zccm-ih market update on the internal restructuring and reposition strategy

7/27/2019 ZCCM-IH Market Update on the Internal Restructuring and Reposition Strategy

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ZCCM INVESTMENTS HOLDINGS PLC[Incorporated in the Republic of Zambia]

Company registration number: 771

Share Code: ZCCM-IH

ISIN: ZM0000000037

[ZCCM-IH orthe Company]

MARKET UPDATE ON THE INTERNAL

RESTRUCTURING AND REPOSITIONING STRATEGY

AND

FURTHER CAUTIONARY ANNOUNCEMENT

Further to the cautionary announcement issued on 12 December 2012, shareholders and the market are

advised of the following further and on - going developments relating to the Company and are advised

to continue exercising caution when dealing in ZCCM-IH shares.

INTRODUCTION

ZCCM Investments Holdings PLC (ZCCM-IH) is an investments holdings company with diversified interestsin metals, mining, power and other sectors of the Zambian economy. The Company has a primary listingon the Lusaka Stock Exchange (LuSE) in Zambia and a currently non active secondary listing on theLondon Stock Exchange and some shares are traded on the Euronext stock exchange in Paris.

ZCCM-IH is the privatized entity formerly known as Zambia Consolidated Copper Mines Limited (ZCCM).In 2000 ZCCM was privatized by the Government of the Republic of Zambia (GRZ). ZCCM-IH emergedfrom the privatization of ZCCM as an investments holdings company with equity stakes of between 10 to

20.6 % in the new companies that were formed from the unbundling of ZCCM.

The focus of ZCCM-IH today, and going forward, is to achieve full operational sustainability and realize the

original objectives which shareholders sought to achieve through the privatization of ZCCM. Theseobjectives include the following:

Mobilise substantial amounts of committed new capital for new operations; Ensure that ZCCM-IH realises value from its assets and retains a significant minority interest in

principal mining operations in Zambia;

Extinguish ZCCM-IH liabilities, including long standing indebtedness to the GRZ; Diversify the investment portfolio; and Promote Zambian participation in the ownership of mining assets.

Shareholding structure and status on the stock exchange

As shown on Table 1 below, the GRZ currently holds 87.6 % shareholding in ZCCM-IH made up of 60.3%designated as "A" shares and 27.3 % designated as B" shares. The balance of the shareholding of 12.4 % isdesignated as B shares and these are held by minority shareholders (Minorities "). GRZ acquired its 27.3% shareholding of B shares from Zambia Copper Investment Holdings Limited (ZCI) under theprivatization of ZCCM in 2000. ZCI was controlled by Anglo American Corporation (AAC).

All the B shares (i.e. the 12.4 % shares held by the Minorities and the 27.3 % held by GRZ) were listed onthe LuSE in 1995. The A shares held by GRZ are not listed on any stock exchange.

A portion of the B shares held by the Minorities are deposited on the Euronext (Paris Bourse) andpresently trade on that stock exchange, on a non formalized basis.


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Table 1: ZCCM-IH Shareholding Structure

SHAREHOLDER CLASS OF SHARES STATUS NO OF SHARES % SHAREHOLDING

GRZ A Not Listed 53,825,808 60.3

GRZ B Listed 24,329,828 27.3

MINORITIES B Listed 11,140,792 12.4

Total 89,296,428 100.0

[Note: The A and the B shares of ZCCM-IH are similar in every respect and carry equal voting rights.]

INVESTMENT PHILOSOPHY

The investment philosophy of ZCCM-IH is to operate as an investment holding company holding shares,

stocks, warrants, bonds, debentures, options and securities of whatever nature in privatized power andmining and other profitable companies.

INVESTMENTS HELD BY ZCCM-IH

The table below summarizes the companies in which ZCCM-IH currently holds equity.

Table 2: ZCCM-IH Investment Portfolio

Investment Major ShareholderZCCM-IH

% Holding

Ndola Lime Company Limited ZCCM-IH 100.0

Misenge Environmental and Technical ServicesLimited

ZCCM-IH 100.0

Mawe Exploration and Technical ServicesLimited

ZCCM-IH 100.0

Nkandabwe Coal Mine Limited ZCCMIH 100.0

Kariba Minerals Limited ZCCM-IH/GEMFIELDS 50.0

Maamba Collieries LimitedNava Bharat Singapore (Pte)

Limited35.0

Konkola Copper Mines PLC Vedanta Resources 20.6

Kansanshi Mining PLC First Quantum Minerals 20.0

Copperbelt Energy Corporation PLC Zambian Energy Corporation 20.0

Luanshya Copper Mines PLC CNMC

20.0

Lubambe Copper Mines PLC Vale/ARM 20.0

NFC Africa Mining PLC CNMC 15.0

Chibuluma Mines PLC Jinchaun 15.0

Investrust Bank PLC Zambian institutions 10.6 %

Mopani Copper Mines PLC Glencore 10.0

Chambishi Metals PLC ENRC 10.0

[Source: ZCCM-IH]

RECENT PERFORMANCE OF ZCCM-IH

At the Group or holding company level, in the year ended 31 March 2012, the consolidated statement ofcomprehensive income recorded revenue of ZMW257.3 million and an operating profit of ZMW367.3

million. Revenues were made up of dividends (ZMW79.7 million) from investee companies constituting 31%, and sales of lime (ZMW 177.6 million) under Ndola Lime Company representing 69 %. Dividend

revenues, as expected, depend on the operational performance of the investee companies, commodityprices and other factors. Dividends are currently constrained by the on-going capital expenditure projectsbeing undertaken at the various investee companies.
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At the company level the balance sheet of ZCCM-IH for the year ended 31 March 2012 carries total

liabilities of ZMW2, 352 million against total assets of ZMW2, 302 million resulting in a negative book value ofZMW 50.5 million. The bulk of the liabilities constitute debt owed to the GRZ carried over from ZCCM.

The GRZ indebtedness has severely constrained the balance sheet of ZCCM-IH in the recent past. In turnthis has affected valuation of the Company by the market and limited the capacity of Management to

unlock value for the benefit of shareholders.

Taking into account the high volatility associated with copper prices, the unpredictability of dividends

from investee companies, and other related factors that impinge on the revenues of the Company, theBoard of Directors of ZCCM-IH believes that it is imperative that the balance sheet of ZCCM-IH be

restructured as a matter of urgency and that priority be the reduction or elimination of the current debt

burden. In so doing the Company will be put on a sustainable trajectory going forward and thus willmaximise shareholder value.

STRATEGIES TO IMPROVE PERFORMANCE OF ZCCM-IH

To improve the performance of the Company, going forward, in April 2012 the ZCCM-IH Board approveda 5 year Strategic Plan under which the key strategic objectives for the period 20122016 are:

Reposition the Company to improve operational efficiency; Resolve the long standing legacy liabilities; Strengthen the oversight and monitoring capacity on investments; and Unlock the value of investments to increase overall shareholder value.

Repositioning the Company to improve operational efficiency

The Board and Management are taking measures to reposition the Company and improve its operational

efficiency. These include the following:

The Company engaged the services of organizational restructuring consultants to review andrealign the ZCCM-IH organisational structure to the 2012-2016 Strategic Plan. The review wasundertaken to ensure the availability of structural capacity to deliver on the 2012-2016Strategic Plan. A review of the current skills set was also undertaken to ensure that necessary

skills are available in all the functions of the Company. The Organisational Design hasrecently been completed, and the Board has approved a new organisational structure and

its implementation is already under way. A detailed exercise was undertaken to identify and select suitable persons to serve as

independent non-executive directors on the boards of investee companies. This has already

yielded positive results through improved monitoring and supervision of the investment

portfolio of the Company; The Company reclaimed the technical library services and geological data and core sheds

of the former ZCCM in Kalulushi on the Copperbelt.These facilities were reclaimed from the Chamber of Mines in the second half of 2013. In the

past, these two functions operated as cost centres. As part of the internal restructuring, theseoperations have now been converted to revenue centres through the incorporation ofwholly owned subsidiaries called Mawe Exploration and Technical Services Limited (Mawe)and Misenge Environmental and Technical Services Limited (Misenge). Mawe will pursueopportunities in the areas of exploration, small scale mining, the gemstone sector, localcontent and beneficiation amongst others whereas Misenge will undertake environmental

remediation relating to past obligations and pursue opportunities in the provision ofenvironmental support services to the mining industry in Zambia.

The Board and Management continue to explore further measures and strategies in pursuit of operational

efficiency.

Recent movements in the PortfolioFurther to the incorporation of Misenge and Mawe in December 2012 and April 2013 respectively, therehave been further recent changes to the investment portfolio of ZCCM-IH, namely:-

In February 2013 the GRZ requested ZCCM-IH to assume the ownership and operation of theColum Coal Mine in Southern Province of Zambia. ZCCM-IH has since completed the legalformalities and has taken ownership of the coal mine under the name Nkandabwe Coal MineLimited.

In June 2013, the Directors issued the Half Yearly Statement where it was announced that Jin TuoInvestment Limited had proposed to acquire 100 per cent of the Albidon Limited (an asset under


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Care and Maintenance) at a cash price per share of US$0.0025 via a Statutory Merger pursuant

to the British Virgin Islands Business Companies Act 2004 (as amended). The Statutory Merger hassince been concluded and thus ZCCM-IHs 0.97% shares in Albidon were acquired by Jin Tuo

Investment Limited at a cash consideration of US$8,474 (In 2008 ZCCM-IH invested US$10 million inAlbidon Limited).

Resolving the long standing legacy liabilities

ZCCM-IH currently has significant loans mainly arising from the restructuring programs undertaken prior toand during the privatisation of ZCCM in 2000. The majority of these loans are owed to the GRZ and

continue to be carried on the books of the Company. As at 31 March 2012, the ZCCM-IH audited financialstatements reflected loans amounting to ZMW 1,998 million (approximately US$363 million) owed to the

GRZ.

These loans have placed a significant burden on the Company with the result that ZCCM-IH has had a

weak balance sheet from 2000.

The Company has been in discussions with the GRZ over these loans and recently the GRZ accepted

proposals from the Board to reduce or eliminate all of the loans on the balance sheet through a RightsOffer transaction.

ZCCM-IH is currently liaising with the GRZ to verify and quantify the loans in preparation for the proposedRights Offer.

PROPOSED RIGHTS OFFER

In order to implement the Strategic Plan and achieve its critical objectives, the Board has recommendedthat the Company should immediately undertake a Share Rights Offer to all shareholders (the Rights

Offer).

A Rights Offer is an offer made to existing shareholders of a company to subscribe for new shares on a

pro rata basis. It is a common mechanism for raising a large quantum of capital relative to existing marketcapitalization, particularly where shareholders do not wish to be diluted.

The Rights Offer process is lengthy and highly regulated by the stock exchange listing rules to ensure all

shareholders are fairly and equitably treated.

The offer is made by way of Renounceable Rights which are listed on the stock exchange and can betraded so shareholders may sell or renounce their rights if they do not want to subscribe for the new shareson offer.

Provided the rights trade at fair value, shareholders who sell their rights are economically indifferent to

those who exercise their rights. Shareholders who elect not to follow their rights will have their interests inthe company diluted.

A Rights Offer also allows unallocated rights to be placed to new shareholders or underwriters.

Objectives of the ZCCM-IH Rights OfferThe proposed Rights Offer has a number of critical and important objectives that include the following:

De-gear the ZCCM-IH balance sheet by expunging GRZ debt of ZMW1,998million(approximately US$ 363 million) and thereby unlock the value of ZCCM-IH for the benefit of

all shareholders;

Ensure ZCCM-IH remains financially solvent and able to continue as a going concern; Inject additional fresh capital into ZCCM-IH which the Company can utilize for strategic

investments and developments; and

Avoid involuntary dilution of any class of shareholders.Expected Benefits from the Rights Offer

It is envisaged that successful implementation of the Rights Offer will lead to several benefits andadvantages for all shareholders and stakeholders at large. These include the following:

The restructuring of the ZCCM-IH balance sheet by eliminating or reducing current GRZ debtof ZMW1,998 million ( approximately US$363million);


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After the implementation of the Rights Offer exercise, the GRZ debt will be eliminated orsignificantly reduced, leaving ZCCM-IH with a clean balance sheet and therefore in a betterposition to consider payment of dividends to all shareholders going forward;

A balance sheet with no debt or significantly lower debt will enhance the attractiveness ofZCCM-IH to investors. In turn this may lead to increased and active trading of the Companysshares on the stock exchanges for the benefit of all shareholders.

The shareholding structure of the Company will not change as a consequence of the RightsOffer since it is not the intention of GRZ to increase its equity beyond the current level of87.6% whilst the balance of 12.4% will be held by the minority shareholders and investorswho will underwrite the Rights Offer .;

It is envisaged that ZCCM-IH will raise some fresh capital from the Rights Offer; and The Rights Offer route allows for equal treatment of all shareholders since they all have a right

to exercise or renounce their rights. Minorities have the right to participate in the Rights Offerand maintain their shareholding by exercising the rights and subscribing for the new shares

that will be issued.

Action steps to facilitate the Rights Offer

It will be necessary for ZCCM-IH to undertake a number of preparatory steps and actions as well ascomply with the Listing Rules of the LuSE before the proposed Rights Offer can be implemented. Theseactions include the following:-

There is need to carry out a detailed verification exercise on the indebtedness between GRZand ZCCM-IH and agree the net quantum of debt as amount owed to GRZ by ZCCM-IH . Thisexercise is currently on-going - and is expected to be completed shortly in readiness for the

proposed Rights Offer.

The Directors of ZCCM-IH believe the market is currently undervaluing the Company. Thereare several reasons for this undervaluation by the market. Part of the reason, in the past, has

been lack of up to date information on the operations and performance of the Companydue to delays in releasing audited annual financial statements of the Company. The backlog has now been cleared and the Company is now finalizing the audited accounts for 31 st

March 2013 and expects to remain current going forward.

Another important factor and reason for the undervaluation of ZCCM-IH is that the balancesheet of the Company is currently carrying the huge debt of ZMW 1,998 million as funds owedto GRZ. This huge debt has suppressed the value of the Company and made the Company

unattractive to investors and the market. Accordingly, the Directors commissioned anindependent valuation of the Company. This exercise was completed in September 2013.

The results from the independent valuation of the Company will then form the basis on whichthe shares in the proposed Rights Offer will be priced.

In compliance with the Listing Rules of the LuSE, a general meeting will be called by ZCCM-IHat which shareholders will deliberate on the proposed Rights Offer and consider for approval,the required resolutions to undertake the Rights Offer. It is envisaged that the generalmeeting will be held before 31 December 2013.

In compliance with the Listing Rules of LuSE, there is need to prepare a Rights Offer Circular toShareholders. This Circular will provide details on the Rights Offer and explain the various

options that Shareholders of ZCCM-IH can take in regard to their shareholding under theRights Offer. The Circular will be posted to shareholders ahead of the general meeting that

will be called to approve the Rights Offer.

There is need for the Company to update its share register records. The objective is to beable to make contact with as many shareholders as possible so that they can receive theRights Offer Circular, attend the general meeting if they so choose and participate in the

Rights Offer. In this regard, the Company has appointed a new transfer secretary (namelyCorpserve Transfer Agents Limited) to liaise with the LuSE Central Share Depository, EuronextStock Exchange in Paris and the Companys Registrars in England and produce an updated

share register ahead of the proposed Rights Offer.


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Strategic Direction of ZCCM IH after the Proposed Rights Offer

The Directors believe the actions and measures recently implemented and the proposed Rights Offer arecritical and necessary to reposition the Company to play its proper role and mandate as an investment

holdings company. Therefore the Directors believe ZCCM-IH will be in a position, after the proposed RightsOffer, to unlock value which should flow directly to all shareholders.

INVESTOR RELATIONS

Corpserve Limited appointed as Transfer Secretary

The Board and Management of ZCCM-IH are fully committed to improving and enhancingcommunication with all shareholders and the market. As outlined and summarised above, the strategic

thrust, re-positioning and re-orientation of the Company is fundamentally aimed at unlocking the value of

ZCCM-IH for the benefit of all shareholders.

Accordingly on 31 May 2013, ZCCM-IH appointed Corpserve Transfer Agents Limited as the TransferSecretary of the Company. Corpserve has already made significant progress in updating and reconcilingthe share register records with a view to improving the communication link with all shareholders.

Recognition of Investors on Euronext / Paris Bourse.

Whilst the primary listing of the Company is on the LuSE, it is noted that the shares of the Company havebeen actively traded on the Euronext stock exchange in Paris for many years. About10, 679,421 shares ofthe Company, representing 11.96 % shareholding in the Company are currently residing on Euronext. The

Board believes the regular trading of shares in the Company on Euronext / Paris Bourse is important forshare price valuation and provides liquidity to shareholders.

Therefore, the Management of ZCCM-IH has contacted Euroclear as nominee shareholder for the minorityshareholders on Euronext regarding the procedures and processes required to obtain details of the

beneficiary owners.

Euroclear requires that the Company confirms that the Zambian legal framework and the Articles of

Association of ZCCM-IH authorises the Company to obtain disclosure of the shareholders under Euroclear.

Preliminary review indicates that there may be need to amend the Articles of Association of the Company

in order to conform to the statutory requirements in France and the Euroclear regulatory requirements.

Accordingly, ZCCM-IH has continued with consultations in respect of the shares trading under Euronext

and seeks to explore ways to enhance communication with these shareholders in regard to corporateactions.

CONCLUSION

The Board believes that urgent action is necessary and a new strategic direction for ZCCM- IH is requiredin order to improve its operational performance and unlock value for the benefit of all shareholders on the

one hand and simultaneously have capacity to participate in new projects and opportunities in Zambiaand beyond going forward.

Accordingly, it is imperative that a line be drawn between historical legacy issues that have constrainedthe Company since privatisation of ZCCM in 2000 and prevented it from rising to its full potential and rolein Zambia and the new era of mining in Zambia that is driving the resurgence of the industry on the back

of higher metal prices and increased global demand for mineral resources and creating newopportunities that ZCCM-IH should seize.

The measures instituted by the Board and Management and the proposed Rights Offer provide a basis onwhich ZCCM-IH can chart a new path and unlock value for the benefit of all shareholders.

In this regard, the Board looks forward to the support of all shareholders at the forthcoming generalmeeting which will chart the way forward for ZCCM-IH as outlined above.

CONTACTS

For further information, the Company Secretary can be contacted as follows:-Mr. Chabby Chabala,

Company Secretary:Telephone: + 260 211 221023 / 228833Email: [email protected]


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www.zccm-ih.com.zm

The Transfer Secretary can be contacted as follows:Mr. Setfree Nhapi

Country ManagerCorpserve Transfer Agents Limited6 Mwaleshi Road, Olympia Park

PO BOX 37522 Lusaka ZambiaTel: +260 211 256969/70 | Fax: +260 211 256975

Email: [email protected]

Shareholders with physical certificates are strongly urged and advised to contact the Transfer Secretary or

the Sponsoring Broker and deposit their shares in the Central Share Depository (CSD) of the LuSE. This will

enable shareholders to sell shares in the Company in a timely manner and with ease. It will also enable

quick and fast communication with shareholders on the proposed Rights Offer.

RISK WARNING

Prospective investors are urged to exercise caution in dealing in securities that, by their nature, are volatileand subject to price fluctuation.

In compliance with the Securities Act, Cap 354 of the Laws of Zambia and the Listing Rules of the LuSE,further announcements will be made to inform the shareholders and the investing public as the

transaction progresses.

Accordingly, shareholders are advised to exercise caution when dealing in the Companys securities untila full announcement is made.

04 October 2013

LusakaZambia

Sponsoring Broker and Lead Advisor Lead Advisor Legal Advisor

STOCKBROKERS ZAMBIA

LIMITED

Independent Reporting Accountant

DELOITTE & TOUCHE

CHARTERED ACCOUNTANTS

IMARA BOTSWANA LIMITED

CORPSERVE ZAMBIA

CORPUS LEGAL

PRACTITIONERS

JOHN KAITELEGAL PRACTITIONERS

First issued on 12 December 2012

Transfer Secretary Co Legal Advisor

zccm-ih market update on the internal restructuring and reposition strategy

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