ZCCM-IH ROYALTY ROUTE- ACCEPTABLE UNDER THE CIRCUMSTANCES – CHIBAMBA KANYAMA
- When I first heard discussions around a royalty deal between ZCCM-IH and First Quantum Minerals (FQM) were being conducted, I was extremely apprehensive. I feared two things. First, there would be a strong public outcry because anything that borders on relinquishing our interests in the mines is an emotive issue among many Zambians. There are legacy issues involved such as the manner the ZCCM mines were sold in the 1990s. Second, I have always anticipated that ZCCM-IH would be seeking to expand its shareholding in these mines instead of changing the reward model.
- From the time of the announcement, many Zambian technocrats have expressed their strong reservations about this model. Most of them stand on firm ground as citizens who should show interest in government assets. I am only concerned though that a few put forward strong positions against the model while admitting they understood little about the issue.
- I have taken time to comment on the matter because I wanted to access as much information as possible. The mining sector is an extremely complex matter. It is difficult to comment on it without adequate information.
- ZCCM-IH was the primary source of information (and I am not repeating the detailed reports herein). Its Strategic Plan is very elaborate about its broader intentions and gives context to this model. Since 2019, ZCCM-IH has been discussing possible models that would provide it with best returns. The royalty model has been one of them.
- I also talked to some members of the negotiating team in past week, including the ZCCM-IH Board Chairpersons, Dolika Banda. She is very accessible and happy to engage anyone. Ms. Banda is a Zambian citizen and high-profile investment expert who is respected internationally. Just given her credentials, her first stand is about protecting the interests of the country as well as her own professional reputation. There were also Zambians who represented the interests of Kansanshi Mining Plc. They too gave thought to this transaction, with one eye placed on ensuring the agreed model was favourable to Zambia (two members of the negotiating table either side are, interestingly, members of my prayer team, and this alone gave me confidence of their stand).
- I further engaged many other technocrats, Zambians who work within and outside Zambia. The majority appreciated the royalty model. Some analysis in support are quite lengthy but may share them at some opportune time. I quote one who preferred to remain anonymous if I published anything:
‘As with any investment house globally, we need to leverage different ways of assuring certainty of income and optimising overall portfolio returns. In addition to dividend, royalty is one form. There are many others that ZCCM-IH can research on. The certainty and longevity profile of the royalty also allows ZCCM-IH, if ever needed, to go to the capital markets and borrow against almost guaranteed future flows. It will be nice to hear from others about new ways of maximising returns for the shareholder. Investment is what it is. There are different investment tools and products and each must be assessed for its attendant risk/reward profile. It is not wise to put all eggs in one basket – even in our personal lives we invest in different things to enhance our household income streams. As Einstein said…”Insanity is doing the same thing over and over and expecting different results”. - There are those who feel government should not run government assets as though they are personal assets. My question would be, ‘If these underperforming assets (including many other parastatals) were personal assets, would we allow them to grossly underperform? Would we not be seeking for best models of ensuring healthy returns? Many successive governments have failed to derive value from these assets for fear of public sentiment opposed to anything that sounds like ‘selling’ or otherwise. We are better off allowing the vehicle hang on the stones for years as opposed to selling or leasing it.
- There are issues of withdrawing criminal cases against directors of FQM/Kansanshi Mining Plc. I am sure ZCCM-IH considered the bigger picture in withdrawing the case. The same reasons that led to this case appear to be the same reasons that, in part, motivated the discussions for mineral royalties. That may have been one reason FQM equally walked to the table and agreed to the terms of the deal. In any case, we are familiar with criminal cases being withdrawn, others even given immunity.
- This deal is not spotless. It still has weaknesses, and this happens in any negotiation where both parties want to take away more than the other. But it remains best under the circumstances of suspicions, unending litigations and mistrust.
- It is would be beneficial for journalists to dig into this matter, analyse other models that exist elsewhere, including institutions that opted for even less than 3.1 percent loyalty. The journalists should also interview ministers in the most recent government as to what was being discussed regarding various models and whether or not there has been any departure to what was initially agreed on the part of ZCCM-IH.
- It is very difficult to get the best reward in investments as complex as this one. Mining has always been a challenging area for Zambia, even during the time we wholly owned the mines. The best is to trust our professionals and technocrats that they exercised high level due diligence in the interest of the nation. Given my personal confidence in the team that negotiated, and the credibility of the information accessed, I can safely state that the royalty model is acceptable under the circumstances.
- I encourage those keen to appraise themselves with this transaction to visit the ZCCM-IH website. There is informative material you may find valuable.
