Manufacturing firm ZimCoke bosses believe they were better placed to resuscitate and acquire assets of the now defunct state-owned Ziscosteel than the recently announced US$1.3 billion Kuvimba Mining deal.
Apparently the Zimbabwe Investment and Development Agency (ZIDA) expressed reservations over the eight percent management fees from gross revenue proposed by Kuvimba Mining House (KMH), a company selected to revive the Zimbabwe Iron and Steel Company (ZISCO), Business Weekly has established.
The Government selected Kuvimba to revive ZISCO, once Africa’s largest steel mills after ZIDA recommended three investors from six that had initially shown interest in the Kwekwe- based integrated steel works.
Kuvimba, which is owned 65 percent by the Government, has proposed to enter into a three-year management contract with ZISCO and inject US$1,3 billion into the business to revive mining and steel processing operations, according to a due diligence report submitted to Government in November 2021.
The contract, ZIDA described as “too rich” would be for three years, after which ZISCO may choose to extend or assume full responsibility of operations.
It is targeting to reach annual output of one million tonnes of steel in three years from the date of signing the contracts. The Cabinet selected Kuvimba among three shortlisted potential investors, paving way for negotiations and signing of binding agreements.
Industry and Commerce Minister Dr Sekai Nzenza said negotiations for binding contracts would commence soon.
Kuvimba proposed a management fee of 8 percent but ZIDA, which conducted a due diligence on ZISCO’s potential investors, said a flat management fee “seems loosely structured and may be lopsided” to the advantage of Kuvimba.
Kuvimba owns various mining assets in Zimbabwe including gold, platinum, nickel and chrome.
Eight percent management appears too rich, there is need for revenue split to be equitable. We would…propose that the management fees be structured differently,” ZIDA said.
“A lower base management fee of say 5 percent plus an incentive above an agreed IRR hurdle of say 15 percent would align parties’ interests.
“We are happy to elaborate and debate this matter,” said ZIDA in its November 22 due diligence report.
ZISCO stopped operations in 2008 due to mismanagement and lack of funding to retool.
Since then, the Government engaged various potential investors in a bid to re-open the company but with limited success. Kuvimba won the tender ahead of other two final bidders who had expressed interest in ZISCO, which used to employ 5 000 people.
However, ZIDA said Kuvimba was already involved in mining in the country and expert knowledge in the extractive sector, giving an edge over other potential bidder.
ZIDA said Kuvimba has managed to revive distressed companies such as Shamva Gold Mine, Freda Rebecca, Sandawana and Jena.
“Funding will be through debt and quasi-equity facility,” said ZIDA, adding Kuvimba “has existing relationships with funders and mobilization will be easier.” -Zimbabwe Mail