SIX months have passed since the Zambian government opened court proceedings to liquidate Konkola Copper Mines (KCM), but the firm’s majority shareholder, Vedanta Resources, is none the wiser as to the assets’ fate.
“The government hasn’t formally reached out,” says Deshnee Naidoo, CEO of Vedanta Zinc International of attempts by the Indian firm to agree an out of court settlement.
This is despite a high level meeting between Zambia’s government and Vedanta earlier this year aimed at suspending the liquidation plan – predicated on allegations Vedanta failed to pay creditors and dividends, or invest in its future – and setting down fresh investment targets.
The concern now is that KCM is heading for liquidation anyway whilst the government acts out a charade that all is well with the mines that Naidoo said in 2018 could one day produce up to 200,000 tons annually of integrated copper.
“We are concerned about the situation on the ground given the recent incidents,” says Naidoo.
‘The situation’ refers to statements imputed to Milingo Lungu, the provisional liquidator appointed by the Zambia High Court in May, claiming the government is running the KCM assets at levels in excess of those achieved by Vedanta during its 16 years in charge.
The suspicion is that the government is looking for a buyer for Vedanta’s stake and is, therefore, giving KCM the blush of success. Secondly, and more importantly, poorly managed operations pose serious and potentially fatal environmental and safety risks.
A sulphur dioxide leak from the Nchanga smelting facilities last week resulted in the hospitalisation of employees and children attending a nearby school. In a previous incident, 28 miners were trapped underground at KCM’s principal operation, the Konkola mine where a transformer failure resulted in the partial flooding of the mine. Vedanta CEO, Srinivasan Venkatakrishnan, is already on record as saying the failure of dewatering activities for longer than 45 minutes will permanently flood Konkola.
The evidence is that KCM is in financial distress. Copperbelt Energy Corporation (CEC), the entity through which electricity supply is regulated, issued a cautionary statement on September 27 advising that Zambia’s power utility, ZESCO, had issued a notice of arbitration against it for none payment of electricity tariffs.
“Given KCM’s average monthly consumption, we expect the amounts currently owed to CEC to be approximately $100m,” said Vedanta. “This will financially constrain CEC’s business and the entire electricity value chain, thus exacerbating the current electricity crisis in Zambia.”
Vedanta is also concerned the Milingo is acting rashly in “… awarding new contracts to inexperienced and unqualified contractors”. An increase in the vendor base poses another mining risk whilst simultaneously hinting at KCM’s stricken financial position.
The collapse of KCM would be a worst-case scenario for Vedanta followed by expropriation without compensation in the event the Zambian government is able to find a buyer for KCM. There are suggestions this might be the strategy.
There have been more than 14 ‘encroachments’ on KCM property by rival operators, the most serious of which is of Mimbula, an open-cast resource near Chingola that Vedanta had incorporated into KCM’s turnaround plan presented to the Zambian government earlier this year.
The property has shallow, easily accessible copper resources and presents quick pay-back, but it’s now in the hands of Moxico, a UK-listed company run by the former Rio Tinto business manager Alan Davies, after it agreed to pay $20m for the prospect: $5m payable by year-end and the balance settled in instalments.
In the meantime, Vedanta is waiting on court process: the Zambia High Court ruled that ZCCM-IH, the state-owned mining company through which Zambia owns its 20.6% stake in KCM, has to arbitrate its concerns with Vedanta’s local unit in terms of the shareholder agreement between them. Naidoo is hoping the matter can still be heard in the court before year-end.