2012 Annual Report

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2012 Annual Report

Published Date: 31st March 2012 File Size: 0.00 KB

CHAIRMAN’S STATEMENT

During the period under review the global economy experienced a slowdown on account of the Euro Zone debt crisis, weak recovery in the USA, a slowdown in Chinese exports and social geopolitical unrest in the Middle East and North Africa. These conditions resulted in emerging market economies being generally weaker than expected. Despite these conditions, the Zambian economy continued to grow at a rate of 6.8 percent in 2012. Good economic performance is expected to continue in the short term driven by the Government’s economic diversification programmes, infrastructure development, growth in mining, agricultural, manufacturing and service sectors. This economic performance places Zambia among Sub-Saharan Africa’s fastest growing economies.

Financial performance

During the year under review, copper prices on average declined from around US$9 642 per tonne at the beginning of the year to US$8 318 per tonne at the close of the financial year. Copper prices, like other commodity prices, were dampened by the challenging global economic conditions.

For the Group, despite the above global economic scenario, investment in productive capacity continued premised on the prospect of recovery in global demand as solutions are found for the fiscal challenges in Europe, the USA, return to growth in China and at a local level improved investments in power intended to remove bottlenecks in electricity supply. Output is expected to grow in 2014-15 as investments continue in Lubambe Copper Mine Limited and Konkola Copper Mines Plc. Further growth is expected from improved productive capacity at Ndola Lime Company Limited upon completion of the recapitalisation programme in 2013.

Despite remaining profitable, the Group experienced reduced revenues. The Group recognised sales of K257 billion (2011: K368 billion) and operating profit of K367 billion (2011: K501 billion). Lower commodity prices impacted negatively on the revenues of most of the investee companies.

During the year under review, ZCCM-IH disposed of its 2.30% interest in Equinox Minerals Limited (Lumwana Copper Project) and realised a gain of K273 billion (proceeds of K802 billion (US$ 167.5 million) less carrying amount of K529 billion). The funds from this transaction were ring-fenced for purposes of reinvesting them in a manner that realised value to ZCCM-IH’s shareholders. The funds have since been reinvested in:

i. Ndola Lime Company Limited, to enable it complete the recapitalisation project within an appropriate timeframe and thus take advantage of the surplus demand for its products;

ii. New projects at Maamba Collieries Limited, particularly, the 300 MW Thermal Power Plant Project;

iii. Lubambe Copper Mine Limited (formally Konnoco); and

iv. Partial repayment of outstanding loans to the majority shareholder, GRZ.

For the period under review, the Group reported a profit before tax of K1,053 billion (2011:K1, 532 billion). The profit after tax was K1, 238 billion (2011: K1, 431 billion).

The Group’s retained earnings continued to be positive at K3,256 billion (2011; K2,019 billion).The Company’s retained earnings improved to negative K57 billion (2011: negative K656 billion) driven mainly by the gain on sale of shares in Equinox Minerals and share of profit of equity accounted investees of K640 billion (2011: K773 billion).

Strategic and new investments

As reported in the previous financial year, on 16 November 2011, ZCCM-IH exercised its option and took up 20% shareholding in Lubambe Copper Mine Limited, of which 5% is free carry while the additional 15% required that ZCCM-IH contributes cash to the development of the mine in line with the provisions of the Konnoco Agreement of 1997. Transaction agreements were signed by ZCCMIH, VALE/ARM and Konnoco Zambia Limited representatives on 15 September 2011. As at 31March 2012, the Konnocco project reached 57% of overall project implementation. Production was expected to commence by end of the calendar year 2012.

During the year under review Maamba Collieries Limited commenced mining and production of coal while the Engineering, Procurement and Construction (EPC) contract for the development of the 300 MW Thermal Power Plant was signed in February 2012. Maamba Collieries Limited is implementing an Integrated Coal Mining and 300MW Thermal Power Plant Project. The project is expected to be completed in June 2014.

The sale and purchase agreement for the sale of the 50% Government of the Republic of Zambia (GRZ) shares in Kariba Minerals Limited (KML) to ZCCM-IH was cleared by the Attorney General’s office. As at 31 March 2012, documentation relating to the acquisition of the shares in KML was still being finalised. KML is in the business of prospecting, mining, processing and marketing of amethyst and any such other precious and semi precious stones. KML’s amethyst in Mapatizya in the Southern Province of Zambia is considered to be the largest amethyst deposit in the world. KML is the largest producer of amethyst in Zambia and the world. Finalisation of the transaction is expected before the end of the financial year ending 31 March 2013.

In September 2011, ZCCM-IH acquired 494 000 000 shares representing 10.6% of the ordinary share capital of Investrust Bank Plc, a local bank listed on the Lusaka Stock Exchange at a price of K16 per share. The total consideration amounted to K7,904 million. The acquisition was done through underwriting of a rights issue exercise that the bank undertook. The Investrust Bank Plc share price closed the year at K18 per share.

On 10 November 2011, the Board of Albidon Limited after consultations with the Zambian mining authorities and in accordance with the Mines and Mineral Development Act of 2008, announced that it had approved the temporary suspension of operations at its Munali Nickel Mine in Zambia. With the decline of global nickel prices by approximately 23% and less than budgeted nickel recoveries at Munali, the company experienced serious cash flow difficulties resulting in suspension of the company’s operations. On 7 February 2012 the Board of Albidon announced that it continued to seek to reach a transaction agreement with third parties for possible new investment in the mine. As at 31 March 2012 no progress had been made. Trading of Albidon shares, on the Australian Stock Exchange, remained under suspension as at 31 March 2012.

Capital market

The closing share price of K12,500 for the period under review showed an increase from the opening price of K10,000 at the beginning of the period, on the Lusaka Stock Exchange, the Company’s primary listing. The market capitalisation as at 31 March 2012 was K1,116 billion (2011: K893 billion).

The Company undertook a review of its 2012-2016 strategic plan with a view to enhancing and maximising shareholder value. The review resulted in the development of the following seven strategic focus areas;

  • Leveraging and consolidating existing investments in the copper mining sector and pursuing other copper assets;
  • Diversifying into other minerals;
  • Investing in mining related sectors;
  • Investing in mining related manufacturing;
  • Treasury management;
  • Reducing legacy liabilities; and
  • Repositioning the company.

Outlook

The Zambian economy and the business environment are expected to remain stable in the future. A number of the investee companies were expected to undertake projects aimed at improving efficiencies, lowering unit costs of operations as well as expanding capacity. It is expected that solutions will be found to the challenges affecting the global economy with the result that commodity prices, the mining sector, and other sectors of the economy will be impacted positively.

This scenario will allow ZCCM-IH to maximise returns from its existing investments currently concentrated in copper mining, as well as pursuing value adding opportunities in other minerals and mining related opportunities.

Directorate

During the year, new members of the Board of Directors were appointed and previous members retired, resulting in a change in the entire composition as follows:

Mr W D Mung’omba Appointed 1 December 2011 Executive Chairman

Mr J M D Patterson Appointed 13 February 2012 Non Executive Director

Mr C Mwananshiku Appointed 13 February 2012 Non Executive Director

Ms S Mutemba Appointed 13 February 2012 Non Executive Director

Dr A Mwenda Appointed 13 February 2012 Non Executive Director

Dr V Mutambo Appointed 13 February 2012 Non Executive Director.

Appreciation

I would like to thank my fellow Board members, the Management and Staff of ZCCM-IH for their loyalty, dedication and hard work and those from the investee companies for their efforts and contributions during the past year. The Group remains well positioned to seize the opportunities in the years ahead and has capacity to manage the challenges.

Wila D Mung’omba

Executive Chairman of the Board