(Bloomberg) -- Zambia’s government filed notification of plans to take over Vedanta Resources Ltd.’s domestic copper assets, President Edgar Lungu said. The southern African nation’s Eurobond yields surged to a record high and the currency hit a 3 1/2-year low.
The move marks an escalation in tension between the government and mine owners, after Lungu last week threatened to “divorce” Vedanta and Glencore Plc, two of the biggest employers in Africa’s second-largest copper producer. Relations have been simmering after the state earlier this year increased royalties and unveiled a plan to overhaul the value-added tax system.
Lungu mainly targeted Konkola Copper Mines, Vedanta’s local unit, in a weekend visit to Zambia’s Copperbelt province, where some companies are cutting production and firing workers.
“There should be no question about our resolve to divorce, starting with KCM,” Lungu said in comments broadcast on state TV on Sunday. “We have filed that notification.”
The kwacha fell as much as 1.7% on Monday to 14.3152 against the dollar, the weakest level since November 2015, while yields on Zambia’s $1 billion of Eurobonds due 2024 rose by 19 basis points to 18.4%, the highest on record.
Konkola is yet to receive formal notification on the future of its assets in the country, it said in an emailed statement Monday.
The company said it plans to meet the government “as a matter of urgency to discuss the future of KCM and the impact that the current onerous situation is having on the company, the people of the Copperbelt and the Zambian people as a whole.”
Zambia has for years accused mining companies of not paying enough tax and has made 10 changes in the past 16 years as it struggles to settle on a comprehensive system for the industry.
This year’s royalty increases have come as Lungu’s government seeks cash to settle a surging foreign-debt bill. Servicing external loans has already caused foreign reserves to drop to a decade low, while the currency has fallen by more than 14% against the dollar this year, making it the worst performer globally after Argentina’s peso.
The state has had run-ins with Konkola Copper Mines for years and revoked its CEO’s work permit in 2013 over planned job cuts. Still, the latest turmoil could be symptomatic of a populist shift amid what could be a looming economic crisis, according to Neville Mandimika, an economist at FirstRand Bank Ltd. in Johannesburg.
“Whenever a government comes under stress you see more populism,” he said by phone Monday. “It’s almost a self-fulfilling prophesy in that the worse it gets, the worse it will get.”
Zambia’s Copperbelt province has often been a political bellwether for the country, and the ruling Patriotic Front has historically enjoyed strong support there. In April, a new party led by Lungu’s former information minister Chishimba Kambwili won a by-election in the province’s Roan constituency. In the 2016 elections, the PF had won the same constituency with more than twice as many votes as the opposition.
Lungu said the government would comply with the law in taking over Vedanta’s assets, and that other investors were keen to operate them. His spokesman, Amos Chanda, declined to identify the companies.
Glencore must hand over to local contractors two copper shafts it plans to close, Mines Minister Richard Musukwa said in comments broadcast over the internet at the weekend.
(Updates with analyst comment in third paragraph after Taxing Times sub-headline.)
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