The Case of KCM
KCM valued at $1.2billion sold for $25 million- Now that’s Privatisation That Hurts
By Amb. Emmanuel Mwamba
In 2003, an unknown Indian mining and non-ferrous metals company, Vedanta Resources Limited bought Zambia’s largest copper mine.
The company pledged to pay $25million for 51% shares of the mine.
Konkola Copper Mines(KCM) had mine assets at Nchanga, Konkola, Nkana mines and the Nampundwe pyrite mine.
It also had the Nchanga, Nkana Smelters and Nkana Refinery.
World Bank had hired a London consultant firm, N.M. Rothschild to assess the value of the ZCCM assets during the failed sale to Kafue Consortium in 1996 and the subsequent sale to Anglo-America in 1998-99.
The share value of KCM was deemed at $1.2billion but with a market value of $650million owing to the persistent and prevailing low copper price.
WHY KCM WAS BEING SOLD
Shortly after the 2001 elections, Anglo-America Corporation announced that it was abandoning KCM, a mine it had just bought in October 1999 and was pulling out of Zambia.
Anglo-America through its subsidiary, Zambia Copper Investment (ZCI ) had bought an 80% stake (Nchanga, Konkola Divisions and Nampundwe) for $90million ($30m cash and $60m deferred payment to be paid 5 years later beginning 2006).
The deal also included a copper/cobalt price participation and sharing scheme to cap at $125million.
The new shareholding in the new company now called Konkola Copper Mines (KCM) was ZCI, 65%, ZCCM-IH 20% and 7.5% held by the World Bank’s International Finance Corporation (IFC).
The new owners pledged to develop and modernise the mines.
Anglo-America also pledged to invest $500m in the Konkola Deep Project, an area with vast copper/cobalt deposits which would extend the life of the mine.
At the same time Glencore and First Quantum bought Mufulira Division and Nkana Mines to form Mopani Copper Mines(MCM) and pledged an investment of $153 million.
ANGLO-AMERICA ABANDONS KCM IN 2002
But both the Anglo-America, CDC and IFC exited abruptly after the 2001 elections.
On 24 January 2002, Anglo America announced that, in view of the alleged substantial losses suffered by KCM, the weak outlook for the copper and cobalt markets and the non-availability of project finance for the Konkola Deep Mining Project, the company could not justify investing further funds in KCM over and above those committed at the time of vesting.
In September 2002 Anglo America, IFC and CDC formally withdrew as shareholders of KCM, leaving a restructured company whose main shareholders were ZCCM IH and ZCI.
ENTER VEDANTA
Vedanta Resources and its Chairman Anil Agarwal visited Zambia in 2003.
Later an announcement was made that Vedanta Resources would acquire 51% control stake of KCM.
On November 5, 2004, announced that it had completed the acquisition of a 51% interest in Konkola Copper Mines.
Veteran Businessman and Entrepreneur, Andrew Sardanis in his book; ” A Venture in Africa” discusses this unusual sale.
“The government through ZCCM-IH and ZCI (Anglo’s subsidiary) handed over 51% control of KCM by allowing Vedanta to subscribe to new capital for $25million”.
“Vedanta also paid $23.2million to ZCI (Anglo-America)”.
ZCI shares were diluted but remained with 28.4%, while ZCCM-IH held 20.6% and Vedanta held 51%!
The book reveals that instead of paying the $25million to government as committed, Vedanta instead paid only paid $16.8million!
VEDANTA MAKES PROFITS
Since Vedanta is listed in London, it is obliged to provide financial information.
After buying KCM for $25million, revenue from its businesses jumped and started making over US$3,701.8 ($3.7 billion) million in every fiscal year and by 2009 the revenue reached US$6,578.9 million($6.5billion).
CONCLUSION
Imagine that the Zambian Government was paid $25million for 51% shares in KCM while Anglo-America (Zambia Copper Investment) was paid $213m for its remaining 28.4% shares.in 2008 (in addition to the $23.2million paid in 2003)!
By 2008, Vedanta Resources now held a shareholding of 80% while ZCCM-IH held the 20%.
Now that’s the trouble with privatisation crimes or any corporate crimes!
They are complex, detailed and might be difficult to unravel as they involve lawyers, multinationals, businessmen and public officials.
The trick is simple!
It appears that state assets are obtained at cheap prices but covered by making huge investment pledges that in many cases are never fulfilled while the investor milks the assets to the bone!