COPPER
Vedanta Nervous Amid Rise of Resource Nationalism in Africa
June 2019
Konkola Copper Mines (KCM)—a subsidiary of Vedanta Resources—is one of Africa’s largest integrated copper producers. Its mining operations in Zambia are located in the Copperbelt and Central Provinces, and include open pit mines, underground mines, two concentrators, a leach plant, a flash smelter, a modernized refinery and a sulphuric acid plant. Much of the product it produces is exported to South East Asia, China and the Middle East.

The company employs over 13,000 employees, making it one of the largest private-sector employers in Zambia. The state-owned mining company Zambia Consolidated Copper Mines Investment Holdings (ZCCM-IH) holds a 20.6% stake in the company, while Vedanta owns the remaining 79.4%.

Since its establishment in Zambia, KCM has had poor financial, environmental and safety track records, with many calling the company’s mines “cursed”. In 2015, hundreds of Zambian villagers filed a lawsuit against Vedanta in UK courts over water pollution allegedly caused by KCM; the villagers claimed that the company had been spilling sulphuric acid and other toxic chemicals into the local water sources—damaging their lands and livelihoods as a result. In April 2019, after several appeals from both sides, the UK Supreme Court has ruled that the Zambian villagers were entitled to seek compensation for pollution from Vedanta.

The company has also been highly criticised for its appalling safety record, with nine fatalities reported in Vedanta’s latest annual report for the 2018 financial year alone, up from 7 fatalities in the 2017 financial year.

Despite continued pushes for increased efficiency, KCM has invested over US$3bn since the acquisition of the Zambian assets and is yet to receive a positive return on its investment, making the company’s liquidation all the more damaging for Vedanta.

Earlier this month, Zambia’s president announced his government’s plan to liquidate Vedanta’s KCM and take over its assets after many alleged breaches of the terms of its mining and operating licence, without giving further details about said breaches. On May 20, 2019, KCM announced in a press release that it was aware of media reports quoting the Zambian president’s plans to liquidate the company following breaches to its licence to operate. KCM, which did not receive formal communication from the government of Zambia at the time, sought an urgent meeting with the country’s officials.

 

 

Later the same week, the court hearing between the two parties over the liquidation of KCM was adjourned until June 4, which has since been adjourned to the following week. Vedanta is actively seeking to be part of the KCM liquidation proceedings from which it was been excluded so far. This move comes amid growing concerns in the mining industry about rising resource nationalism in Africa. Vedanta said that it is owed over US$180mn in value-added tax refunds from the government, with the latter saying that it will repay legitimate refunds but is seeking to introduce a sales tax that would not be refundable.

Indeed, the Zambian government has also announced a change in its tax regime: the tax changes will force mining companies to withhold the investment Zambia needs, further eroding investor’s confidence and weakening the country’s currency by more than 6% against the dollar. First Quantum, one of the country’s largest taxpayer, initially threatened to lay off workers as a result of the new tax regime, but late retracted following talks with the government.

Earlier this month, Mopani Copper Mines—which is owned by giant Swiss mining company Glencore—revealed its plan to close two mining shafts at its Nkana mine in Kitwe after they reached the end of their economic mine life. Union leaders have since called on Glencore to reverse its decision or re-deploy the 600 employees affected by the shafts closures.

Mopani Copper Mines has also good reasons to be worried, due to its equally outrageous fatality rate. The company reported 9 fatalities in 2017 and 13 fatalities in 2018.  Five workers have already been killed in two separate incidents earlier this year: three workers died in an underground fire at the company’s Mindola North Shaft, and an additional 2 fatalities were reported at South Ore Body shaft. The company has since taken measures to improve its safety practices by suspending its underground operations involved and sending its workers on a safety training course. Time will tell whether this initiative alone was successful in putting a halt to the alarming fatality rates at Mopani’s operations.