2013 Annual Report

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2013 Annual Report

Published Date: 31st March 2013 File Size: 0.00 KB

Chairman's Statement

During the period under review the global economy continued to record sluggish growth and continuing volatility. Uncertainty across the major economic regions ranging from the post election fiscal cliff in the United States of America, the Chinese leadership transition, to reforms in the Eurozone area continued to impact the global economy.

Global copper demand marginally increased by 3.1% (2012:3.2%), while copper production increased by 4.5% (2012: Nil). Copper prices declined 9.4%, from US$8,318 per tonne at the beginning of the year to US$7,540 per tonne at the close of the financial year.

Despite the scenario above, the Zambian economy recorded growth of 7.2% in 2013 (2012:6.6%), 0.5% lower than forecast due to lower than budgeted performance in the mining sector and the weaker global economy.

Financial performance

For the Group, investment in productive capacity, efforts to reposition and enhance efficiencies continued. Investment in Ndola Lime Company Limited continued and this was expected to improve the production capacity of lime and the Group’s business.

Other investee companies continued with their growth strategies premised on the prospect of recovery in global demand and improved investments in power projects intended to remove bottlenecks in electricity supply. Growth in output is expected in 2014-15 as investments continue in Lubambe Copper Mine Plc, Konkola Copper Mines Plc as well as First Quantum Minerals Limited’s new Trident Mine.

The Group recorded turnover of K520 million (2012: K257 million) and operating profit of K417 million (2012: K367 million). Improved dividend payments from investee companies impacted positively on Group performance.

The Group reported a profit before tax of K654 million (2012: K1, 053 million). The Group recorded a profit after tax of K762 million (2012: K1, 238 million). The Group’s share of profit of equity accounted investees reduced to K222 million (2012: K640 million).

The Group’s retained earnings as at 31 March 2013 were positive at K4, 018 million (2012: K3, 256 million).The Company’s retained earnings became positive for the first time to K511 million (2012: negative K57 million).

Strategic and new investments

Ndola Lime Company Limited continued with the rehabilitation of the plant as part of the recapitalisation project of the company. The electrostatic precipitator on the rotary kiln was recommissioned and a new dust abatement unit on the vertical kiln was installed. ZCCM-IH provided an additional loan of K133 million (2012: K137 million) for the recapitalisation project expected to be commissioned in December 2013.

In September 2012, the Government of the Republic of Zambia (GRZ) gave approval for the conversion of all or part of the GRZ debt owed by ZCCM-IH amounting to K 1.9 billion (approximately US$352 million) into equity through a rights issue. As at 31st March 2013, implementation modalities involving the appointment of the Lead Financial Advisors to undertake the rights issue had progressed. As part of this exercise, a valuation of ZCCM-IH and its investments was conducted to ascertain the appropriate value of ZCCM-IH shares. The valuation has been incorporated in these financial statements. The whole balance sheet restructuring exercise is expected to be completed in 2014.

During the period under review, ZCCM-IH and Konkola Copper Mines Plc (KCM) entered into a Settlement Agreement pursuant to which certain outstanding payments owed by KCM to ZCCM-IH and certain contingent amounts payable, under the then existing Price Participation Arrangements (PPAs) which dated back to March 2000 were settled. The PPAs were concurrently terminated. Under the settlement agreement, US$46.3 million was required to be paid by KCM (in instalments) to ZCCM-IH on or before 31 August 2013, and a further US$73.4 million (in instalments) on or before 30 September 2016.

During the financial year under review, GRZ announced the cancellation of the Small Scale Mining Licenses issued to Collum Coal Mining Industries Limited (Collum) situated in Sinazongwe District in the Southern Province of Zambia. Following the cancellation of the licenses, ZCCM-IH applied for and was issued with licences for the coal mine. ZCCM-IH has incorporated Nkandabwe Coal Mine Limited, a 100% subsidiary to operate the coal mine. ZCCM-IH intends to look for strategic partners to work with and develop the mine.

Albidon Zambia Ltd was placed under care and maintenance during the financial year under review so as to maintain the investment at Munali. On 28 March 2013, the Board of Albidon Limited announced, that Jin Tuo Investment Limited (a wholly owned subsidiary of Jinchuan Group Resources Holdings Limited, which is itself a majority shareholder of Albidon Limited) had proposed to acquire 100 per cent of the Albidon Limited at a cash price per share of US$0.0025. Subsequent to the financial year under review, the proposal was made to all shareholders other than the Jinchuan Group via a Statutory Merger pursuant to the British Virgin Islands Business Companies Act 2004 (as amended).

During the year, the Board of ZCCM-IH resolved to restructure and reorganise the Legal Department. The objective of the restructuring was to separate all legacy matters from current and future business so that the internal legal counsel would focus on current and future business while legacy matters could be handled by external legal counsel. The other objective was to downsize and enhance efficiencies. In this regard, all legacy (historical) related conveyancing and litigation matters were outsourced to an external law firm. As a result of the restructuring the number of staff in the legal department reduced from 26 to 3.

Further restructuring decisions were made to the Environment Department. The restructuring of the Environment Department resulted in the formation of a subsidiary company called Misenge Environmental and Technical Services Limited (METS), The objective of the restructuring was to allow ZCCM-IH to be more focused on investment activities while METS would provide environmental management services to ZCCM-IH including taking over all outstanding and future environmental obligations for ZCCM-IH. METS would also provide environment management services to other clients. METS officially commenced operations on 1 February 2013.

Capital market

The ZCCM-IH share price on the Lusaka Stock Exchange closed the year at K12.5 (2011; K12.5). The market capitalisation as at 31 March 2013 was K1, 116 million (2012; K1, 116 million).

To strengthen corporate governance in investee companies, ZCCM-IH adopted a new policy for the appointment of Representative Directors intended to tap best talent to represent ZCCM-IH on the Boards of Directors of its investee companies. This was done by advertising in the national media for applicants who would be interested in taking up directorships in ZCCM-IH’s investee companies. The applicants were subjected to interviews before selection. To this effect, new ZCCM-IH’s Representative Directors were appointed on the Boards of investee companies in September 2012.

Outlook

ZCCM-IH remains confident about the fundamentals of the mining industry in general and those of copper in particular. While continued volatility is expected in the short term, the long-term fundamentals for copper are expected to remain strong on the back of continued urbanization in China, India, South East Asia and Africa.

The Zambian economy is expected to continue to grow at higher rates than most of the economies in Sub-Saharan Africa premised on increased execution of development projects, investment in transport infrastructure, private investment in existing and new mining operations, and power projects.

ZCCM-IH is well positioned 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, there were changes to the Directorate as follows:

Dr B K E Ng’andu Appointed 02 April 2012 Non Executive Director

Mrs P C Kabamba Appointed 15 January 2013 Non Executive Director

Dr A Mwenda Retired 30 June 2012 Non Executive Director

Appreciation

I extend my gratitude to my fellow Board members, the Management and Staff of ZCCM-IH for their commitment and hard work during the past financial year. I further extend my gratitude to the investee companies for their efforts and contributions in the year.

Wila D Mung’omba

Executive Chairman of the Board