Nathan Bullock was about to fly home to his family in Australia when authorities blocked his exit at Zambia’s Lusaka airport, bundled him into a police car, and drove him six hours through the night back to the mine he manages. Police later camped outside his home.
Bullock is at the center of a rapidly deteriorating row between the southern African nation’s government and Glencore Plc [JSE: GLN], the world’s biggest commodity trader. The conflict flared last week when Glencore said it was temporarily closing its giant Mopani mines as they haemorrhaged cash following a collapse in the copper price. Zambia said Glencore didn’t follow the proper legal procedures and threatened to cancel its mining licenses.
The stakes are high for both parties. Zambia, heavily dependent on copper revenues, is on the brink of a debt crisis. For Glencore, it’s the latest headache at its African copper and cobalt assets. Spanning the copper belt that stretches north into the Democratic Republic of Congo, the mines are supposed to be a major growth driver, but have been beset by problems.
There are also wider implications. Glencore is one of the last major western miners to control copper and cobalt operations in Congo and Zambia. Gradually its rivals have quit the region to be replaced by Chinese companies. As the world moves toward an era of electric vehicles, China is gaining increasing dominance over the supply chain.
The Mopani mines are on the outskirts of Kitwe, a city about 180 miles (about 289 km) north of Zambia’s capital, Lusaka. The mines have been troublesome for Glencore, but that hasn’t stopped the company from spending billions of dollars on sinking new shafts to try and almost triple copper production, to about 140 000 tons a year.
Still, Mopani was unprofitable even before the coronavirus pandemic led to a collapse in the copper price, convincing Glencore that its best option was to mothball the mines for at least three months.
Zambia responded with fury, detaining Bullock, chief executive of Glencore’s local unit. He had only been in the country since October, when he took over the Mopani unit. Bullock was released by the police, who on Friday camped outside his Kitwe residence “merely for his safety,” according to Richard Musukwa, the mines minister.
Glencore said it’s in talks with Zambia on the way forward.
Musukwa, who made the comments at a press briefing in Kitwe that was broadcast on local radio, asked for questions to be sent by text message, which he didn’t immediately respond to.
It’s not the first time Zambia has taken a tough line with the companies that exploit its mineral wealth.
Fifty years ago, Zambia’s first post-independence leader, Kenneth Kaunda, nationalised mines owned by Anglo American Plc and Roan Selection Trust to rally his political supporters. Now, the often-populist President Edgar Lungu may try to shore up support in the politically crucial Copperbelt province by fighting to keep Mopani operating.
“Already under pressure, the mine closures would undermine President Edgar Lungu ahead of internal party elections and the 2021 national elections,” Eurasia Group analyst Connor Vasey wrote in a note. “They would also jeopardise Zambia’s broader economic stability.”
A year ago, the government placed the local unit of Vedanta Resources Plc in provisional liquidation, accusing the company of lying about expansion plans and cheating on taxes. The belligerent approach has drawn criticism, including a letter this week from three former finance ministers and a central bank governor.
“There is a growing image of Zambia as the ‘wild west’ where the application of the law and work of statutory bodies is arbitrary and political,” they wrote. “Who will invest in a country where assets can be seized, or contracts are irrelevant?”
Zambia isn’t alone in pursuing resource nationalism. In neighboring Tanzania, President John Magufuli has spearheaded an aggressive drive targeting gold-mining companies, while Congo upset miners operating there by redrawing the mining code.
The International Monetary Fund forecasts Zambia’s economy will contract by 3.5% this year, the worst performance in about two and a half decades. Copper production, which generates about 70% of the country’s export earnings, dropped to the lowest since 2015 last year.
Glencore has faced repeated problems with its African operations, struggling to make them profitable. Yet the company unveiled a turnaround plan last year that would see the assets generate an annual profit of more than $1.5 billion (about R28 billion) . So far the program is working at Katanga, its best asset, but the closure of Mopani is a setback.
Chinese companies including Jiangxi Copper Co have shown a growing interest in Zambia’s copper industry. Last year, it bought a near-20% stake in First Quantum Minerals Ltd., the nation’s biggest producer. Mopani, which Glencore valued at $1.7 billion (about R32 billion) in December – when copper prices were much higher – has a smelter as well as mines.
“Zambia can talk up confiscating licenses, but no one is going to step in and buy it,” said Ben Davis, an analyst at Liberum Capital Markets. “Except maybe the Chinese.”