To Buy or not to Buy Mopani

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Mr Chabala

WALA CHABALA writes
@SunZambian

TO buy or not to buy Mopani, that is the question. Indeed, that is the question on the minds of a lot of Zambians at present. And while the answer is not exactly a simple one, there also appear to be entrenched positions on both sides of the question.
On one side are those that are keenly pushing for the buying of Mopani and among their considerations is the notion of the country needing to hold majority share ownership in major assets such as mining operations. This is against the background that the biggest assets in the country, such as mining businesses, are all majority foreign owned. And to make matters worse, the Press has been replete with reportage of these foreign owners not exactly running these businesses for the optimal benefit of the country and its people.

Indeed, the latest Financial Intelligence Centre Money Laundering and Terrorist Financing Trends Report has yet again pointed a finger at some mining companies repatriating proceeds to offshore tax havens to avoid paying taxes in the country. This only goes to bolster the position of those arguing for majority Zambian ownership of Mopani believing that such felonious conduct as currently indulged in by some of the foreign owned mines would be curtailed.
Another argument for buying majority stake in Mopani would be that while all the copper currently mined and processed is shipped out of the country with very little left in-country for further value-addition, perhaps with the country owning majority shares in Mopani, more favourable arrangements can be put in place for more value-addition of copper in the country. It is nonsensical that the likes of ZAMEFA can struggle to buy copper from a mining company because all its produce is apparently already committed to external buyers.


The matter of local beneficiation of copper is tightly tied to that of local suppliers to the mining businesses and it is one of the issues that the proponents of majority ownership in Mopani are using in their argument. Indications are that there have been very unfavourable procurement arrangements at Mopani, especially for local suppliers. And given that this aspect has significant externalities into the local, regional, and national economies and it can even be leveraged to stimulate fabrication and manufacturing in the country, it is a heavy buttress in the argument for majority ownership of Mopani.
But for all the arguments for buying majority shares in Mopani, we should appreciate that the issue of the foreign owners externalising a lot of the benefits that could accrue to the country is only made possible because the mines are being run as viable businesses. If we fail to run them as such, even the little tax that currently accrues, in form of mineral royalties, employee taxes, etc will not be there. In fact, God forbid that the mines with majority Zambian stake end up like some parastatal entities which perpetually fail to honour their statutory obligations. Indeed, the biggest caveat to the arguments for majority ownership of Mopani by the Zambian government is that this may result in the Mopani mines being run down as was the case when the country previously nationalised these businesses.
So, those that are keenly on the side of buying up majority stake in Mopani need to give the country assurances of how the mines will be operated viably.


But there are also other valid reasons why it may not be a good idea to buy majority shares in Mopani. One of the biggest challenges is the issue of price. Unfortunately, when selling an asset like a mine, there is no price tag stuck on it like on an item on the shelves of the supermarket store. The price of an asset like a mine is extremely subjective and there are many different methods that can be used to come up with the value of a share. And to compound matters, the buyer and the seller will each want to use the method that gives the price that is in their favour: The buyer wants as low a price as possible while the seller will want to get the highest price tenable.
If Mopani was listed on the Securities Exchange, the price of the share on the market would be a very good indication of the price for both the buyer and the seller. But this is assuming that the stock market exhibits characteristics of an efficient market with the indicated price being fixed purely by market forces. Alas, even though Mopani is not listed on our stock market, such guarantees cannot readily be given about prices of shares on our market currently, for a whole myriad number of reasons.
But for the mines, other contemplations come in for getting to the price of the asset. The quantification of the ore in the ground and how easy or difficult it is to get it out and process are considerations which on the face of it may make it possible to arrive at a more objective price of the asset. However, even these aspects are subjective and the best approach to dealing with them is to undertaken independent valuation, which exercise comes with its own price tag and the attendant question of who pays it.
Furthermore, the buying of Mopani shares could also be fraught with undeclared liabilities that may either not be easy to determine or the current owners potentially try very hard to hide from the prospective new owner. In fact, in the case of Mopani, one source of such liabilities is the case they lost in the Supreme Court recently. Has the company settled what the Court determined it ought to pay? It is therefore even possible that should all the liabilities be accounted for, their value could be more than the value of the assets of the company.
What the foregoing simply means is that unless we have a team of experts that can engage and negotiate ruthlessly on all aspects that drive the price of a mine, it would not be wise to pay for Mopani whatever price the current owners may be putting on the table, especially given that presently money is desperately needed by the country to respond to and address the COVID-19 induced adversities.
But I think the issue of buying majority shares in Mopani has focused on completely the wrong player in terms of the prospective buyer. We know from the past, and from the performance of some of the current state-owned entities, that government is usually not the most effective owner of business undertakings. Therefore, the best arrangement for buying up majority shares in Mopani ought to be for private citizens to be in the forefront of this process. Why could it not be that several Zambian entrepreneurs get together and mobilise resources to own mining businesses? Especially given that the valuation of Mopani may not be that expensive for Zambian entrepreneurs to fail to mobilise the required resources to buy the shares.
The role of the government in this would not be to buy the shares but to facilitate serious citizen empowerment initiatives. Why, one of the richest African mining tycoons did not have a chest of cash to embark upon the mining ventures that have made him rich. Indeed, rarely do entrepreneurs have chests of cash to dip into to participate in ventures such as the buying of Mopani. There just needs to be facilities and potential for arrangements in the country for entrepreneurs to participate in deals such as this one.
So, after almost 60 years of independence, what we ought to be talking about when we discuss sell off of assets such as Mopani is which Zambian entrepreneurs are bidding to buy, as opposed to debating whether government should buy or not buy.

Evans David Wala Chabala, former Secretary and Chief Executive of the Zambia Securities and Exchange Commission (SEC). wala.chabala@cantab.net

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