How bad must a country be for a company with the reputation and size of Glencore to walk away from assets for a single dollar in cash and the repayment of $1.5bn (R22.2bn) of debt?
The answer is: as bad as Zambia.
Speak to anyone in the resources industry about Glencore and you hear that they are not the cute and cuddly types, especially in sourcing and marketing minerals, grains and other commodities. They’re tough as hell.
For them to chuck in the towel at the Mopani copper mine in Zambia speaks volumes.
To be fair, it wasn’t the best mine in the world, with analysts describing it variously as a difficult and high-cost asset and one that wasn’t a significant source of revenue for Glencore.
But to get rid of it as quickly as Glencore has done while Zambian President Edgar Lungu is talking about the state taking majority stakes in mines and while the government is effectively trying to throw India’s Vedanta Resources out of the country after its $1.6bn investment in Konkola Copper Mine, tells you all you need to know.
Zambia is a tough place to do business, with chopping and changing on taxes as well as electricity constraints in a country that has defaulted on its debt. Add to that uncertainty a rich layer of political opportunism about mines already labouring in adverse operating conditions, and the question is why would any serious company hang on to a difficult asset.
An interesting part of the sale of Mopani to state-owned ZCCM Investments is the debt repayment structure. Glencore retains the exclusive right to market and sell all copper coming out of Mopani and retains an agreed percentage of sales revenue towards repaying the $1.5bn of debt.
That Glencore didn’t rely on agreements about debt repayment out of profit or higher up the income statement also speaks to the global miner’s cynicism about ZCCM or Mopani’s ability to pay off the debt. Glencore takes its payments at the very first opportunity, virtually at the source.
For Zambia it sends a poor message to the mining investment community. Fighting with your main taxpayers, electricity users and large employers while your economy is imploding sends an entirely wrong message at the worst possible time.
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