1. This deal was somewhat unavoidable given the threats made by Glencore to shut down some of the operations under its care. This would have led to loss of about 13,000 jobs. Given the context of high unemployment levels in the country, the shut down would have had serious economic, social and political consequences.
2. ZCCM IH showed determination to go ahead with this transaction despite strong voices not to proceed. This somewhat demonstrates the company and government itself have better information on the whole deal than the rest of us. We only hope that the country will not come back ten years from now questioning the wisdom of the transaction/negotiation team and advisors. I should add that I saw great leadership over the whole Mopani issue in past one year.
3. The transaction has happened at a time the price of copper is over US$8,000/ tonnes, implying we are in for good returns should this price be sustained for longer periods or even exceed the projected US$10,000/tonne.
4. This is a significant step on the part of government to own strategic assets and the transaction reduces the existing suspicions around transfer pricing as well as private (undeclared) foreign currency remittances from which government would have gained in foreign exchange reserves. The mine under total government ownership will now directly improve the country’s fiscal position albeit in the long term.
5. The real winner in the transaction is Glencore. They wrapped up the deal well. On one hand, this is a leveraged or debt financed deal from which Glencore will start earning interest after a period of time and will also have other gains accruing to it on the principle amount (being US$1.5 billion it has borrowed from itself!) Second, until all outstanding amounts are repaid, Glencore will have control of copper sales through a purchase offtake and this presumed to be at a fixed price of copper. The arrangement is beneficial to government given the huge fluctuations in the copper price.
6. Loosely and to bring the above point home, I liken the deal to an ‘Outgrower Scheme’ where farmers are financed through fertiliser, seed, technical advice and chemicals to grow tobacco. The financier is also the buyer at a fixed price. Both teams are winning but the financier/buyer is the absolute winner and that’s why this whole deal works well for Glencore.
7. It also means Zambia has acquired a new debt worth about US$1.5 billion (take away other costs) for the ownership of Mopani Copper Mines. The consolation is that we will not pay this money from tax revenue. The asset is projected to finance itself. What worries me though is that it all depends on what happens to copper production and the price during the life of this deal. The comparison is an American mortgage which you service over 25 years without having absolute ownership to the property. First, it makes it difficult for you to access fresh capital to recapitalize the building because someone has absolute ownership to it. Second, a lot of things will change before you finish paying and that’s how many American mortgagees have lost property on which they had already serviced a significant portion.
8. I am sure the IMF and other creditors are following this transaction very closely and how it affects the planned programme negotiations. Though government will have a case to explain the debt is not on the treasury but on ZCCM IH, those Washington colleagues read between the lines and they will still bring the number on the government loan book and prove to government that Zambia has moved deeper into debt unsustainably.
9. On the whole, I congratulate government for saving the mine, keeping the jobs, owning the Mopani asset totally and all we can do now is to continue to advise about how to manage this asset and make it more profitable than Glencore did. We can learn from the mistakes of the old ZCCM and build on the previous failures to beef up our national coffers. Let there be no political interference in the operations of this mine. Otherwise, seven years from now, it will be the same old sad story. I wish all the people of Zambia well in this deal. It should be good for the country.