GLENCORE is to ‘sell’ its 90% stake in Mopani Copper Mines to the Zambian government in terms of which it will offload $1.5bn in debt held within Mopani Copper’s structure as well as own exclusive rights to copper offtake from the mine until the debt is repaid.
The Swiss mining and trading group announced today a nominal $1 deal for Mopani Copper provided Zambia Consolidated Copper Mines (ZCCM), the state-controlled miner, agreed to shoulder debt held in Mopani Copper.
ZCCM, as a 10% shareholder in Mopani, has to approve the transaction.
Interest on the debt would be capitalised for the first three years which then be payable quarterly at LIBOR plus 3%. As for the capital, that would be settled through a percentage of gross revenue as well as earnings before interest, tax, and depreciation (EBITDA) Provisions have also been made should a third party purchase Mopani Copper from ZCCM.
Glencore mothballed Mopani Copper in April last year, saying the copper price and the investment environment in Zambia were not supportive of operations. The move triggered a dispute with the Zambian government which threatened to suspend Glencore’s mining license.
Reports from Zambia earlier this month suggested a sale settlement had been agreed so today’s announcement is not a major surprise. The structure of the deal is in keeping with Zambia’s fiscal position: in November, it defaulted on bondholder debt.
In ZCCM’s favour, however, is a strong copper price which is currently at $7,968 per ton, some 28% higher year-on-year. The view on the copper market is a growing supply deficit as new supply falters whilst demand increases as metal is fed into the growing electric car battery and sustainable energy industries.
In terms of the principal debt repayment structure, Glencore keeps a tight leash on ZCCM in that it is quarterly in respect of 3% of gross revenue from 2021 to 2023 (inclusive) and then 10% to 17.5% of gross revenue from Mopani thereafter.
In addition, Mopani must pay quarterly 33.3% of EBITDA less tax, changes in working capital, capital expenditure, royalty payments, and interest and principal payments in respect of the transaction debt.