Anglo American is tentatively venturing into Zambia and will have a serious discussion with the government over best-practice mining policies if it finds a copper deposit worth developing, says CEO Mark Cutifani.
Anglo has twice burnt its fingers in Zambia; when its mines were nationalised in the 1970s, and when it beat a hasty retreat from its ill-fated and brief foray into copper mining post-nationalisation in 2000.
While Anglo’s presence in Zambia is limited to exploration and is marked by a cautious approach, there are ominous signs of continued government meddling in the mining industry and poor decision making coupled with continued policy uncertainty and an unfavourable tax regime.
The latest development was president Edgar Lungu saying last week the government is to take majority stakes in selected mines, although he insisted this is not nationalisation. He did not identify the mines the government is targeting.
His comments came after Zambia defaulted on a debt repayment in November and as the state is looking for ways to fill its coffers.
Anglo is well aware of developments and will hammer out the best mining investment agreement possible before making an investment if it did find an economically viable deposit, Cutifani said in an interview with Business Day.
“We don’t rule out a jurisdiction if you have a policy setting that’s partially negative. At the moment, Zambia is very hard. They have a history of changing their policies quite regularly. But one hopes that common sense will prevail,” he said.
“Every time they’ve gone negative on policy it’s hurt them badly and so we’ll take a long view and hope they come back to longer-term policies that have proven so successful in other jurisdictions.
Zambia’s copper output fell to 797,000 tonnes in 2019 from nearly 858,000 tonnes the year before, according to the Zambian Chamber of Mines, which has warned it expects production to fall by another 100,000 tonnes in 2020.
“We won’t put big investment in with those policies. That has to change. If we were successful in our exploration, then we could sit down with the government and maybe that might be the catalyst,” said Cutifani.
Anglo was involved in Zambia’s mining industry from early in the last century but nationalised its mines in the 1970s. Unlike other companies, however, it was the principal minority shareholder in state-owned mining company Zambia Consolidated Copper Mines (ZCCM), with a 26% stake held by subsidiary Zambia Copper Investments (ZCI).
“We’d be very open to providing our feedback on best-practice policy settings with the government. They may or may not want to do that. Ultimately you don’t invest unless you have certainty,” Cutifani said.
As the political and economic pendulum in Zambia swung back to private ownership in the late 1990s and into the early 2000s, ZCCM’s mining assets were sold to proven mining companies, but the process was marred by political interference, malfeasance and unsavoury dealings.
The Economist described the privatisation process in 1999 as an “object lesson in how not to privatise”.
A 2002 report compiled by Rights & Accountability in Development and Afronet painted Anglo in an unfavourable light. It showed it forcing through deals that suited the multinational miner and did not fully live up to the benchmark standards of the Guidelines for Multinational Enterprises of the Organisation for Economic Co-operation and Development.
While some companies thrived, pouring $12.4bn into four major mines between 2000 and 2014, Anglo shut shop within two years of its March 2000 purchase of Konkola Copper Mines.
The problem for ZCCM was that the bulk of its profits during roughly 24 years of running Zambia’s copper mines was directed towards other areas of the economy and infrastructure development. This meant the company could not maintain its equipment, keep its operations modern or adequately develop its ore bodies.
Zambian copper production fell to about 250,000 tonnes in 2000 from a prenationalisation high of 720,000 tonnes in 1969. It is now above the 700,000 tonnes a year mark but well off the 1.5-million tonnes the World Bank predicted in 2015 that Zambia would achieve by 2019.
“This deceleration has been caused largely by unpredictability in mining policy, with a strong tendency towards resource nationalism, and increasingly onerous mining taxation (particularly since January 2019) which has made it difficult to raise the capital mines need to build production,” the Chamber of Mines said in a July 2020 report.
It noted that the effective tax rate for mining companies was 93%, which absorbed nearly all operating profit, leaving little for investment in equipment, let alone expansion.
For Anglo, its efforts to secure the best assets from the ZCCM unbundling was a pyrrhic victory.
Anglo pulled out of Zambia in 2002, less than two years after buying the large asset base held in Konkola Copper Mines, the single biggest source of copper in Zambia at the time, accounting for two-thirds of the country’s output, and which was held by Anglo’s 51%-owned ZCI.
A low copper price worked against Anglo as did the scale of investments it had to make in the dilapidated, aged, and poorly maintained mines. It had planned a $700m project to deepen the Konkola mine, but its difficulties in raising capital and the weak copper price led to its scrapping, which drew a line under its continued presence in Zambia’s copper industry.
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