What Next for the Mining Sector?
Efforts by the New Dawn administration to advance anti-corruption efforts and hold perpetrators to account appear to be gathering steam, with the former minister of finance Joseph Malanji and former secretary of the treasury Fredson Yamba the latest to be arrested. President Hichilema is on record as describing the amount of money stolen by past officials as “horrifying”, claiming that the hole [in the treasury] is much bigger than the incoming Government had anticipated.
The elephant in the room remains the mining sector. As a major copper producer, the sector is an obvious starting point for a Government in urgent need of funds but it is in a critical state after years of policy flip flops and disagreements with major investors. The Chamber of Mines has called on the New Dawn Administration to provide stability and certainty and Government has already moved to incentivise increased investment in the sector in a bid to ramp up production and generate more revenue. What the sector needs urgently is certainty and some quick wins that demonstrate Government’s readiness to work constructively with investors in the interests of Zambian citizens.
Aside from tackling corruption, securing a resolution to the outstanding dispute regarding Konkola Copper Mines (KCM) is an obvious next step for the administration. Provisional liquidator Milingo Lungu is also among those to have been arrested in recent days, once again highlighting the serious mismanagement of the mines under the PF administration. While President Lungu’s administration claimed its takeover of Mopani Copper Mines and push to liquidate KCM were in the national interest, declining production volumes and the subsequent arrest of Milingo Lungu on charges of money laundering and theft have undermined these claims and exposed them as being political motivated.
The legal basis for the dispute is the subject of an arbitral tribunal in London, which has determined that the government was in fact in breach of its shareholder agreement with Vedanta. As it stands KCM’s assets appear to have failed to attract any serious investors because of the legal risks involved for any investor.
The concern now is that these moves have jeopardized the future of the entire sector. The prospect of KCM falling into long-term disrepair is increasing by the day meaning there is no time left to find a new buyer. Should the mine fail, it is the employees and all those whose livelihoods depend on the mines that will once again find themselves bereft. Against this backdrop Government should capitalise on stated commitments by Vedanta that they will invest an additional K33.8bn ($1.5 billion) into KCM if the license is restored, as well as the pledges they have made to work more closely with local communities and strengthen their social license to operate. This appears to be the only viable route to ending the current instability in the asset and to restoring the mine so that job security can be provided, the economy of the Copperbelt revived and revenues to the Treasury resumed.
Problems at Mopani also require urgent attention. After the PF Government bought the mine from Glencore at a cost of an additional $1.5 billion in debt, the asset is still lacking a private backer. Without additional investment the mine will be unsustainable and unable to provide job security to its workers or generate sufficient revenues to cover the costs of the loan for its purchase. If the Government is serious about its New Dawn then resolving these issues must be among its most pressing priorities in the coming days.