…KCM must not be allowed to fail, its cost of production is high
By Special Correspondent
In the world of rotaries Vedanta Mineral Resources must have won the biggest jackpot ever when it was handed the copper rich mine, the Konkola Copper Mines (KCM) in 2004.
Vedanta was handed over a property with over a month’s supply of finished copper that was on it’s way to customers but not yet paid for with two to three year caved reserved at Nchanga Underground mine.
Also there was over 2.5 metric tonnes of copper and cobalt ores on stockpiles at Nchanga Open Pits and large quantities of ores already exposed at Nchanga and Konkola Underground mine and Open Pits.
Additionally, KCM inherited US$60 million that was in the Bank at the time of this acquisition.
As if this was not enough Konkola Deep Mining Project (KDMP) was the icing on the cake.
The above was worthy billions of U.S Dollars. Vedanta only needed less than six tonnes of finished copper to pay for all that.
The above scenario became KCM’s aberration. Figuratively, Vedanta expected to find a small fishing boat but to their surprise found Titanic.
It is standard practice world wide that when an investor wants to purchase a mine, an advance team of experts visits that property in order to analyse in detail and evaluate the property.
These are experts in acquisitions and made up of geologists, miners, metallurgists, engineers and finance people.
In case of Vedanta there was never an advance team except a bus full of accountants who had zero knowledge of mining, wanting operate the property of this magnitude.
It later turned out that these were only experts in price negotiations when buying and settling accounts payables.
From the onset, Vedanta had only interest in the short-term life of mine and little interest in medium to long-term life of the property. Their investment strategy was tailored only for short-term purposes.
KCM later developed interest of developing KDMP and the Underground Upper Ore Body (UOB) but because of lack of requisite mining knowledge, skills and in depth understanding of the two projects numerous fatal mistakes were committed resulting in the abandoning of UOB and delays in KDMP.
The UOB was abandoned because costly mistakes were made. Similarly, KDMP, which was estimated to be at peak production 2010 still lags far behind.
During this period when KCM was treating the ores mined the previous management there were no plans to carry out any meaningful Primary developments in the Open Pits, underground mines at Nchanga and Konkola.
When all the ores from stockpiles dumps and exposed ores from the mines were exhausted a crisis loomed.
KCM had finally and literary run out of copper. Old mines now became less attractive to develop because they required injections of capital expenditures.
Nowhere could this aberration be seen more vividly than in the appointments of KCM Top Management.
In normal circumstances the nature of key challenges at the mine determine the type of appointments for certain key positions in the management hierarchies.
The fact that Vedanta had not sent an advance team of experts to study, analyse and evaluate the property KCM, it is clear they never knew what to expect.
It appears every body expected to find a tiny fishing boat but instead found a Titanic. Even after this realisation the appointments of the top management was skewed.
Instead of appointing capable people who could handle the new challenges, Vedanta for the most part appointed relatives and later on when faced with the crisis picked people who had failed elsewhere to run the mines. Square pegs in round holes’ scenario!
During the early days of cheap ores and high metal prices KCM was minting money.
However, apart from a small amount spent on KDMP little or nothing was put into revitalising the old mines or meeting the new challenges. Most money went out of the country, somehow.
Without the much needed primary developments and with the fast depletion of copper, KCM faced a major problem of how to fill up the high capacity Smelter.
Efforts to tall treat soon proved a failure. Other producers found it cost effective to construct their own treatment plants.
The next fraught step was to turn to old copper refractory dumps, again mined and stockpiled previous management. This huge resource was at the time stockpiled because there was no technology of treating the material.
KCM did not have a proven method to treat this material but went ahead treating it, anyway.
The outcome of this were very low recoveries and low concentrate grades. In short KCM was losing money treating this material.
With the cost of new crushers built to handle large quantities of refractory material, the costs of production shot up.
Without the CRO KCM has no alternate material to treat except Tailings dams and a bit of tolling.
In summary the current situation at KCM is like a sinking Titanic. No amount of shifting seats around the ship will stop it Titanic from sinking.
Any new investor would find the cost of operating the mine to be too high to bear.
The only way out is for Vedanta to make good use of their promise of US$5 billion promised Vedanta Chairman Anil Agarwal to pump into the mines.
Government must insist that the funds are brought in to revitalise these mines recapitalising the operations. KCM must not be allowed to fail!