The drastic decline of Zambia’s mining sector was never more apparent than it was this week when Glencore announced its exit from the country by selling its stake in Mopani Copper Mines for one meagre US dollar to state-controlled investment vehicle ZCCM Investment Holdings.
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The mine has been a cash drain for Glencore due to its operational challenges and high costs, so much so that it had agreed to sell its majority stake in the asset and the repayment of $1.5bn of transaction debt.
Having built a reputation for taxing mining companies to the brink under the administration of President Edgar Lungu, Zambia has naturally fallen out of favour with mining industry players, Glencore has just been adamant enough to call it quits. The question is, will other miners operating in the country follow in these same footsteps?
To date, Mopani has been funded by borrowings from Glencore’s subsidiary Carlisa Investments Corp. and other members of the Glencore group.
On completion, US$1.5 billion of debt will remain owed by Mopani to Glencore group creditors on the following terms:
a. interest under the transaction debt will be capitalised for the first three years after completion, and thereafter will be payable quarterly at LIBOR + 3% (subject to a switch to an equivalent interest rate based on SOFR); and
b. principal outstanding under the transaction debt will be repayable under a dual mechanism whereby:
i. 3% of gross revenue of the Mopani group from 2021-2023 (inclusive), and 10-17.5% of gross revenue of the Mopani group thereafter; and
ii. 33.3% of EBITDA less tax, changes in working capital, capital expenditure, royalty payments and interest and principal (calculated under the first mechanism) payments in respect of transaction debt, is at the end of each quarter required to be paid. Repayment of principal (together with accrued interest) may additionally be required in the event of an occurrence of certain other early prepayment events, including certain change of control events in respect of Mopani.
After completion of the sale, Glencore will retain offtake rights in respect of Mopani’s copper production until the transaction debt has been repaid in full.
As ZCCM is the holder of 10% of the voting rights in Mopani, a subsidiary undertaking of Glencore, the transaction falls within the criteria set out in Listing Rule 11.1.10R.
Accordingly, Glencore has obtained written confirmation from a sponsor that the terms of the transaction are fair and reasonable as far as Glencore shareholders are concerned.