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Should ZCCM IH be trusted with Gold?

In ZCCM-IH’s 2018 annual report, the investment group made a bold announcement when it unveiled its 2018 to 2023 strategic plan. Aptly titled “Taking Giant Steps”, the executive leadership announced that ZCCM-IH would pursue a transformational agenda that would permeate through all operational landmarks with a view to sustaining growth and value extraction for the benefit of its shareholders.

Till the announcement of the new strategic direction, the group had experienced periods of non-dividends being paid. Fortunes though were changing for its primary mined metal. “The improvement in the profitability is largely attributed to improved performance in investee companies due to continued upsurge in copper prices during the year”, read a statement in the 2018 annual report.

The management team understood that in order to deliver on shareholder promises, they needed to transform as an investment group. “We have chosen to transition the Company away from the traditional dependence on dividend income and have identified more forward-looking strategies which will improve revenue generation with predictability” echoed the Board Chairman in his letter to shareholders that year.

With an understanding that over-dependence on just copper, it was prudent for the firm to venture into ambitious projects that would allow it to create value. “These strategies will not only improve the Company’s cash position but will also facilitate organic growth as the Company will be better able to finance its investment projects”.

One of the things that ZCCM-IH has been good at when one reviews the last 10 years’ worth of annual reports that are readily on the ZCCM-IH investor website, there are a number of deals serve as a reminder of the expertise possessed by the group in structuring deals.

Nkana Alloy Smelting Company Limited

When ZCCM-IH had the appetite to participate in slag material processing, they retained a 10% shareholding in Nkana Alloy. According to the 2013 annual report, Nkana Alloy is a company formed jointly by ENRC (BVI) Limited who owns 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. This is an example of a plain vanilla investment.

Cement Company Limited

When ZCCM-IH’s manufacturing appetite led them to seek out cement production, the Company entered into a Joint Venture partnership with Sinoconst for purposes of setting up a cement manufacturing company. According to the 2018 annual report, Central African Cement Company Limited (CAC) was incorporated and ZCCM-IH owned 49% of CAC while Sinoconst owns the remaining 51%. CACs operations will be located in Masaiti district in the Copperbelt Province of Zambia.

What is interesting was that ZCCM-IH moved in for 35% of the outfit that had a planned production capacity of the Plant of 5000 tonnes per day of Clinker with a two (2) by twenty five (25) MW Thermal Power Plant. It is expected that the Plant will take 3 years to construct and employ over 1000 people during construction. Once completed, the plant is expected to employ about 400 people.

However, due to the nature of how the deal was structured, in typical investment deal structuring, ZCCM-IH increased its stake in Central African Cement Company Limited (CAC) from the initial 35% to 49%, according to the 2019 annual report. This is an example that of a deal structured well that ensures that ZCCM-IH can actually increase its shareholding over the life of the asset.

Kariba Minerals Limited

On 7th November 2018, ZCCM-IH acquired an additional 50% shareholding in Kariba Minerals Limited (KML) which is Zambia’s largest Amethyst mine. This acquisition meant that ZCCM-IH now owned 100% shares in KML. The shares were acquired from Gemfields Limited at a total consideration of US$2,500,000. In line with their strategic vision, ZCCM-IH also started implementing strategic activities aimed at improving the production and marketing of amethyst at KML. This is an example of where ZCCM-IH moved in for a smaller chunk of the pie and ended up owning all of it over time.

On Gold

Much has been published about the Golden ambitions of ZCCM-IH. However, very little has been published about the track record of its investment stories. One thing a discerning reader needs to understand is that the investment cycle is not one day. This is why the ZCCM-IH strategic plan is 5 years. For the plan to achieve the groups’ ambitions to “transition the Company away from the traditional dependence on dividend income and have identified more forward-looking strategies which will improve revenue generation with predictability”, Gold ventures and other investment desires will need to be pursed. The fortunate thing for ZCCM-IH is that they have the track record in deal structuring which has been the reason for them declared a dividend year on year over the last 3 to 4 years.


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