3d012路5码复式:A copper mining lesson from Zambia: history repeats itself

Vedanta’s Konkola Copper Mines. Image courtesy of Konkola Copper Mine Plc

Vedanta Resources Ltd. is learning the hard way that when it comes to Zambia’s copper-mining industry, history tends to repeat itself.

Fifty years ago, Zambia’s first post-independence leader Kenneth Kaunda nationalized mines owned by Anglo American Plc and Roan Selection Trust to rally his political supporters. Now populist President Edgar Lungu is taking legal steps to take over the operations of Vedanta’s Konkola Copper Mines, alleging the unit lied about expansion plans and cheated on taxes.

“Resource nationalism tends to peak exceptionally when there is a perception that commodity prices are high and countries feel they are not getting the benefit”

With Zambia mired in a debt crisis that’s made its dollar bonds and currency among the worst performers in the world this year, Lungu’s attack on Vedanta is a useful distraction from the nation’s economic woes. While copper prices are well below historical highs, the metal has more than tripled since 2000.

“Resource nationalism tends to peak exceptionally when there is a perception that commodity prices are high and countries feel they are not getting the benefit,” said Claude Baissac, the head of Johannesburg-based risk consultancy Eunomix Business & Economics Ltd. “President Lungu is undermining the gains of the 2000s.”

Zambia isn’t alone in pursuing resource nationalism. In neighboring Tanzania, President John Magufuli has spearheaded an aggressive drive targeting gold www.leljde.com.cnpanies. Staff of Acacia Mining Plc have been arrested and the government has threatened to fine the company $190 billion.

Vedanta’s request for a meeting with Lungu has been rebuffed. The intervention by state-owned ZCCM Investments Holdings Plc to have Konkola liquidated is “lawful, orderly and under the due process,” the president’s spokesman said. Richard Musukwa, the mines minister, said the move isn’t nationalization, alleging that Vedanta didn’t comply with its license conditions.

Vedanta said that it was a “long-standing, loyal investor,” spending more than $3 billion in Zambia where it has 13,000 employees. Vedanta has asked the Lusaka High Court if it can join the case in support of its subsidiary, and in a separate statement called for a “mutually agreeable solution,” saying that some of its expatriate employees have been prevented from leaving the country.

For the government, which gets almost all its foreign income from copper, history suggests the cost could be even greater. Between 1970 and 2010 Zambia lost $45 billion in potential income from copper, Eunomix said in a report.

Kaunda’s nationalization drive didn’t end well. By 1999 copper production had fallen 65% from 769,000 tons 30 years earlier. Anglo bought the country’s biggest mines back after companies including top producer Codelco declined to invest. Just over two years later, with copper prices at a 14-year low, Anglo handed the mines back and they were sold to Vedanta in 2004 for $48 million.

After Lungu’s government announced tax increases last year, the Zambia Chamber of Mines said more than half the country’s copper operations would become unprofitable, with 27,900 jobs at risk

Since then, companies including First Quantum Minerals Ltd., Glencore Plc and Barrick Gold Corp. have invested in mines, driving production up to almost 858,000 metric tons in 2018, making Zambia the second-biggest producer in Africa. After Lungu’s government announced tax increases last year, the Zambia Chamber of Mines said more than half the country’s copper operations would become unprofitable, with 27,900 jobs at risk.

Still, not everyone is unhappy with Lungu’s move to take over the assets of Konkola. Labor unions have praised the decision, which has also struck a chord with many citizens in a country where per capita income is below $1,350 a year.

“Vedanta and its peers strong-arm the Zambian state at every opportunity, allegedly under reporting their earnings in official accounting while threatening massive layoffs and unviability at any mention of a tax increase,” Mathews Muyembe, chairman of the Copperbelt branch of business lobby group, the Economic Association of Zambia, said in an editorial in South Africa’s Business Day newspaper. “Enough is enough — this is one move that is supported across the political spectrum.”

For Mumbai-based Vedanta, the impact would be minimal with its Zambian unit accounting for just 1.8% of pretax earnings in the financial year ending March 2018.

“It would be a small blip on the balance sheet,” said Sanjiv Bhasin, executive vice president at IIFL Securities Ltd. in Mumbai.

For Zambia, any further economic downturn could be catastrophic.

External debt tripled to $10.1 billion over the five years to the end of 2018, with interest charges ballooning. Its dollar-bond yields have climbed to almost 20% this year, the highest except for Venezuela, which is in default. The kwacha has slumped 13% against the dollar and the International Monetary Fund’s forecast for 2.3% economic growth this year is the slowest in 21 years.

“How do we run resource rich countries?” Baissac said. “Zambia is a particular example of a country that has not managed to do this.”

(By Antony Sguazzin and Matthew Hill)

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