By Alexandra Wexler and Nicholas Bariyo
Zambia, which defaulted on payments to bondholders in November,
is doubling down on debt with a high-stakes bet that nationalizing
one of its biggest copper mines will help rescue its flailing
Once seen as among the most investment-friendly countries in the
region, the landlocked nation in south central Africa is the most
extreme example of a wave of populist governments in
mining-dependent countries that are struggling to pay the bills
after borrowing for infrastructure in recent years. Zambia was the
first country on the continent to register a pandemic-era default
on a sovereign debt payment late last year when it missed a $42.5
million interest payment on some of its $3 billion of
The country has some $12 billion in external debt, including $3
billion in international bonds and large loans from Chinese
state-owned lenders. The government hasn't said exactly how much it
owes to Chinese lenders as a whole. Johns Hopkins University's
China-Africa Research Initiative estimates that Zambia has signed
some $9.9 billion in loans from China, although not all of that
money has been drawn.
But in January, Zambia's state-owned mining company took on $1.5
billion in debt to take over a Glencore PLC copper mine, Mopani
Copper Mines PLC, the latest in a string of moves that has remade
the country into an exemplar of resource nationalism.
Zambia is the fourth-riskiest country on consulting firm Verisk
Maplecroft's Resource Nationalism Index, which assesses the risk to
commodity producers from governments seeking greater control over
their country's mineral and energy deposits. Verisk Maplecroft said
that the economic impact of the Covid-19 pandemic has further
encouraged government intervention in the mining sector.
Last year, Zambia began talks with the International Monetary
Fund on an economic program that will form the basis of the
nation's planned debt restructuring. The Washington-based lender
said it hopes to reach a deal with Zambia before elections
scheduled for August, but analysts say the Mopani deal could throw
a wrench in the works.
"Taking on another debt of this size at this time is exactly
what you don't want to be doing," said Anne Frühauf, managing
director at communications and advisory firm Teneo Holdings LLC.
"This could well be one of the sticking points in the current
negotiations [with the IMF]."
The Mopani talks began last year, when the government said it
planned to revoke the company's mining license, accusing Mopani of
violating the terms of its operating permit by suspending
operations because of the coronavirus pandemic without giving
sufficient notice. Mopani's Australian chief executive, Nathan
Bullock, was briefly detained at Lusaka airport in Zambia's capital
before being released.
Months of talks concluded in January, when Glencore announced
its subsidiary had agreed to sell its underlying 73% stake in
Mopani to state-owned mining investment firm ZCCM Investments
Holdings PLC for $1 and the assumption of $1.5 billion in debt. The
Anglo-Swiss commodities company said the debt would remain owed by
Mopani to Glencore group creditors and that Glencore would retain
the right to purchase Mopani's copper production until the debt is
Under the terms of the deal, ZCCM will repay the debt by giving
Glencore creditors 3% of Mopani's revenue to 2023 -- it then jumps
to between 10% and 17.5% -- in addition to quarterly interest and a
third of earnings before interest, taxes, depreciation and
amortization, minus some deductions.
However, Mopani is currently losing money and its management
says that it needs to raise production to an annual target of
140,000 metric tons to make the mine profitable.
That requires about $300 million in capital investment for
expansion projects. Mopani produced just over 34,000 metric tons in
2020, hemorrhaging cash. Richard Musukwa, Zambia's mines and
minerals development minister, says the government is in talks with
prospective investors from Turkey, Canada, China and the U.S.,
"The debt burden is officially on [Mopani]'s balance sheet, but
as it is a consistently loss-making entity, it will de facto fall
on the government," said Irmgard Erasmus, a senior economist at
South Africa-based NKC African Economics.
As a result, "it's possible the mine operation may be used as
collateral if we don't get an investment partner soon," an official
at the Zambian finance ministry with direct knowledge of the
In taking over Mopani, the government is betting that Zambia's
economy could be rescued by the sharp rise in copper prices, which
are trading around 10-year highs due to strong Chinese demand for
raw materials that has rebounded since the worst of the pandemic.
China accounts for roughly half of global copper demand.
Government officials publicly claimed the Glencore deal was
necessary to save 15,000 jobs at the Mopani mine in Kitwe, a mining
town that has been battered since a decadelong commodity boom ended
in a spectacular 2015 crash. Zambia's population of 18 million
people relies on copper for two-thirds of its export revenue.
Mr. Musukwa didn't respond to requests for comment about the
prospect of China taking over the mine.
"We simply don't have the capacity to run these financially
troubled and technologically complicated mines," said Fred M'membe,
the president of Zambia's opposition Socialist Party. "This
decision has nothing to do with any strategic business
If Zambia fails to make the repayments, analysts and Zambian
officials say, the mine could be exchanged as collateral with China
for debt referral or forgiveness, which would put the strategic
state asset into Beijing's hands. Some U.S. officials have said
China is extending huge and potentially unsustainable debt to
African countries to give it greater regional sway.
China's foreign ministry said that it had signed debt relief
agreements or reached consensus on debt relief with 16 African
countries and stressed it would "never force them to repay debts,
let alone take over any state-owned assets."
In the copper mining heartlands near Zambia's Congolese border,
families are surviving by reducing the number of meals they eat a
day, driving up malnutrition, aid officials say.
Angella Namakawa, who operates a fruit stall in Kitwe, where the
Mopani mine is located, says she can only afford a single meal of
nshima, a sticky porridge made from corn flour, for her family of
four each day, after prices for the country's main staple rose by a
third last month.
"I can barely make ends meet because prices of almost everything
keep going up," she said in a phone interview. "Our currency is
becoming useless yet we have to keep paying bills, buying food and
Write to Alexandra Wexler at firstname.lastname@example.org and
Nicholas Bariyo at email@example.com
(END) Dow Jones Newswires
April 27, 2021 05:23 ET (09:23 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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