The Daily Mail, The Post, The Lusaka Times and The Times
all cover an interesting development in the ZCI / Vendanta negotiations for the transfer of shares in Konkola Copper Mines. It appears that the price Government has set for removing the Competition Commission enquiry into the sale, a development which enabled the sale to go ahead, has been to demand that some of the shares are released to the Zambian public via the Lusaka Stock Exchange.
All papers were reporting comments from Acting Finance Minister Felix Mutati who announced firstly that the call option deed was binding between Vedanta Resources Plc and Zambia Copper Investments and was not subject to any further approvals or consent of Government and secondly that Konkola Copper Mines (KCM) has pledged to offer part of its share holding in the mining company to the Zambian public.
Mutati announced "an agreement has been reached in principle for Vedanta to offer part of its Shareholding in KCM to the Zambian public, cognisant of the need for greater participation of Zambians in corporations operating in Zambia." Mr Mutati said the Government was now in the process of constituting a 'negotiating team', which would soon be meeting with a team from Vedanta.
Of course, under the previous arrangement many of the 28.4% of KCM's shares were already held by the Zambian public! That was part of the reason why Vedanta's decision to exercise its call option, agreed as one aspect of a deeply flawed Development Agreement caused some consternation in Zambia. The business friendly MMD Government has been looking for ways to appease popular anger at the minimal benefits flowing to the country from the copper boom. 'Zambianisation' has become one of their answers - a cynical reading would describe the process as the transfer of ownership of exploitative firms from the hands of rich foreigners to rich Zambians.
The Post also reports that Standard Chartered Bank regional head of research for Africa Razia Khan recently made the case that encouraging mining companies to list on the Lusaka Stock Exchange (LuSE) would increase local ownership in the sector which has been dominated by foreign investors. An editorial in the business section expands on the case.
Khan is quoted as saying, "The question that we would ask is, if the basic intent is to try to allow Zambians to gain more from copper mining, are there not other policy choices that might be considered alongside the choices that have already been implemented? Say for example looking at more domestic ownership, encouraging local listings of mining companies through tax incentives,” she said.
She observed that the mining sector in Zambia had been perceived to be owned and operated by foreign investors. “Already the tax regime has been designed so that it doesn’t make that much commercial sense to export copper in unrefined state. But what other room is there for tax policy to try to encourage increased beneficiation or increased value addition within Zambia?” she said. “Zambia’s economic outlook is still favourable. We are all looking at six per cent growth being sustained in the near future and the medium term as well despite the global economic slow down and given Zambia’s history that is very significant... If for example Zambia was seen to be a relatively cheap place to rise financing then you might see a change in behaviour of international companies wanting to seek that local listing.”
I am unconvinced this will lead to great benefits for the wider population on the Copperbelt, but we will see. Certainly the process has already angered many not-that-rich shareholders in ZCI - some of whom are Zambian. For some reason a mass of small shareholders in France have been the most vocal opponents of this process (see much previous debate on minewatch).
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ZCI – The Facts – Why so many Protests from France
Simply because 33% of the ZCI public shareholders negotiate their ZCI shares through Sicovam SA (now Euroclear) who are a financial instrument of the French stock exchange. In fact 68% of ZCI minority shareholders have purchased their shares in France.
The two minority shareholder associations, “ZCdéfense” and “AMZCI”, which have multi- national members, are the only source of objective information and combined resistance to the “plundering” of the ZCI equity in Konkola Copper Mines.
As a British minority ZCI shareholder and active member of the 800 strong “ZCdéfense” Zambian Copper Investment minority shareholders association, during the last 3 months I have ardently communicated the justified opposition of minority shareholders to the sale of their shares in KCM at a scandalously undervalued level.
I have written many flowery letters and politically correct communications which appear to be of no avail against the might of an Anglo-Indian mining conglomerate that in November 2004 acquired, 51% of KCM for $23.2 million paid to ZCI for 29.6% of their equity and 21.4% given “free” from ZCCM-IH.
Now, in 2008 with the application of the “call option” clause, Vedanta have appropriated 79.4% of Zambia’s Konkola Copper Mine resources, for a miserable $237 million paid to ZCI and $25 million capital investment injected in KCM, (of which 79% belongs to them, so in reality only $5.15 million !).
Thus, for a $242 million investment, Vedanta Resources obtained 79.4% of a copper mine that today is estimated at $2500 million. This represents 12.2% cost for $1743 million return on investment. An excellent deal for Vedanta !
The remaining 20.6% of KCM worth $515 million is still held by ZCCM-IH (88% GRZ).
ZCCM-IH relinquished 21.4% of their KCM equity in November 2004 in exchange for the cancellation of a $16.8 million debt owed to the Zambian Government, so Vedanta did not purchase the KCM equity they acquired from ZCCM-IH.
So, what does all this big business mean in real terms to small shareholders and the Zambian people ?
Zambians….the time has come to open your eyes and understand how the sale of ZCI under the current terms and conditions will effect you !
The Facts are below…..you decide. Most of the numerical data came from the official ZCI Shareholder prospectus dated 11th October 2004. If the facts are contested, please prove them to be wrong !
• When Anglo-American pulled out of KCM in September 2002, the KCM equity was shared 58% by ZCI and 42% by ZCCM-IH, with a specific GRZ management vote.
• When Vedanta took controlling interest in November 2004 the KCM structure became 51% Vedanta, 20.6% ZCCM-IH and 28.4% ZCI.
• Of this tri-partite group concerned, only ZCI has been deprived of the true market value of their KCM equity. As the others have maintained or increased their KCM equity, they have both been rewarded handsomely from the increased copper prices that have strongly influenced KCM’s profits since 2005 and increased the estimated total value of KCM.
• The paradox as to the distribution of the increased profit from KCM is that ZCI is the only party having a 52% Zambian orientated shareholding (of which 44% is via The Copperbelt Development foundation, “CDF”). ZCI is also the only party that will not benefit from the 2005-2008 KCM growth !
• The CDF was destined to engage in Zambian social development by funding local social projects from the dividends generated from what was initially 25.7% ownership of KCM, (44.3% of the ZCI 58% or $640 Million of the 2008 KCM value).
• ZCI has now only 28.4% of KCM, thus, the CDF $640 million is reduced to $314 million. As the 2005 KCM value of $750 million given by the Rothschild report has been applied for the “call option”, the CDF will receive about $200 million less than they would if ZCI is liquidated and the 2008 estimated value for KCM of $2500 million is not considered. The difference between $100 million rather than $300 million will severely impact the social investment that would greatly benefit the Copperbelt communities !
• Apart from the impact upon the social actions that will not be provided by the CDF due to the missing $200 million, a further economy for Vedanta of around $270 million is obtained by plundering ZCI shareholder's, 8% of which are KCM employees.
• The recent "spot light" upon Vedanta's position seems to have influenced their public relations approach. This, at least, may have contributed to generate some social advantages for the Zambian people. Vedanta are now “making an effort” and have donated $470 thousand to local education in the form of a computer training facility and have also accepted to pay the increased mining taxes imposed by the GRZ without resistance. A few crumbs of the “Copper Cake” thrown to the people in exchange for 79% of KCM ?
• It is rumoured that this could be a "trade off" to eliminate the ZCC from the Call option negotiation and prepare the cession of the ZCI shares sold to Vedanta, which could then be re-sold on the Lusaka stock market at a depreciated price to wealthy Zambians ? I do not have evidence either to confirm or refute this hypothesis.
• But if this was the case, one thing is sure; The people that would have benefited from the CDF social actions will not have the cash to benefit from the purchase of KCM shares at a reduced price.
• The Zambian people should have access to the wealth generated by Zambia’s natural resources. The government is working toward the transfer of majority ownership of mine equity from foreign investors to a larger spectrum of Zambian citizens. This is how it should be and I support this position unilaterally, with the provision that the transition takes place in a faire and morally correct manner and that small shareholders are not robbed of the true value of their investment.
• A simple way of determining the absolute minimum value of the 58% of KCM owned by ZCI till 5th November 2004, can be established from the Rothschild report. All majority shareholders have accepted this evaluation, which forms the basis of the “call option” price for the remaining 28.4% of ZCI recently acquired by Vedanta. The report is based upon the 2005 value of KCM and excludes increases in copper ore prices, thus it can be considered that it represents the lowest value that KCM was worth in 2005.
• Thus, if 28.4% of KCM is worth $213.85 million when applying 2005 parameters… “De facto” 58% was also worth $436.7 million in 2005. This evaluation excludes the fact that during the 3 years that ZCI capital has been immobilised very little revenue has been received by ZCI and no dividends have been paid to the shareholder’s, consequently a premium should be envisaged for this.
• This minimum value, under which spoliation of the shareholders is undeniable, would position ZCI shares at around 2.9 Euro employing the $ exchange rate applicable in 2005. The share value today is 0.92 Euro and honest people that supported the Zambian economy are, (hand in hand with the Zambian shareholders and those Zambians that would have benefited from social improvements), being deprived of their right to fair treatment.
There are many other arguments that identify that it is inconceivable that ZCI shares, whose average quoted value throughout 2004 was $5.34, are today at $1.45 at actual $1.58/€. Copper ore prices have tripled, if not quadrupled over this period and no natural catastrophy has destroyed the Konkola mine, so the only influence that reduces the share value is the unjust evaluation and transfer of ZCI equity to Vedanta at a totally unacceptable price.
Fortunately, minority shareholders that have been robbed of their savings can still maintain faith that the upstanding political policy applied in Zambia will generate local intervention and influence the outcome of this sad situation.
To quote the words of the Zambian Government:
“President Mwanawasa has pledged to collaborate with all stakeholders and to work with men and women of goodwill, in honour and integrity for the benefit of the people of Zambia.
He demands of those in his New Deal administration honesty, commitment and loyalty to Zambia and the people. They can rest assured of these demands as they are working with the Head of State who is committed to justice, honesty and integrity for the common good of humanity, Zambians in particular.”
Consequently, it is my intention to inform his Excellency President Levy Mwanawasa, via an “Open Letter” to State House Press and Public Relations, of my considerations as to the negative impact upon the Zambian social & economic environment, generated by the elimination of ZCI from the KCM shareholding, under terms that create hardship for Zambian and International shareholders alike. I will respectfully request his intervention to redress the “spoliation” status of those concerned.
Lies Lies lies, they're gonna get you.
Hold on, too late, they did get you.
Despite all the lies, the fabrication and fact twisting by a certain category of french shareholders erecting themselves as defenders of the "poor" and "oppressed" Zambian masses who according to those french knights rely on crumbs from a foundation they have never heard of in the first place, the Zambian gouvernment has simply applied the law and assessed what was the best compromise to move forward on this issue in a pragmatic and realistic way.
Well done.
For those modern day templars (The fact that they have lost a lot of money on this deal having no
bearing whatsover) who try to bestow their infinite wisdom, kindness and obvious intelligence on the simple Zambian people and their gouvernment, thanks but no thanks.
Our gouvernment knows what they're doing, so try to pull the other one frenchie
Thanks for the explanation Steve. I found that informative. I don't have any stake in this issue aside from some concern about whether CDC was a missed opportunity to allow for wider social benefit on the Copperbelt. I also don't have any more access to the 'facts' of the negotiations between Vedanta and the Zambian Government recently.
Gerald, I won't censor any comments on the blog unless things get right out of hand, but you don't provide any basis for saying that Steve's figures or argument are lies. And you don't really meet the challenge I set in the original post, to explain why the Zambian Government's decision to suspend the Competition Commission enquiry is good for Zambia or Zambians. The Government themselves seem to have just done it without making any public statement as to why. Any ideas?
Alastair,
I apologize if i got carried away in my response to the other contributor, but in front of his biased and subjective interpretation i just lost my cool.
Anyways, you got to admit that giving figures on exchange rates and ownership percentages that are well known by those who follow this saga doesn't really amount to much.
He swings between the impact on the poor Zambians and the fact that the minority shareholders have lost a lot.
First, on the "poor" Zambians, it must be said that the foundation was created to mitigate the exit of anglo from KCM in 2002, the role of this foundation was defined at the time to alleviate any negative impact on the KCM employees and their dependant should KCM closes or incurs heavy losses due to the slowdown in operation and income.
The foundation was an anglo/zci creation and it doesn't have a state mission to assist all Zambians and act as a charity organization as he would lead us to believe.
Here is an extract from a ZCI memo in August 2002 on this (available on their site):
"The Foundation will use income from ZCI to invest in projects aimed at diversifying the economy of the Zambian Copperbelt, contributing to the provision of health, education and other social services on the Copperbelt and mitigating the social impact of the eventual closure of the KCM mines."
It isn't quite correct to say that many of the 28.4% of KCM's shares were already held by the Zambian public, if you refer to the foundation as it belongs to ZCI as mentioned above and the decision to invest ZCI profit in some local projects are at the sole discretion of the head of the foundation who is also the head of ZCI.... If you refer to private rich Zambian shareholding in ZCI, then this is a risk of playing the market. Tough luck i'd say. The average joe in the street is miles away from all this.
Second, He keeps referring to a spoliation of ZCI and its shareholders, all right, i can understand that, however, all this is due to the way ZCI themselves signed the deal. This is a direct consequence of the application of the contract, all legal.
Third, and this bring me to your comment on your initial post regarding the benefit to Zambia or Zambians now that the call is done.
The first thing to remember is that the government didn't have too much margin to maneuver here, the contract was biding and concerned 2 private and foreign companies, Zambia having no stake in neither.
The ZCC within its mandate had no reason in the first place to deny the transfer of shares as it didn't create a monopoly on Zambia's mining industry, there are still many players, and so far, doesn’t lead to any price fixing.
In my opinion, and here i speculate, the government wanted some sort of arrangement with Vedenta on the future of those shares and asked the ZCC to put things on hold while an agreement was reached in the background.
The party line from Mr Mwanawasa seems to follow so far a strong rule of law approach, respecting international agreements, applying the laws, respecting the constitution, playing by the book as much as possible, just looking at his stance on the Chinese arms ship at the moment is comforting.
I know you seem unconvinced that this will benefit the wider population and you might be right, it will probably be a few fat cats who will get their hands on the Luse KCM shares, with a few crumbs for the small fry.
But looking at the South African BEE, the same thing is happening there too, and short of giving freebies to the people, like in Zim with the farms with the result we know, there is no perfect way.
Isn't that a tad preferable to having a few foreign French/British fat or lean cats having their paws on it only?
Reply to Gerald N…..
Many thanks Gerald N……, your reply giving your justification as to the « Lies lies lies » that I supposedly communicated has only served to confirm that what I stated was true and to identify your true character.
In your response there is only one thing I would agree with…..apart from your confirmation that the Copperbelt Foundation was created for the social benefit of underprivileged Zambians…..and that is, that President Levy Mwanawasa has a reputation as a defender of the abused, Zambian or other, and I have faith that he will not allow a travesty of moral justice to take place. For this reason I will respectfully request his Excellency to intervene.
So….who is Gerald N ?…..I am honest and identify that I have invested in ZCI expecting to see a profit on my investment and hoping that if I get a benefit upon my ZCI shareholding that other shareholder’s will also.
Gerald N has certainly a vested interest, but we do not know why he continues to attack those who defend the small shareholder and the workers that make the rich copper conglomerates richer.
In my professional activity I worked in a German coal mine (for a very short time, thank God) at 930 meters underground and was engaged upon gallery consolidation by polyurethane resin injection into unstable rock zones.
I would not wish the heat, noise, dust and risks upon any miner and their working lives are lived in this environment. Gerald N is indifferent however, even if he has the remotest idea of deep mine conditions. Konkola Deep will be at 1340 meters underground I believe.
If a social function was envisaged to give some benefits to workers and their families in exchange for their efforts to make others rich…I sincerely believe (based upon personal experience) that someone should defend them and that the social actions to be achieved become a reality.
Gerald seems to be very well informed upon the status to say that my approach is a tissue of “Lies, lies, lies, they’re gonna get you” and, as Alastair pointed out that some proof to confirm this statement might be justified, he comes back to contradict himself by proving that the Copperbelt foundation was set up for the benefit of Zambian social actions and these not only in the event that KCM was shut down.
Continuing his explanation as to why my evaluation was “Lies” he digs the hole he is getting into deeper and deeper by confirming what I have already said and this in a frivolous and egocentric way !
A few examples, as I do not base my comments upon conjecture:
• The figures are “well known” so not false, “but don’t amount to much” !
• He confirms the role of the Foundation, thank you, but I never said it had a “state mission”. It is a ZCI social function that will be deprived of resources.
• True that the “average Joe in the street” does not follow what is going on, so “Tough luck for him” and the shareholders.
• “I can understand the spoliation in 2004, but this is due to the way ZCI signed the deal” Thanks for confirming the first injustice. Shareholders understand that there were mitigating circumstances that pushed ZCI to agree to a contract that was a “spoliation”. However, ZCI President Rozan stated this openly and also that ZCI would never sell the remaining 28.4% for less than $450 million ! So why are we accepting $213 million ?
• So as we got screwed once, we have learned to like it and will accept that our only chance to marginally correct the situation be manipulated and that shareholders and Zambians are plundered again?....... No way ! Apologies for the vocabulary, but necessary to reach the level that does not understand “spoliation”.
• Gerard thinks that the GRZ wanted to “Deal” with Vedanta and got the ZCC involved to delay the share purchase while the deals went on. He should perhaps read the ZCC “Fair trading Act" mandate and he will see that any fusion of companies having major economic importance for Zambia must obtain the ZCC approval to proceed with their projects.
• What is strange is that ZCC did not approve the deal and felt perhaps that there were just reasons why it should not be concluded, so GRZ having done the “deals” with Vedanta stepped in and removed them from the equation. This is pure hypothesis and based upon Gerard’s “Deal” comment, but it would be interesting to investigate this further.
• Finally, as Gerald says, “It will probably be a few fat cats” who will benefit from the undervalued KCM shares “with a few crumbs for the small fry” but “this happens everywhere" so for Gerald it’s OK. Thanks again Gerald for showing your true colours and total indifference to moral values and a fair share for the small Zambian populous !
That is not the way it will be if I have anything to do with it !
Adieu……that’s French for Good bye for ever, I hope.
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