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Monday, 4 March 2013

Zambia and First Quantum Minerals

Zambia may own 10% of First Quantum Minerals (FQM), soon if ZCCM-IH presses ahead with its plan to convert its stake in the Kansanshi mine, for FQM shares. It could end up owning about 10 percent of the company - and become its second-biggest shareholder. Black Rock Inc the world’s biggest money manager, is FQM’s largest owner, with about 12 percent, according to data compiled by Bloomberg.

First Quantum Minerals says“We would be happy if ZCCM becomes a shareholder in First Quantum as part of a step in transforming ZCCM into a sovereign is something First Quantum would be willing to accommodate.” ZCCM said it is considering swapping its Kansanshi stake for shares in First Quantum in its strategic plan made public in December 2012. Kansanshi is worth around $6billion. GRZ stake (via ZCCM-IH) in Kansanshi is 20%. FQM is worth around $8bn. If the stake is converted it could even be higher.

This is potentially interesting depending on how it is done. It could give our people a large stake in an important global company. That said, there are four issues which need to be considered before the deal is finalised. 

First, the size of the potential offer. Miniority shareholders in ZCCM-IH (they own 12%) have suggested that the proposed deal  is potentially bad deal. They tell me that "owning 10% of FQM would be a scam". They say the minimum Government must demand is 15% - 20% ownership to become the largest shareholder. They are hoping "GRZ and ZCCM-IH will not be outsmarted by FQM and there will not be any bribes".

Secondly, adequate exploration of alternatives. For example, as an alternative some have rightly noted that a better solution Zambia is to define a better dividend policy between ZCCM-IH and Kansanshi and with other mines.  Kansanshi must reverse 90% of its profits (after investment) in the form of dividends to its shareholders. This way ZCCM will receive more than $150 million per year and more than $250 million in two years when Kansanshi produce over 400,000 tonnes of copper per year. Currently more than $500 million of the earnings for ZCCM from Kansanshi (the last 5 years) have never been received by ZCCM-IH. FQM has been using this money trying to buy Inmet Mining, which is clearly good business for FQM but not for ZCCM-IH. A new dividends policy would ensure the the future of ZCCM-IH and the country

Thirdly, the importance of widening ownership of ZCCM-IH. It is unclear who this initiative is designed to benefit because ordinary Zambians do not own shares in ZCCM-IH. There's an expectation that ZCCM needs to do more to widen the share ownership structure so that ordinary Zambians can get on board and benefit. 

Which brings us to the final issue -  it is important to be clear on what the goals of ZCCM-IH are in proposing ownership in FQM. Many remember ZCCM-IH having a stake in Lumwana which was lost after the takeover. A 20% ownership in FQM would not necessarily guarantee "ownership". So the question must be - what is the goal? And how does that goal sit with the aspirations and needs of ordinary Zambians? These issues must be clearly articulated so the public understands where the game is going. 


  1. "ordinary Zambians do not own shares in ZCCM-IH"

    ZCCM-IH is also traded in Lusaka so orinary zambians could by shares

  2. 10% of FQM is a paltry swap, now we understand why the chairman Mungomba and the management refuse to appoint the representative of minority shareholders. They do not want to have to deal with opposition from the Minority shareholders. It is an opportunity for lining their pockets quietly

  3. Its sounds a good deal but ZCCM-IH needs to be cautious when dealing with FQM. Why has ZCCM -IH not received dividents in the Past 5 years because the mines there are investing are wholly owned by FQM & its Subsidiaries

  4. Few data to explain why it would be a scam...

    FQM publicated its Financial Results for year ended December 31, 2012 yesterday

    Non-controlling interests are the Minority shareholders’s benefits after investment. ZCCM-IH is the only Minority shareholder in FQM accounts.

    Now the amount of non controlling interest (for ZCCM-IH) is $550.4 million.

    The gross profit may be used to approximately evaluate the value of the swap (without information about future projects such as sentinel it is difficult to quantify and integrate the value of these assets which actually lose money)

    2012 2011
    Gross profit
    Kansanshi 929.4 1,187.1
    Guelb Moghrein 117.7 127.8
    Ravensthorpe 42.5 -
    Kevitsa 23.9 -
    Other (12.5) (6.9)
    Total gross profit 1,101.0 1,308.0

    1187,1/1308= 90,7%
    kansanshi represented 90,754% of gross profit

    20% => 18,15% of FQM

    929.4/1101 =84,4%

    kansanshi represents 84,4% of gross profit

    20% => 16,88% of FQM

    and this, without taking account of the non-controlling interests ($550,4 million)

    The longer the management of ZCCM-IH waits, the less FQM shares will be got...


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