The Hindu Business Line : Vedanta to buy 51 pc stake in Zambian copper mine

VEDANTA Resources Plc, the London Stock Exchange-listed holding company of the Sterlite Group, on Friday announced that it planned to acquire a 51 per cent controlling stake in Konkola Copper Mines in Zambia, for a total cash consideration of $48.2 million.

Konkola Copper Mines (KCM) is currently 58 per cent owned by ZCI, a company with its primary listing on the JSE Securities Exchange South Africa, and 42 per cent owned by ZCCM Investments Holdings, a company listed on the Lusaka Stock Exchange in Zambia. ZCCM is 87.6 per cent owned by the Government of the Republic of Zambia and 12.4 per cent by public shareholders.

On completion of the transaction, Vedanta will subscribe for $25 million of new ordinary shares, representing 51 per cent of the enlarged issued share capital of KCM.

Following this issue, ZCI's shareholding in KCM will be diluted to 28.4 per cent and ZCCM's shareholding will be diluted to 20.6 per cent.

Vedanta has agreed to pay $23.2 million to ZCI, made up of an initial payment of $2.3 million with the remaining $20.9 million payable in equal instalments over four years from 31 December 2005. Vedanta will obtain operating, management and board control of KCM and will appoint the CEO and Chairman.

KCM's assets consist of three mines, a leaching plant and a smelter, which together form the major undertaking in the Zambian copper belt in North West Zambia.

The Konkola mine is an underground operation with reserves of 21 million tonne (mt) at 3.4 per cent copper. Nchanga has both an open pit and underground mine with reserves of 28 mt at 1.7 per cent copper and 18 mt at 2.7 per cent copper respectively. The leaching plant at Nchanga has a capacity of 100,000 tonnes per annum.

The Nkana smelter and refinery have a capacity of 180,000 tpa.

With average copper prices in the six months to Jun. 30, 2004 at 121 cent per lb and production and costs continuing at a similar level, the assets are currently profitable.

Vedanta anticipates that its investment in KCM will be earnings enhancing in the first full year of ownership.

Vedanta has also agreed to underwrite and fund any cash flow shortfalls at KCM, after sustaining the present and projected capital expenditure, should they arise, to an aggregate limit of $220 million over a nine-year period from the completion of the transaction. "This will help ensure the completion of a programme to improve operations and enhance returns," the company said.

According to Vedanta, there are substantial deeper level resources associated with the Konkola mine. They contain resources of around 250 million tonnes at 3.8 per cent copper.

Vedanta has agreed to evaluate these deeper resources by December 31, 2006 and will contribute $1 million towards the cost of a feasibility study. Neither Vedanta, nor KCM is required to undertake an expansion project. Should the KCM board determine to proceed with further development of the deeper level resources at Konkola, Vedanta will be responsible for securing the necessary funding, whether it is in the form of equity, debt or a combination of both.

If such a project has not been implemented, and the life of the existing mines has not been extended by five years or more, by December 31, 2009, ZCI and ZCCM have the option of buying Vedanta's stake at fair market value.

The Vedanta board has assessed the investment in KCM, without assuming any development of, or benefit from, the potentially substantial resources in the deeper levels of Konkola.

In the event that KCM meets certain production targets, or that the development of the deeper resources at Konkola does proceed, then Vedanta has a call option over the shares held in KCM by ZCI. Exercise of this call option, at fair market value, would bring Vedanta's interest in KCM to approximately 79 per cent.

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