© Reuters. FILE PHOTO: The logo of commodities trader Glencore is seen in front of the company’s headquarters in Barr, Switzerland, on November 20, 2012. REUTERS/Arnd Wiegmann/File Photo/File Photo
JOHANNESBURG (Reuters) – Mining and commodities trading giant Glencore (OTC: ) helped finance Zambia’s Mopani copper mine as it failed to pay bills on time and the state has not found a new one after more than a year. Investors it took over the complex.
Glencore sold Mopani to state-owned mining investment firm ZCCM-IH and has since helped cover some of Mopani’s operating costs, including electricity bills and buying concentrates from third parties, two sources with direct knowledge of the situation said.
Mopani is not generating enough revenue to meet current spending, one of the sources said, adding that the company cannot afford the investment needed to mine more and take advantage of high copper prices.
The sources asked not to be named because they are not authorized to speak to the media.
A third source close to Mopani said Glencore had offered Mopani two or three letters of credit when the company did not have enough cash to buy copper concentrate, effectively securing Mopani’s purchase.
Mopani Copper Mines chief executive Charles Sakanya said the company did not receive any loans from Glencore, and claims that Glencore covered some of Mopani’s costs were speculation. He did not respond to a request for comment on the letter of credit. Glencore is the sole offtaker of the mine’s copper, and according to the deal, ZCCM-IH took $1.5 billion in debt and a notional $1 in cash on March 31 last year.
The source did not say how much funding Glencore had provided.
Glencore did not answer Reuters questions about Mopani’s cost, but said in a statement: “Glencore will continue to work with ZCCM-IH to ensure Mopani’s success through our off-take agreement and related funding arrangements.”
Zambia’s President Hakainde Hichilema, who was elected in August last year, criticised the Mopani deal while in opposition, saying the state should not take on more debt when it had defaulted two months earlier and was in talks with the International Monetary Fund (IMF) for financial support.
Investment needs in Zambia remain urgent.
It reached a staff-level agreement with the International Monetary Fund in December on a $1.4 billion extension of its credit facility, but money cannot flow until Lusaka and its creditors agree to bring debt down to sustainable levels.
Since the election, Hichilema has asked his government to find new investors for Mopani. Officials said they were “very close” to doing so.
Mopani’s Sakanya said miners had to renegotiate agreements with suppliers, copper concentrate purchase contracts, letters of credit and overdrafts following the change of ownership. Those negotiations, along with the failure of the North Shaft in March, led to payment delays.
Mopani’s payment frequency has slowed in recent weeks, one supplier said. “They have this giant monster to run, but they don’t have enough money to run it,” the supplier said, asking not to be named.
“Yes, we do owe some money,” Sakanya said, adding that he couldn’t say how much because the number was constantly changing. “That’s what we’re trying to figure out.”
Reuters could not independently determine how much Mopani owes its suppliers in total.
Late last year, government officials asked the mine’s electricity provider, Copperbelt Energy Corporation, to ease payment terms, but the CEC refused, a fourth person familiar with the matter said. Mopani continues to pay electricity bills on time, the CEC said.
Zambia’s Mines Minister Paul Kabusway, contacted by phone, declined to comment on whether Glencore was providing financial support to Mopani. “When we find better partners, everything will go back to normal,” he said.
The search for new investors in Mopani is seen as a touchstone for the government, which wants to show Zambia is open for business and has set an ambitious target to more than triple the country’s annual copper production over the next decade .
“I wanted to find an investor yesterday, that’s the timetable,” Kabswell said. “I am in a hurry.”
Sakanya said the original smelter at Mopani, more than 80 years old, was built in 1937 and needed $300 million to fund an expansion to unlock the potential to produce 225,000 tonnes of copper a year.
Mopani said it produced 87,618 tonnes of cathode copper in 2021, down from 93,106 tonnes in 2020.
Copper production is expected to reach 80,684 tonnes this year, with a drop of almost 8% expected due to a month-long outage and a smelter scheduled to shut down for 45 days in July for maintenance, Sakanya said.
Glencore’s April 2020 decision to take care of and maintain Mopani drew ire from the Zambian government, which wanted it to remain open and write down the mine’s value between $1.041 billion and $861 million later in 2020 . Glencore said it has invested $4.4 billion in Mopani since 2000.