Vedanta remains strongly committed to returning to KCM which is of utmost importance to the Vedanta Resources business. The Company is committed to making a positive contribution to KCM’s employees and their families, business partners, suppliers and their employees, the communities where we operate, the people of the Copperbelt and the people of Zambia.

Our future commitment includes an investment roadmap of up to US$1.5 billion for the development of KCM as a world class integrated mining company, as well as providing technical support in order to stabilise current operations and further developing the assets to allow for a successful turnaround of the business. Vedanta will continue to keep its promises to KCM, its employees, the communities and the people of Zambia.

1. What was the financial health of KCM under the Vedanta management?

When Vedanta first acquired a stake in KCM in 2004, it was clear that the operations’ infrastructure was in need of significant investment:

  • Vedanta has invested US$1.7 billion into KCM. Vedanta also continued to reinvest to maintain KCM’s operations – dedicating US$1.3 billion of capital expenditure to increasing KCM’s overall life of mine. Over $900 million on developing the Konkola Deep mine;
  • Over $450 million on a new smelter at Nchanga, with a sulphur capture of >99.6%, replacing the Nkana Smelter which was capturing only 30%;
  • Over $200 million on new concentrators at both Konkola Deep and Nchanga;
  • Over $150 million on various other projects

Vedanta also invested heavily to maintain KCM’s operations – dedicating US$1.3 billion of capital expenditure to increasing KCM’s overall life of mine.

2. Were there many financial burdens that Vedanta needed to overcome?

Yes, there were issues the business had to tackle:

  • Increasing electricity costs - there has been a 300% increase in power expenditure over the last 14 years
  • US$180 million owed in VAT refunds from Zambia Revenue Authority – significantly reducing KCM’s cash flow
  • Increased taxes and royalties
    • 2019 – introduction of a 5% import duty on copper and cobalt concentrate. This removed over 90% of the profit margin of KCM’s custom concentrate business.
    • 2019 – introduction of increase mineral royalties’ rates by 1.5%, and also made them non-deductible. This increased costs per tonne by over US$90, and had a negative impact of US$140 per tonne on KCM’s tax credit status
    • 2019 - Proposed the replacement of VAT with a Sales Tax - as Sales Tax is non-refundable, it would have the same negative impact on KCM ‘s cash flow as the current non-refund of VAT is having

3. What was the debt situation of KCM under Vedanta? How has this changed in the last two years since Vedanta has left?

  • When Vedanta was forced out of KCM, in a completely unheard manner, debt was approx. $200m.
  • As per recent reports seen by Vedanta, current debt levels stand at approx. $350m

4. Did Vedanta owe contractors and suppliers during its time managing KCM?

  • Due to the heavy financial burdens caused, in part, by the increasing taxes and royalties in Zambia, Vedanta owed USD 200 million to suppliers.

5. What is the status of the outstanding electricity bill payment to ZESCO?

  • Under Vedanta ownership, KCM used to pay approx. $10 -12m / month to CEC for electricity.
  • Under new management, it now seems that the outstanding payments and associated tax payments have been waived.

6. While managing KCM, did Vedanta stop prioritising the salaries of employees due to its stressed financial position?

  • Never defaulted on employees well-being and financial responsibility of paying salaries on time is of utmost priority.

7. There is some speculation that some of the marketing strategies in place at KCM were in favour of other Vedanta India-based operations?

  • Vedanta always wanted to implement the best practices of Vedanta as a global company at KCM,
  • This objective was to benefit and develop synergies and enhance the marketing capabilities of KCM, to enhance local operations and build KCM into a world class integrated asset that could be the pride of Zambia.

8. What has been the trend of Integrated Mining Production in last two years? Has this gone up or down?

  • During Vedanta’s time managing KCM, the average integrated production in last two years has been as follows -
    • Avg of 2017-18 – 8000 MT / month
    • Avg of 2018-19 – 7500 MT / month
    • This quantity includes copper production from Konkola Mine + Nchanga Mine + TLP
  • Current average integrated production is 4000-4500 MT and showing a declining trend over a period of last 18 months. At a current copper price, overall financial loss to KCM is around $25m on revenue level and $4m on an EBITDA level

9. Since the mine has been out of Vedanta control, what level of development has happened at the mine?

  • As per recent reports seen by Vedanta, no budget has been allocated by the existing management team towards mine development and the overall health of the mine is being compromised.
  • Selective high-grade mining is further worsening the mines’ long-term prospects.

10. Is it possible for the mine to function independently?

  • The two units, the mine, and the smelter, are clearly designed to work as one integrated structure.
  • Any split of the KCM business and sale would result in a substantial loss in revenue for the Zambian state and its people, as well as the potential long-term erosion of the individual assets’ value.
  • The Nchanga smelter was uniquely designed to maximise the value of the Konkola concentrate at the mine, and there will be a significant decrease in the value of copper extracted if the high-grade concentrate from Konkola is sold to other smelters in Zambia. Similarly, there is no other smelter in the country able to refine the cobalt present in the Konkola ore body and thus, produce the valuable cobalt alloy.
  • Under current management, KCM has compromised the copper production from the mine. KCM is a copper company not a sulphur (pyrite) producing company. Nampundway produces pyrite which supplements the sulphur requirement of the Nchanga smelter in absence of right blend plan. Incremental pyrite usage signifies that the current management team has imported high-grade copper from Congo which has a much lower sulphur content, which then requires pyrite blending produced in Nampundway. Pyrite production could have been optimized by allocating sufficient funds for copper concentrate production in Konkola and Nchanga, which would lead to less import requirements and optimized Pyrite requirement.

11. What impact would a proposed split of KCM have on business opportunities and on asset and resource optimisation?

  • Any split of the KCM business and sale would result in a substantial loss in revenue for the Zambian state and its people, as well as the potential long-term erosion of the individual assets’ value.
  • Under the existing management, Konkola has become a tolling company for one trader. Vedanta used to maintain a healthy balance of 50% Integrated and 50% Customs when operating the mine. This ratio is now 75% Customs and 25% Integrated under the current management.
  • When operating KCM Vedanta invested heavily to maintain KCM’s operations – dedicating US$1,3 billion of capital expenditure to increasing KCM’s overall life of mine. The open pit mine was extended from 2007 to 2025, and the underground mines from 2012 to beyond 2030.
  • Vedanta’s investment at KCM has also led to the business being one of the most advanced and technologically clean assets in the world, with the Nchanga smelter achieving 99.6% sulphur capture and having been ranked 2nd in the world for environmental performance. The introduction of HDPE-lined tailings pipelines at Nchanga has also reduced the level of discharges significantly. Elsewhere, Vedanta has ensured that three new zero-discharge concentrators have replaced the much older concentrators, whilst the level of total suspended solids in discharged water decreased substantially from 200mg/L in 2009 to 70mg/L in 2012.

12. What was the status of employees like under Vedanta management? Does it significantly differ from employee status now?

  • As an integrated asset, employees were all well trained & qualified to run the asset, periodic improvements and skills were upgraded. With just a handful of Indian ex-pats the company was run by Zambian workforce.
  • As per recent media reports, “the new management has recently declared all KCM employees redundant, in compliance with labour laws. Employees were then offered back-to-back new employment contracts either as employees of KCM Smelter Limited or Konkola Mineral Resources Limited. Those who have declined new employment offers will be separated from the Company and be paid their full redundancy packages in accordance with legal procedure. The employees remaining in service will also receive their redundancy packages.” This is not in interest of the employees in the long term.

13. How did Vedanta acquire KCM?

  • When Vedanta acquired a 51% stake in KCM in 2004, the life-of-mine was less than six years and the infrastructure needed massive investment. Vedanta foresaw the mining opportunity at KCM and accordingly built a future ready organization with much higher capacity for processing.
  • Vedanta paid $48.2 million for an initial 51% share in KCM.
  • In 2008, Vedanta paid a further US$213 million to increase its shareholding in KCM to 79.4% – another demonstration of its commitment to the operation and Zambia.

14. How has Vedanta helped the Zambian people?

  • Since Vedanta Resources became a shareholder in KCM in 2004, over US$3bn has been invested in Zambia. This resulted in KCM becoming the leading private sector employer with the employment of approximately 13,000 employees in all areas of KCM operations with over $2.3 billion paid in wages.
  • Over US$1.4bn taxes have been paid toward the Zambian Exchequer.
  • KCM has consistently supported local businesses, and more than 85% of spend every year is through companies registered in Zambia.
  • Under Vedanta Resources, KCM had one of the mining industry’s most significant CSR initiatives. Vedanta Resources has spent around US$200 million on community programs focusing on safety, environment and socio-economic development.
  • KCM and the Nchanga Smelter were run by well-trained Zambian people. It was a consistent endeavour of Vedanta to train Zambian employees and empower them to run the facility.

Connect with us on Social Media