On November 5, 2004, Vedanta Resources plc, a London Stock Exchange listed base metals and mining group, completed the acquisition of a 51 per cent interest in Konkola Copper Mines plc (KCM), Zambia’s largest copper producer. The transaction had an aggregate value of approximately US$270 million, comprised of cash consideration of US$48.2 million for the 51 per cent stake, a commitment on the part of Vedanta to fund cash flows in KCM to an aggregate limit of US$220 million, and an agreement on the part of Vedanta to contribute US$1 million towards the cost of a feasibility study of substantial deeper level resources associated with the Konkola mine (containing estimated resources of around 250 million tonnes at 3.8 per cent copper), to be undertaken by December 31, 2006.
Prior to closing, KCM was 58 per cent owned by Zambia Copper Investments Ltd., a Johannesburg Stock Exchange listed company, 42 per cent owned by ZCCM Investments Holdings plc, a company listed on the Lusaka Stock Exchange in Zambia and 87.6 per cent owned by the Zambian Government. The transaction was structured as an investment by Vedanta in new ordinary shares of KCM and after closing, ZCI’s shareholding in KCM has been diluted to 28.4 per cent and ZCCM’s shareholding has been diluted to 20.6 per cent.
In connection with its investment in KCM, Vedanta has a call option over the KCM shares held by ZCI which will be triggered if KCM meets specified production targets or if a decision is made to proceed with the development of the deeper level resources at Konkola. Neither Vedanta nor KCM is required to undertake the development of these deeper level resources. The exercise price will be determined with reference to fair market value at the time of exercise, and would bring Vedanta’s interest in KCM to approximately 79 per cent. If a decision has not been made to proceed with the development of the deeper level resources at Konkola by December 31, 2009 (and the life of the existing mines has not been extended by 5 years or more), a call option over Vedanta’s shares in KCM will be triggered in favour of ZCI and ZCCM, exercisable to acquire Vedanta’s stake at prevailing fair market value. Vedanta will be responsible for securing the necessary funding for any project to develop the deeper level resources.
Vedanta has the right to exit KCM at any time after December 31, 2007 subject to providing 12 months’ prior notice. Vedanta is required to meet its obligation to cover cash flow shortfalls in KCM during the notice period and to make a payment equal to the budgeted capital expenditures for that period.
KCM’s assets consist of three mines, a leaching plant and a smelter, which together form the major mining operation in the Zambian copper belt in northwest Zambia. Vedanta is a leading producer of aluminium, copper, zinc and lead.
As part of the privatization of various state-owned copper assets, a controlling interest in KCM was acquired by Anglo American plc in March 2000. Anglo American withdrew from KCM in 2002, and as part of an associated restructuring, a competitive bidding process for a new strategic equity partner for KCM was undertaken. An operating subsidiary of Vedanta was named the preferred bidder in May 2003.
Vedanta was represented by Blake, Cassels & Graydon LLP with a team that included John Kolada, Bob Wooder, John Wilkin and Jason Koskela (M&A) and Bill Horton (international law). KCM, ZCI and ZCCM were represented by Clifford Chance LLP with a team that included Michael Cuthbert, Dan Croft, Simon Thomas and Sandeep Chokshy.
Prior to closing, KCM was 58 per cent owned by Zambia Copper Investments Ltd., a Johannesburg Stock Exchange listed company, 42 per cent owned by ZCCM Investments Holdings plc, a company listed on the Lusaka Stock Exchange in Zambia and 87.6 per cent owned by the Zambian Government. The transaction was structured as an investment by Vedanta in new ordinary shares of KCM and after closing, ZCI’s shareholding in KCM has been diluted to 28.4 per cent and ZCCM’s shareholding has been diluted to 20.6 per cent.
In connection with its investment in KCM, Vedanta has a call option over the KCM shares held by ZCI which will be triggered if KCM meets specified production targets or if a decision is made to proceed with the development of the deeper level resources at Konkola. Neither Vedanta nor KCM is required to undertake the development of these deeper level resources. The exercise price will be determined with reference to fair market value at the time of exercise, and would bring Vedanta’s interest in KCM to approximately 79 per cent. If a decision has not been made to proceed with the development of the deeper level resources at Konkola by December 31, 2009 (and the life of the existing mines has not been extended by 5 years or more), a call option over Vedanta’s shares in KCM will be triggered in favour of ZCI and ZCCM, exercisable to acquire Vedanta’s stake at prevailing fair market value. Vedanta will be responsible for securing the necessary funding for any project to develop the deeper level resources.
Vedanta has the right to exit KCM at any time after December 31, 2007 subject to providing 12 months’ prior notice. Vedanta is required to meet its obligation to cover cash flow shortfalls in KCM during the notice period and to make a payment equal to the budgeted capital expenditures for that period.
KCM’s assets consist of three mines, a leaching plant and a smelter, which together form the major mining operation in the Zambian copper belt in northwest Zambia. Vedanta is a leading producer of aluminium, copper, zinc and lead.
As part of the privatization of various state-owned copper assets, a controlling interest in KCM was acquired by Anglo American plc in March 2000. Anglo American withdrew from KCM in 2002, and as part of an associated restructuring, a competitive bidding process for a new strategic equity partner for KCM was undertaken. An operating subsidiary of Vedanta was named the preferred bidder in May 2003.
Vedanta was represented by Blake, Cassels & Graydon LLP with a team that included John Kolada, Bob Wooder, John Wilkin and Jason Koskela (M&A) and Bill Horton (international law). KCM, ZCI and ZCCM were represented by Clifford Chance LLP with a team that included Michael Cuthbert, Dan Croft, Simon Thomas and Sandeep Chokshy.
