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Why the acquisition of 90% of additional shares in Mopani by ZCCM IH is a timing masterstroke

In the era of ‘irrational’ economics, astute investors must keep an eye on the happenings in the macro environment to make sound investments. Although not a traditional risk associated with happenings in the macro, the global shutdown that Covid 19 caused meant that commodities would only see a northward trajectory when the world opened up.

Copper has experienced a bullish run that has seen it rise to levels last seen over 8 years ago. According to an article published on CNBC early this year“The demand for copper has been on the rise and is expected to go further up with top copper consumer China getting back to business after a long holiday and optimism of a stronger global economic recovery in view of COVID-19 vaccine roll-outs”.

Therefore, this means that investors who have been keeping a close eye on these developments and are involved in transactions such as acquisitions of commodity extraction assets such as mines are destined for an unprecedented windfall.

On Tuesday 30th March 2021, the ZCCM IH Board will host its investors at an Extra Ordinary General Meeting (EGM) to seek its shareholders’ approval for the Transaction whereby it will acquire 90% of the issued shares of Mopani Copper Mines Plc (“Mopani”) (being all of the issued shares in Mopani which it currently does not own) from Carlisa Investments Corporation (“Carlisa”).

This transaction is one of many complex transactions that ZCCM IH has structured since its establishment. The transaction is backed by its recently released strategy which will see the investment house more active in an extractive industry that is poised for a boom in this decade. The nostalgic transaction represents an opportunity for ZCCM-IH to transform from a pure investment company to owning and operating a major mining asset in Zambia.

Shareholders in ZCCM IH will have the opportunity of seeking clarity from the Board regarding some of the intricacies of the transaction. At face value, the transaction will ZCCM IH increase its shareholding implying going forward, the woes it faced as a minority shareholder of not having its voice heard will now be the loudest voice in the board room. This is critical if the investment house is going to be able to extract better value from its underlying assets and remedy some of the previous challenges it had when it was the smallest voice in the boardroom.

Shareholders will also be reminded about how the asset they are now increasing their shareholding in was capitalized. Extractive industries are capital intensive and often not financed from cashflows due to the nature of the business as well as the working capital cycle of the value chain. Historically, Mopani has been funded by shareholder loans from Carlisa and Glencore Group. As of 31 December 2020, the total value of the loan was $4.3bn, under the terms of the debt agreement, this has been amended to $1.5bn.

The $1.5bn will be amortized through a royalty payment mechanism that has been structured in such a way that the cash water fall system will ensure all creditors are paid and equity is capitalized. The revenue stream will be assured through the signing of an offtake agreement that will see Glencore purchase the product at a market price that is based on London Metal Exchange (LME) pricing. In short, the continued acceleration of Copper Prices that have now breached the $9000 per ton mark are a win for ZCCM IH.


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