Zambia agrees to take on $1.5 billion debt to buy Glencore copper mine

January 19, 2021

Zambia’s government announced that it has reached an agreement with Glencore to purchase the company’s majority stakes in Mopani Copper Mines for $1.5 billion in a deal funded by debt.

Zambia’s state mining investment arm ZCCM-IH will purchase the stake in the mines after Glencore attempted to suspend operations last year because of low copper prices and COVID-19 disruptions.

The takeover coincides with Zambia’s preparations for elections in August, with President Edgar Lungu courting voters in the copper belt. More than 15,000 workers would have lost their jobs if the mine was closed, Mines Minister Richard Musukwa said.

Glencore said that ZCCM-IH will borrow the $1.5 billion from Carlisa Investments Corp, a British Virgin Islands-based company through which Glencore holds its stake, and other unspecified members of the Glencore group.

Zambia will seek a new investor, the government said on Tuesday.

Reuters reported that Zambia defaulted on a debt payment in November, becoming Africa’s first pandemic-era sovereign default, but will take on more debt to finance the Mopani deal.

Under the deal, ZCCM-IH will acquire the remaining 90 percent of Mopani from Carlisa, giving it full control of the company for an indicative $1.
Glencore will retain buying rights for Mopani’s copper output until the transaction debt has been repaid. ZCCM-IH will repay the loan principal by giving Glencore creditors 3 percent of Mopani’s gross revenue from 2021-2023 and 10-17.5 percent of Mopani’s gross revenue from then on.
ZCCM-IH will also owe quarterly interest of LIBOR plus 3 percent.

At a ceremony in Lusaka, Musukwa said ZCCM-IH will repay the loan in 10-17 years depending on copper prices, which are currently near their highest in eight years at about $8,000 a tonne.

Asked how Zambia can afford to take on more debt, a mines ministry official said: “It’s not sitting on the ministry of finance. The company is able to pay on its own.”

Musukwa said the country will try to attract a new investor in Mopani, adding that companies from Britain, Canada, China, South Africa, Turkey and Qatar have expressed interest. ZCCM-IH needs about $300 million to complete expansion projects started by Glencore, he added.
Mopani produced 34,479 tonnes of copper last year, up 14.6 percent from 2019, and the expansion projects will boost output beyond 150,000 tonnes a year, Musukwa said without specifying a timeline.

Glencore said it holds 73 percent of Mopani through an 81.2 percent stake in Carlisa. First Quantum Minerals, which previously held 16.9 percent of Mopani, did not immediately respond to a request for comment.
 

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