AFRICA SPECIAL — Cyprus Amax is winner in first ZCCM privatization

As a test drive of Zambia’s privatization policy, Zambia Consolidated Copper Mines (ZCCM) has accepted a bid of US$28 million from Cyprus Amax Minerals (CYM-N) for an 80% interest in the Kansanshi copper mine in the northern copper belt.

Kansanshi is an essentially undeveloped copper deposit, though there is some small-scale copper mining under way, which will continue under ZCCM’s supervision. A 24-million-tonne mineral resource grading 3% copper has been outlined.

To earn its interest under the agreement, Cyprus has committed to spend US$5 million over two years on exploration sufficient to take the project to the prefeasibility stage. If Cyprus proceeds to the second stage of the project, Cyprus will spend US$15 million and provide a bankable feasibility study. If the company elects to bring the deposit into production, it must procure financing for development.

There are cash payments at each stage — US$3 million initially, US$10 million to open the second stage of work, and US$15 million at the time of a production decision. The project pays a quarter of ZCCM’s 20% carried interest directly; the remainder comes from dividends. If Cyprus drops the option at any time, ownership reverts to ZCCM and Cyprus must pay ZCCM half of any spending commitment it has not met.

The Kansanshi agreement is the first component in a program aimed at privatizing ZCCM. The company, in which the Zambian government holds a 60.3% interest and South African mining house Anglo American 27.3%, yielded more than 700,000 tonnes in the mid-1970s but now produces fewer than 400,000 tonnes annually. When the Movement for Multiparty Democracy won the elections of 1991, privatization of ZCCM formed a major part of its economic platform.

The ZCCM assets were divided into nine packages — six mines, two metallurgical plants, and an electrical power division — and tenders were invited internationally. Tenders closed on Kansanshi, the first privatization, at the end of November, and the contract was signed in mid-January. The remaining assets go to tender at the end of February, and 33 companies or groups have pre-qualified to bid.

The roster includes Anglo American, Gencor and Falconbridge (FL-T), which are bidding on their own and as a consortium. Also bidding are Australian heavyweights BHP and WMC, South African houses Iscor and Anglovaal, American copper producers Cyprus and Phelps Dodge (PD-N), the China Non-Ferrous Metals Industry Corp., Mexico’s Ispat, Marubeni of Japan, and a number of South African and Australian juniors. The Canadian contingent includes Noranda (NOR-T), Teck (TEK-T), Falconbridge, and several juniors.

The biggest prize is a package that includes most assets in ZCCM’s Nchanga and Nkana divisions, followed by the Luanshya division and by the Mufulira mine and mill. The Kansanshi and Chambishi copper mines and the Chambishi cobalt plant were severed from the Nchanga-Nkana package for individual sale, and the precious metal plant at Ndola was split off the Luanshya package.

Caledonia Mining (CAL-T), already actively exploring in the copper belt, is bidding for the Luanshya division, Mufulira, Chambishi, the Ndola plant, and a pyrite mine at Nampundwe. Vancouver-based First Quantum Minerals (FM-V), which is also active in Zambia, is bidding on the Chambishi mine and ZCCM’s Luanshya division. Indochina Goldfields (ING-T) has qualified to bid on Luanshya, Mufulira, the Chambishi mine, and the Chambishi cobalt plant.

Six power utilities, including Zambia Electricity Supply Corp. and companies from Canada, South Africa, Belgium, the U.S. and Britain, are bidding on ZCCM’s power generation and transmission division.