- Glencore yesterday agreed to the sale of its majority stake in Mopani Copper Mines to Zambia’s mining investment arm ZCCM-IH in a $1.5bn deal. Glencore will receive $1 for its share of the 90% holding it owns with Vancouver-based First Quantum Minerals Ltd, and once the deal is complete, Mopani will owe its previous owners $1.5bn that will be repaid from sales and profits going forward. Moreover, Glencore will retain offtake rights for Mopani’s copper production until the debt has been paid.
- Taking on Mopani’s debt to keep operations running is seen as possibly denting government chances of securing a loan from the International Monetary Fund and could be a move by President Lungu to hopefully secure support from labour unions and workers ahead of elections this year.
- Speaking post the announcement Mines Minister Richard Muskwa indicated that loans will be paid off in 10-17 years depending on the copper prices and that the government had received interest from companies based in Canada, Turkey, Qatar, China, and South Africa to help shoulder the debt burden. According to Muskwa, Mopani will require around $300mn of investment to complete projects that Glencore has started.
- In a move that will provide some relief at the margin for the Zambia government, the Paris club yesterday agreed to waiver on debt repayments from Zambia until June 30.
- Meanwhile, Energy Minister Matthew Nkhuwa announced that the exercise duty on diesel has been scrapped, and the charge on gasoline has been reduced to 0.64 Kwacha from 2.07 Kwacha a litre. Moreover, an import waiver has been granted to 87 oil marketing companies to import 1.9bn litres of diesel and 934mn litres of gasoline from Jan.1 through June. Note the measures are seen as a way of addressing fuel shortages in parts of the country.
- Copper has taken a bid tone this morning in Asia driven by a softer USD and hopes for huge stimulus on the horizon. The 3m LME benchmark touched a high of $8019.00/tonne this morning however the topside is guarded as Chinese officials stepped up COVID-19 restrictions which could cost some economic growth out of the global powerhouse.
- Stateside, in the absence of any economic data, the focus today will all be about politics and Biden’s inauguration before a field of flags. It has been a tumultuous change of guard, but the Trump campaign’s resistance has crumbled and his bid to overturn the outcome has failed. Today Joe Biden assumes the reigns of power and will offer an olive branch to Republican supporters in a bid to defuse tensions. He will no doubt al-so focus his presidency on undoing much of the damage done during the Trump administration and may even allude to the strong of executive orders he is likely to sign in the coming days to undo much of what Trump implemented. He will in effect be ushering in a much more liberal and socialist minded government that now has control of the White House, the House of Representatives and the Senate.
- A sign of things to come was taken from Biden’s nominee for Treasury Secretary Janet Yellen yesterday in her testimony to the Senate Finance Committee, who openly spoke about the need for higher taxes. She highlighted her desire to work alongside other countries to co-ordinate taxation on multi-national companies and to stop the race to the bottom on corporate taxation. That being said, Yellen also indicated that any shift to higher taxes should wait until after the economy has staged a meaningful recovery. The objective is also to invest in infrastructure, green technology and try and address social inequalities. She went on to defend the need for the $1.9trln stimulus package that would be aimed at alleviating pressures on the most vulnerable and help support the current capital structure.
- Renewed stimulus hopes followed Janet Yellen’s testimony to the Senate Finance Committee has seen risk appetite improve and the USD has come under pressure. This could potentially provide some relief to the Kwacha at the margin. Note the local unit has been under pressure in recent sessions and closed north of 21.300 yesterday. Technically, the USD is now on the defensive and may well head back towards the 90.0 index level, but the real driver of the USD’s performance is the expectation that the Treasury and the Fed will continue to stimulate aggressively and will systematically debase the value of the currency through the running of very high twin deficits.
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