ZAMBIA Law and Practice Contributed by: Harriet Mdala, Natasha Lungu, Samuel Muleya and Chanda Musonda-Chiluba, MAY and Company
Loans Public and private loans include loans from com - mercial banks, development banks, or interna - tional financial institutions. However, it must be noted that in terms of the Banking and Financial Services Act No 7 of 2017, banks or financial institutions cannot, directly or indirectly (except as the Bank of Zambia may prescribe) grant a credit facility or guarantee a debt of a person or common enterprise so that the total value of the credit facility and guarantee, in respect of a person or common enterprise, is more than 25% of the regulatory capital of the bank or financial institution. Shareholders may provide loans to mining com - panies, especially in closely held entities, to finance specific projects or operations. Asset Financing Mining companies leverage asset-backed financing to purchase expensive machinery and equipment. Lenders provide financing based on the collateral value of these assets, which are essential for operations. Offtake Agreements These are pre-arranged contracts where a buyer agrees to purchase a portion of the mine’s pro - duction in advance. Offtake agreements often come with upfront payments or financing to support project development. In Zambia, offtake agreements are particularly common for copper and cobalt, with major buyers securing long- term supply contracts to mitigate market risks. 5.5 Role of Domestic and International Securities Markets in the Financing of Exploration, Development and Mining The domestic securities market in Zambia, led by the Lusaka Securities Exchange (the “LuSE”), provides a regulated platform for raising capi -
tal. Despite its potential, the role of the LuSE in financing mining projects is minimal. This is primarily due to the low number of Zambian mining companies listed on the LuSE. Currently, the only mining-related entity listed is ZCCM-IH, which serves as the government’s investment arm in the mining sector. The limited participa - tion of mining companies on the LuSE restricts the domestic market’s contribution to mining finance. It can be said that currently therefore the domestic securities markets plays little to no role in mining finance. Similarly, the international securities markets play a minimal role in financing exploration, development, and mining activities in Zambia. Although mechanisms like depository receipts have been utilised to access foreign capital, their application is very rare. Depository receipts, which represent shares in a foreign company and are traded on international stock exchanges, can provide a pathway for Zambian companies to tap into global markets. However, their issuance typically involves significant compliance costs, regulatory hurdles, and the need for a robust corporate structure, making them an uncommon choice for most mining enterprises in Zambia. 5.6 Security over Mining Tenements and Related Assets Creation of Security Interests Mining tenements Security interests can be created over mining tenements under Section 66 of the Mines Act. A mining right holder may encumber their tene - ment, provided they obtain prior consent from the Minister of Mines. In practice, this takes the form of a lender to the licence holder taking a charge over the mining right or taking a charge over the shares of the licence holder. Where the licence holder is also the legal owner of the land over which the mining right exists, the licence
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