First Quantum May See Zambia Rival BlackRock as Top Holder

First Quantum Minerals Ltd. may see Zambia’s state-owned mining company become its second-biggest shareholder if it converts a stake in the continent’s largest copper operation into equity.

ZCCM Investment Holdings Plc will “hopefully” decide this year, said Mukela Muyunda, chief executive officer of the company that’s 88 percent owned by the government of Africa’s largest copper producer.

If ZCCM decides to exchange its stake in the Kansanshi mine, located near the Democratic Republic of Congo border, for First Quantum shares, it could end up owning about 10 percent of the company, said George Topping, an analyst with Stifel Nicolaus Canada Inc. in Toronto. BlackRock Inc., the world’s biggest money manager, is First Quantum’s largest owner, with about 12 percent, according to data compiled by Bloomberg.

“We would be happy if ZCCM becomes a shareholder in First Quantum as part of a step in transforming ZCCM into a sovereign fund,” John Gladston, a Zambia-based spokesman for First Quantum, said in an e-mail yesterday. “It is something First Quantum would be willing to accommodate.”

Zambia sold most of its mining industry to private investors between 1996 and 2001, maintaining stakes from 10 percent to 21 percent in companies, which it holds through ZCCM. That reversed a nationalization that took place in the 1970s.

Valuation Method

ZCCM first said it was considering swapping its Kansanshi stake for shares in First Quantum in its strategic plan made public in December. The company sold its 2.28 percent stake in Equinox Minerals Ltd. to Barrick Gold Corp. for more than $160 million in 2011, having paid $30 million for the shares five years earlier.

Topping bases his calculation of the shareholding ZCCM may get in First Quantum on a $5.4 billion valuation of the Kansanshi mine, he said. Kansanshi is worth about $6 billion, Patrick Jones, a London-based analyst with Nomura International Plc said in a Jan. 16 research report. First Quantum has a market value of C$9 billion ($8.8 billion).

ZCCM had previously planned to decide on converting its Kansanshi stake by the end of last year, Muyunda said by mobile phone Feb. 21. First Quantum shares rose 1.6 percent to C$18.71 as of 1:12 p.m. in Toronto yesterday. ZCCM rose 1.6 percent to 2.66 euros by the close on the NYSE Euronext exchange in Paris.

Finance Minister

“When all the necessary consultations are concluded,” with Zambia’s finance ministry, ZCCM will make a decision, Muyunda said.

Finance Minister Alexander Chikwanda declined to comment.

“We’ll leave that to ZCCM,” he said in an interview in Lusaka.

Companies including Barrick Gold Corp., Vedanta Resources Plc and Glencore International Plc also operate mines in the country. Zambia doubled royalty rates for metals used in industry including copper to 6 percent effective in April, abandoning an earlier move to introduce a windfall tax.

Copper for delivery in three months slipped 0.4 percent to $7,803 a metric ton on the London Metal Exchange by 9:31 a.m. in Johannesburg, extending the decline this year to 1.6 percent.

(Updates with closing shares in eighth paragraph.)
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