News & Media

CHAIRMAN’S STATEMENT

The financial year ended 31 March 2014 was an exciting year for ZCCM Investments Holdings Plc (ZCCM-IH). Significant milestones such as the restructuring of the balance sheet through a Claw-Back rights offer were successfully completed. This development saw the Company’s balance sheet being strengthened in a significant way thereby placing the Company in a position to leverage this strength to continue with its growth strategy.

Global economy

The global economy grew by 2.9% at the end of December 2013 (2012: 3.2%). Global GDP was lower than 2012 reflecting an economic slowdown in the leading emerging economies of Brazil, Russia, India, and China. Growth in 2013 was a mix of modest improvements in economic conditions in mature economies of the United States and the Eurozone area and a stabilization of the slower growth rates in major emerging markets. During the first quarter ended 31 March 2014 global GDP rose to 3.4% (2013:3.25%). However, growth in sub Saharan Africa was relatively stronger with GDP estimated at 5 % at the end of December 2013 (2012:5.3%). Sub Sahara Africa GDP for the first quarter ended 31 March 2014 was 2.5% (2013:3.1%).

Global copper production increased by 3.2% as at the end of December 2013 (2012: 4.5%). Copper prices declined by 11.6%, from US$7,540 per tonne at the beginning of the financial year to US $ 6,667 per tonne at the close of the financial year.

Despite the scenario above, the Zambian economy recorded growth of 6.7% at the end of December 2013 (2012: 7.2%), 0.2% lower than forecast. Growth was mainly driven by favourable performance in the mining, construction, manufacturing, transport and communication sectors. However, growth was lower than the previous year due to lower than budgeted performance in the mining sector and the weaker global economy.

Financial performance

The Group recorded turnover of K1, 001 million (2013: K520 million) and operating profit of K871 million (2013: K376 million).

The Group reported a profit before tax of K362 million (2013: K654 million). The Group recorded a profit after tax of K277 million (2013: K762 million). The Group’s share of loss of equity accounted investees’ was K537 million (2013: K222 million (profit)).

The Group’s retained earnings as at 31 March 2014 were positive at K4,295 million (2013: K4, 018 million).The Company’s retained earnings increased to K1, 403 million (2013: K511 million).

Strategic and new investments

Recapitalisation of Ndola Lime Company (NLC)

The recapitalisation project at NLC continued. The Company obtained an additional shareholder loan of US$3.5 million from ZCCM-IH towards funding for the Ndola Lime Recapitalisation Project. Subsequent to the year end, ZCCM-IH extended a further US$5million loan to NLC. The commissioning of the second Vertical Kiln (“VK-2”) is targeted for the end of October 2014 and is expected to increase production by 500 tonnes per day, which is predominantly expected to substitute the less efficient Rotary Kiln’s capacity of 400 tonnes per day. The use of coal in the VK-2 as opposed to Heavy Fuel Oil (HFO) will greatly enhance the prospects of reducing operating costs and thus make the products competitive.

Nkana Alloy Smelting Company Limited

The restructuring of Chambishi Metals Plc resulted in the formation of Nkana Alloy Smelting Company Limited (Nkana Alloy). In April 2013, ZCCM-IH retained a 10% shareholding in Nkana Alloy. Nkana Alloy is a company formed jointly by ENRC (BVI) Limited who own 90% of the total shareholding and ZCCM-IH. The company was formed for purposes of processing the slag material from the Nkana Slag Dump situated in Kitwe, Copperbelt province of Zambia. The slag material will be processed into a copper/cobalt alloy. The Slag Dump was previously part of Chambishi Metals Plc in which ZCCM-IH has a 10% stake. As at 31 March 2014 operations at the company had not yet commenced.

Mawe Exploration and Technical Services Limited

On 12th April 2013 ZCCM-IH incorporated Mawe Exploration and Technical Services Limited, a wholly owned subsidiary. The company will play a catalytic role in exploration of base metals and other minerals, oil and gas, the development of local content and beneficiation capabilities, small scale mining development, as well as the provision of attendant quality mining services.

Nkandabwe Coal Mine Limited

Following the granting to ZCCM-IH of the mining licenses previously held by Collum Coal Mining Industries Limited situated in Southern province of Zambia, on 3rd May 2013, ZCCM-IH incorporated Nkandabwe Coal Mines Limited, a 100% wholly owned subsidiary to operate the mine. ZCCM-IH is considering options for creating value for its shareholders using this asset.

Albidon Limited

The Group disposed of its investment in Albidon Limited. This was because on 15th May 2013 the shareholders of Albidon approved the acquisition by Jin Tuo Investments limited (a wholly owned subsidiary of Jinchuan Group Resources Holdings Limited which itself is a majority shareholder of Albidon Limited) of 100% of the company at a cash price per share of US$0.0025. The proposal was made to all the shareholders other than Jinchuan Group via a statutory merger pursuant to the British Virgin Islands (BVI) Business Companies Act 2004 (as amended).As a result, ZCCM-IH disposed of its 3,389,831 shares and received cash consideration of US$8,474.57.

Copperbelt Energy Corporation Plc (CEC) Rights offer

During the year, CEC Plc conducted a 5 for 8 Rights Offer to raise K387.5 million to undertake various expansion projects ZCCM-IH followed through its entitlement and acquired 125,000 shares.

Recapitalisation of ZCCM-IH

At the Extra Ordinary General Meeting of the members of the Company held on 24 February 2014, the shareholders unanimously resolved to recapitalize ZCCM-IH via a Claw-Back rights offer transaction. On 25 March 2014, ZCCM-IH announced that it had concluded the restructuring of its balance sheet. This achievement was the result of the efforts of the Government of the Republic of Zambia (GRZ), in its capacity and role as the majority shareholder, to strengthen ZCCM-IH’s balance sheet in order to reposition and attract new investment into the Company. As part of the balance sheet restructuring, GRZ converted the debt owed to it by ZCCM-IH into equity through a rights issue.

Through a Debt Settlement Agreement between the GRZ and ZCCM-IH signed on 25 March 2014, ZCCM-IH’s net indebtedness of ZMW 1,829,298,173.06 to GRZ was converted into equity, thereby satisfying the issuance and subscription for 87.52% of the new shares by GRZ.

Simultaneously, ZCCM –IH raised fresh capital on the 12.48 % portion of the rights offer amounting to K260, 759,573 which was underwritten by the National Pension Scheme Authority (NAPSA) on a Claw-Back basis. The Claw-Back arrangement allows the minority shareholders of ZCCM-IH who before the rights offer held 12.48% shareholding in the Company to also fully participate in the share rights offer at the same price as GRZ.

Following the Rights Offer, GRZ owns 87.52 % of ZCCM-IH while the remaining 12.48 % is held by the minority shareholders.

Capital market

The ZCCM-IH share price on the Lusaka Stock Exchange closed the year at K27 (2013: K12.5). The market capitalisation as at 31 March 2014 was K4,341 million (2013: K1,116 million).The growth in the company’s share price is indicative of the growing confidence from the market.

Outlook

While global activity has generally strengthened and is expected to continue in 2014–15 on the back of growth coming from mature economies, emerging economies have seen increased financial volatility as well as increases in the cost of capital. These factors may dampen investment and growth.

ZCCM-IH remains confident about the fundamentals of the mining industry in general and those of copper in particular.

Zambia’s growth prospects still remain positive relative to 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 capacity to create value for its shareholders has grown.

Directorate

During the year, ZCCM-IH announced the loss of Mr Wila D Mung’omba, Executive Chairman, who passed away on 17 February 2014. There were changes to the Directorate as follows:

Mr Wila D Mung’omba Deceased Executive Chairman

Dr Victor Mutambo Retired Non-Executive Director

Mr Philippe Taussac Appointed 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 during the year.

Cosmas Mwananshiku

Director

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

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