Zambia and Swiss-based Glencore are at "cross purposes" over Mopani, Zambian Mines Minister Richard Musukwa had said on Tuesday when he announced ZCCM-IH aims to increase its shareholding in Mopani to 51% "or even more", from 10% currently.

Glencore`s plans to put Mopani on care and maintenance prompted the Zambian government to threaten in April to revoke the firm`s mining licences.

Two sources with direct knowledge of the negotiations said Glencore is looking to exit the asset entirely.

"As of now, we are discussing a potential sale of their stake in Mopani," said one of the sources.

A Glencore spokesman declined to comment. First Quantum, which owns 16.9% of Mopani, did not respond to a request for comment.

The move by ZCCM-IH to take control of Mopani is part of its strategy shift away from minority stakes and towards running mines as an operator.

Glencore wrote off the value of Mopani by $1.144-billion in its half-year earnings report earlier this month, saying the estimated recoverable value was $704-million, including tax receivables.

Mopani`s total liabilities exceeded its total assets by $2.562-billion in 2019, the company reported in a financial statement, indicating "a material uncertainty in relation to the going concern assumption".

Mopani produced 51 275 t of finished copper in 2019 including purchased materials - accounting for 13.9% of Glencore`s African copper output and 3.7% of its overall copper output.

Glencore, which reported a first-half loss due to the impact of the pandemic, will not reap the benefits of-billions spent on expansion projects over the last three years if it sells to ZCCM-IH but investors see this as a way for the miner to cut its losses.

"Mopani has been a big headache for Glencore, the mine has never delivered anything for shareholders," a Glencore shareholder, who asked not to be identified, said, citing numerous accidents and operational issues.

CASH CONSTRAINTS
A major hurdle to clinching the deal is Zambia`s lack of funds to pay for the stake and fund the mine`s running costs, sources say.

Glencore`s stake in Mopani is worth $514.6-million, according to its own valuation. Mopani`s 2019 financial statement shows operating expenses of $931-million.

Zambia`s total foreign exchange reserves stood at $1.43-billion at the end of June, equivalent to just 2.3 months of import cover, according to the central bank.

ZCCM-IH`s cash and term deposits together amounted to 828.9-million Zambian kwacha ($43-million) by March 31 2019, according to the latest financial statements on its website.

A ZCCM-IH spokeswoman did not reply to Reuters` questions about how it would finance the stake purchase.

"The state`s cash constraints point to an amicable solution," said Eric Humphery-Smith, Africa analyst at global risk advisory firm Verisk Maplecroft.

"The government may have threatened expropriation in the past, but the need for copper revenues likely precludes that option."