Glencore bankrolls Zambian copper deal

Swiss trader Glencore International and First Quantum Minerals (FM-V) have moved a step closer to completing a deal with the government of Zambia and Zambia Consolidated Copper Mines (ZCCM) to buy a 90% interest in the Mufulira and Nkana copper-cobalt operations.

Combined, the Mufulira and Nkana mines produced 86,000 tonnes copper and 1,250 tonnes cobalt during the fiscal year ended March 31, 1999.

Nkana hosts a resource of 323 million tonnes grading 2.21% copper and 0.1% cobalt, including a reserve of 76 million tonnes grading 2.26% copper and 0.14% cobalt. The resource at Mufulira consists of 71 million tonnes grading 3.1% copper, including a reserve of 29 million tonnes with a copper grade of 3.02%.

Zambia’s copper mines have been in steady decline since the early 1970s, when they were nationalized by then-president Kenneth Kaunda. Since the nationalization, annual copper output has shrunk to 250,000 from 700,000 tonnes.

The current government has sold the Konkola, Nchanga and Nampundwe mines to South African-based Anglo American. These mines account for about 70% of Zambia’s copper production. First Quantum and Glencore will effectively hold the balance of the country’s production.

Under the agreement, ZCCM would receive US$20 million on closing and US$115 million in equal annual payments between 2003 and 2007. Glencore would finance the acquisition by lending First Quantum US$9.8 million at no interest. In exchange, Glencore would receive 1.5 million purchase warrants exercisable at $3.75 per share.

The new venture is committed to spending US$159 million over the next three years and making conditional investments of US$343 million. ZCCM will retain a 5% free and 5% repayable carried interest. Glencore would also supply a US$25-million working capital facility, as well as a US$15-million standby facility.

First Quantum plans to raise $2.1 million by issuing 550,000 special warrants at $3.75 each. Each warrant will be convertible into one share of the junior copper producer.

First Quantum already produces copper from its wholly owned Bwana Mkubwa mine, about 5 km southeast of Ndola, at the southern end of Zambia’s copper belt. At last report, proven reserves stood at 7.4 million tonnes grading 0.726% copper, or 102 million lbs. contained copper.