine;

    (c) how much money ZCCM-IH received, as dividends, from 2006 to-date, by year and by mine;

    (d) whether there are any accrued dividends unpaid by any of the mines from 2006 to 2009; and

    (e) what measures the Government and ZCCM-IH have taken to recover the moneys at (d).

    W31 Mr Simuusa (Nchanga) - to ask the Minister of Finance and National Planning:

    (a) how much money ZCCM-Investment Holdings received as price participation, from 2006 to-date, by year and by mine; and

    (b) whether there are any outstanding moneys due to ZCCM-IH from 2006 to 2009 as price participation from any of the mines.

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  10. enkormoi,

    This is going way beyond any kind of neoliberal policy decisions about not taxing the mines for development purposes (as they keep saying). This is outright financial fraud and criminality.

    Everything about mining in Zambia reeks of corruption and theft. See this article from Banktrack.org.

    ReplyDelete
  11. other issues

    Taxation

    KCM has negotiated a secret tax agreement with the government, offering it tax rates outside of the substantial law. This breaches OECD Guidelines for Multinational Enterprises, which stipulate that 'enterprises should refrain from seeking or accepting exemptions related to taxation, not contemplated in the statutory framework.

    Since beginning its operations in Zambia, Vedanta through KCM was paying the Zambian government with royalty fees of just 0.6 per cent instead of the 5 to 10 per cent industry average in developing countries. Whilst legal, this rate of royalty implied that, in 2006/07, the Zambian government would have received mineral royalties of only US$6.1 million from KCM, while company extracted copper ore worth over US$1 billion.

    Zambia copper generates 75 per cent of the country’s foreign export earnings but the government is not receiving its fair share of the income generated at a time when life expectancy in the country is 37 years, one in three children do not go to school, and 68 per cent of the population live in extreme poverty. In 2007, KCM made a net profit of US$310 million which is more than Zambia spent on healthcare.

    In April 2008, the then Zambian President, Levy Mwanawasa, announced that no longer would the Zambian government accept the little income it was rendering from the copper mines. The government introduced a 25 percent windfall tax, 15 percent variable profit tax on income above 8 percent of sales, raised mineral royalties to 3 percent from 0.6 percent and corporate tax to 30 percent from 25 percent.

    While Vedanta publicly welcomed the changes in taxation policy, it was widely accepted that in private the company was exerting extreme pressure on the Zambian government to not adopt these policies which would see the company paying far more money to the government. In December 2008, Mines Minister, Maxwell Mwale, admitted that owners of Zambian copper mines, including Vedanta, asked the government to cut mining taxes ‘to help them survive a commodities downturn.’ Newly elected President, Rupiah Banda, duly succumbed to the pressure of the mining companies, including Vedanta and reduced the amount of tax revenue they would accrue for the copper mines. In turn this has reduced the capital expenditure the government of Zambia can put towards ‘implementing vital programmes in health and education’ which they had committed to when introducing the new tax regime.

    ReplyDelete
  12. From a previous thread:

    http://www.zambian-economist.com/2008/02/state-vs-mining-companies-part-3.html

    ReplyDelete
  13. Thanks Mr K

    Today in the post


    Mining firms still owe govt K1 trillion in windfall tax
    By Mwala Kalaluka
    Sun 11 Apr. 2010, 04:00 CAT [51 Reads, 0 Comment(s)]


    Text size
    Print
    MINISTRY of finance chief budget analyst Felix Nkulukusa on Friday told the public accounts committee that all the mining companies that were assessed for the windfall tax payment still owed the government about K1 trillion in outstanding taxes.

    “There are some mining companies that have made part payments,” Nkulukusa said. “The other issue that will come out in the amount owed is the issue of interest.”

    He said that the law allowed for the waiver of payment of interests and penalties on the money owed.

    Submitting before the committee, Secretary to the Treasury Likolo Ndalamei said the issue of the mining taxes was a very difficult question for a civil servant to respond to.

    “I will start with the issue of mining taxes,” Ndalamei said. “It is true that we collected very little compared to what was estimated in the budget. The problem with mining taxes...is that we had the DAs (development agreements) then.”

    Ndalamei said some mining companies had threatened legal action on the matter and that they were wondering why the government had unilaterally changed the tax regime.

    He explained that this was the reason the government had engaged the mining companies so that the standoff over the changes in the mining regime are addressed amicably.

    “The discussions are positive. That issue will be resolved,” said Ndalamei.

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  14. This comment has been removed by the author.

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  15. Enkormoi,

    The Post is pushing home the idiocy of neoliberal economics, with it's reliance on macro-economic indicators and attraction of FDI at any cost. Which in the context of the MMD means selling off the country's assets for bribes, and secret sweetheart deals with the mining companies.

    Statistics won’t feed people
    By Editor
    Mon 12 Apr. 2010, 04:00 CAT

    ReplyDelete
  16. MrK
    very good article, with many truths.
    If banda wanted to help the people of Zambia, its primary mission as president, he would do for the country to take the money that comes from mines.
    It would develop the industry needs the metal, which would create wealth with wealth.
    Provides work and allow all Zambians to feed their families.
    Let mines 80 90 100% in the hands of foreigners groups, and say nothing when they do not pay tax, and when they do not pay dividends to ZCCM-IH is contrary to the mission president of all Zambians !

    ReplyDelete
  17. DAYLIGHT ROBBERY

    Not only do these companies not pay taxes like anyone in official employment, they don't even share profits. According to this article, 'dividends' are immediately reinvested in the companies that paid out these dividends in the first place through stock purchases. At what point is Zambia actually supposed to benefit from the boom in copper? Because those shares are only as valuable as the the price and demand for copper itself.

    I would say ZCCM-IH shares are worthless. This is a criminal enterprise, designed to provide a fig leaf for the fleecing of the Zambian people.

    Every single director (and that includes the present finance minister) are criminals, guilty of criminal offences.

    They don't have annual reports or financial statements. The 'half yearly directors reports' don't load properly.

    ZCCM-IH is not receiving dividends, because they are buying more shares in the mining companies stock that they are holding. How about the shareholders? And can this even be checked? Is any of the money disappearing into the directors pockets?


    From the buggy ZCCM-IH website (and from the buggyness of their site you can tell what priority they put on informing their shareholders):

    News Published by the Post Newspaper - Zambia on 29th July 2008
    By Kabanda Chulu

    ZCCM Investment Holdings (ZCCM-IH) acting chief executive officer William Musama has urged government to make available more shares in order for the entity to start trading at the Lusaka Stock Exchange (LuSE).

    And Musama said the ZCCM-IH had foregone dividends so that retained earnings could be used by the mining companies in the on going projects.

    Currently, government owns 87 per cent shares in ZCCM-IH and despite being a listed company at the stock exchange, shares in ZCCM-IH do not trade.

    Last week, Musama said trading in shares on the LuSE could improve if there were more shares available for trading.

    “With regard to trading on the LuSE, ZCCM-IH shares are currently listed and a number of shares also trade on the Over the Counter (OTC) markets of Paris Euronext and the London Stock Exchange,” Musama said.

    “Nevertheless, trading in shares at LuSE can improve if there are more shares available for trading because the bulk of the shares (87 per cent) are held by the government and these do not trade.”

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  18. He said ZCCM-IH does not receive dividends from all mining companies because the dividends were applied for on-going capital expenditures.

    “ZCCM-IH has not directly contributed to the several projects being undertaken by the mining companies by way of contributing to specific projects but it has done so through indirect means and these include capital contributions through share purchase in companies such as Albidon Mine and Equinox Minerals,” Musama said.

    “The reason for these investments is to contribute to these capital projects hence ZCCM-IH has foregone dividends so that retained earnings are then used by the mining companies in the projects.”

    And Musama said ZCCM-IH would soon diversify its investment portfolio to include acquisition of shares in new mining companies that were not part of the defunct ZCCM mining divisions.

    After selling Zambia Consolidated Copper Mines (ZCCM) in 2000, government formed ZCCM-IH to maintain its interests in the newly acquired entities and currently ZCCM-IH holds about 15-20 per cent shares in all privatized mines.

    Giving an update on the status of the 2007 to 2010 ZCCM-IH strategic plan, Musama said the company would soon become a fully fledged investment company through diversification of portfolio investments and increasing of shareholder’s value for investments.

    “Not much progress has been achieved from the inception of the company in 2000 because the focus was on dealing with issues to do with the environment, housing and ex-employees but ZCCM-IH is now actively implementing its strategic plan whose objective is to ensure that the company becomes a fully-fledged investment entity through diversification and increasing of shareholder’s value,” Musama said.

    “As ZCCM-IH we have taken a keen interest in all potential investment opportunities but any new investments are considered after an appraisal process to ensure that it meets our requirements and to protect the interest of shareholders.”

    Musama said ZCCM-IH has a stake in Lumwana Mining Company through its share ownership of Equinox Minerals and also has a stake in Albidon Limited which is undertaking the Munali Nickel Project.

    Through its investment diversification plan and depending on the viability of the projects, ZCCM-IH would acquire shares in Zambezi Resources, African Eagle Resources, Konkola North Copper Mines, among others.

    Notable mining companies where ZCCM-IH holds shares include Konkola Copper Mines, Mopani Copper Mines, First Quantum Minerals, Chambishi Copper Metals, Non- Ferrous China Africa (NFCA) mine, Chibuluma mines and Luanshya Copper Mines.

    Published on 25 July 2008

    By Kabanda Chulu

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  19. MUSAMA is pipo

    Example with KANSANSHI Mining and First Quantum minerals

    For the last 5 years, the total Operating profit is more than 2.4 Billion of US $ !!

    yes 2.4 billion us $ !!

    ZCCM-IH received only 6 M US$ in dividend AND FQM INVESTED this money in congo and in australia, not in Zambia !!

    this is scandalous and Mr MUSAMA work for these foreign companies ! not for ZCCM-IH and Zambia !!

    http://www.first-quantum.com/i/pdf/NR-09-04.pdf

    http://www.first-quantum.com/i/pdf/2008-02-21_NR.pdf

    http://www.first-quantum.com/i/pdf/NR10-12.pdf

    ReplyDelete

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