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Country case study discussion: ZAMBIA, remarks by Dr. Pius C. KasoloCM IH, at the African Mining Indaba 2016, Capetown, South Africa

Country case study discussion: ZAMBIA, remarks by Dr. Pius C. Kasolo, Chief Executive Officer, ZCCM IH, at the African Mining Indaba 2016, Capetown, South Africa, on 10 February 2016

  • The Honorable Minister of Mines and Minerals Development in Zambia, Mr Christopher Yaluma
  • Your Excellency Mr Emmanuel Mwamba, Zambia’s High Commissioner to South Africa
  • The Mines Deputy Minister, Mr. Richard Musukwa
  • The Finance Deputy Minister, Mr. Christopher Mvunga
  • The Chief Executive Officer, Vedanta Resources PLC, Mr Tom Albanese
  • The Chief Executive Officer, Gemfields Plc
  • Senior officials from the Ministry of Mines
  • Distinguished invited guests, ladies and gentlemen

Thank you for taking time to come and be part of this discussion.

The Honourable Minister of Mines and minerals development, Mr Yaluma has spoken at length on what the Zambian government is doing to ensure the growth of a vibrant and sustainable mining industry beyond the cycles in Zambia.

The call to investing beyond mining cycles has been the main thread running through most of the discourses here at the Indaba.

ZCCM-IH has a portfolio of 16 Companies; our exposure to mining forms about 80% to 90% of our portfolio.

Going forward, ZCCM Investments Holdings’ strategy is to diversify our investments into other sectors of the economy like Agriculture, Energy and Manufacturing.

Before I say much on this, let me just play a clip about ZCCM investments holdings.

(CLIP Duration 3 Minutes 11 Seconds)
You notice from the video that ZCCM-IH is an Investment holding Company and not a mining company. Most people still call us “Zambia Consolidated Copper Mines limited”, and that is why we are trying to raise awareness on our rebrand as an investment holdings company.

Ladies and gentlemen,

We feel ZCCM-IH occupies a very unique and strategically advantageous position as Zambia’s biggest investments holding company, as it holds interests across the mining industry in Zambia.

In as much as this exposes us to the cyclical nature of the extractive industry, particularly copper mining, as ZCCM-IH we remain confident about the fundamentals of the mining industry in general and those of copper in particular.

The cyclical nature of the commodities sector will reward those who are well positioned and ZCCM-IH is uniquely well positioned.

Added to this, we want to continue maximizing shareholder value, which underpins ZCCM IH operations.

Hence, we will continue to grow our portfolio beyond mining and will further increase our foothold in the energy, manufacturing, agriculture and real estate sectors.

The Company has identified value-adding projects in these sectors and will seek strategic partners to bring these projects to fruition.

Come and be part of the journey to success.

Thank you.

Industry News

Copper loses its shine, for now

Plunging copper prices have pushed the copper industry into a quandary, with global demand deteriorating to an even worse extent than many people realise, Bernstein senior research analyst Paul Gait told delegates at the 2016 Investing in African Mining Indaba this week.

Gait noted, however, that copper was fundamentally scarce in an economic sense, as it was becoming harder to explore for copper and develop a mine. “The average lead time in finding copper is 30 years. It used to take 10 to 15 years. Copper mining is getting harder, not easier,” he stated. He said the dramatic increase in mining productivity seen in the 1970s to the 1990s had run its course, as it was getting increasingly hard to overcome the effects of geological complexity.

He added that it was unlikely that the copper industry would see a repeat of either the US in the early 1900s or Chile in the 1970s – the golden eras for copper exploration. “Grade declines are a fact of life, yet demand will continue to grow.” ZCCM Investment Holdings CEO Pius Chilufya Kasolo, meanwhile, pointed out that most of the mines in Zambia were not making money.

The Zambia economy, which has relied heavily on the copper industry over the years, is facing turbulent times, as its currency, the kwacha, has tumbled in tune with the problems experienced in the copper industry. But Kasolo said he feared that putting a hold on copper exploration because of a need to save money, could count against Zambia in the long run. “With a shortage of copper, the price may go up and the guys will wake up and it will be too late.” Gait concurred.

“At the moment the problem is oversupply but we know that oversupply will unwind itself.” Panelists participating in a special session on Africa’s Copper Potential suggested that South America may be a more abundant region for copper reserves than Africa; however, Kasolo believed “the last frontier for copper is in Africa”.

“I hear reports that only 20% of the world’s copper is in Africa, but I think there’s far more. Apart from Zambia, there’s more in the Democratic Republic of Congo.” Kasolo said the problem in Zambia was that the cost or production was high, owing to Zambia being a landlocked country and electricity supply challenges. Zambia has been struggling with electricity shortages, owing to the impact of a drought on hydropower plants.

Source: Mining News Zambia

Industry News

Commodity downturn could get worse in 2016, warns Anglo American CEO

Anglo American CEO Mark Cutifani expected 2016 to be the most challenging year for the mining industry, stressing in a copy of a speech delivered at the Investing in Africa Mining Indaba, in Cape Town, on Monday, that things could get worse before getting better.

He noted that the depth and length of the commodity downturn was forcing mining companies to look at themselves in a different light and to respond accordingly.

He added that the mining industry had itself to blame for the oversupply in the market and cautioned that miners should not rely on a reversal of the commodities price slump anytime soon.

“Adjusting supply to align with decreasing demand growth may not make sense as companies seek to maintain market share and drive competitors out of business. This strategy generally has a net negative effect,” he said.

He stated that Anglo would exit a number of its mines in several countries around the world this year to ensure the company was able to retain its long-term competitive edge and build a more resilient investment platform.

“Transforming the operational performance of the company, while also taking the hard but necessary choices about some of our assets, has been an essential part of turning around the ship in what I have always said would be a five-year exercise,” he said.

Meanwhile, Cutifani stated that South Africa, like many other countries, was experiencing the fall-out from the global economic pressures and the effects of the downturn in commodity markets.

However, he lauded the South African mining industry for putting its weight behind government’s Opertion Phakisa initiative, showing an appreciation for government’s recognition of what needed to be tackled urgently – from broadband constraints, to agricultural reform, to the competitiveness of the mining industry – “it is a global market, not only for mining, and South Africa must be in a position to compete.”

Source: Mining News Zambia

Investee Company News

First Quantum evaluating alternative power sources for Zambia mines

Providing an update on power supply to its Zambian operations, dual-listed base metals miner First Quantum Minerals noted on Tuesday that its Kansanshi mine and smelter, as well as its Sentinel project, in the North-Western province, were being consistently provided with a total of about 285 MW, despite the country’s electricity woes.

Nevertheless, the miner revealed that is was also evaluating a number of options to independently secure power for its operations both in the near and long term.

Zambia’s electricity shortage and weaker copper prices – owing to slow growth in China – have put the country’s mining industry under pressure, threatening output, jobs and economic growth in Southern Africa.

However, the Zambian Chamber of Mines revealed last week that the country’s copper production increased to 711 515 t in 2015 from 708 000 t the previous year, which was mostly attributed to the February ramp-up at First Quantum’s Sentinel mine.

POWER SUPPLY IN ZAMBIA

In a show of support for its host country, First Quantum explained that Zambia was in the midst of its annual rainy season, which generally starts in November and runs through April. With the onset of the rains, the catchment area that feeds the Kariba dam, from which the majority of the country’s electricity is generated, was being recharged.

The river flows at all four upstream measuring stations above Kariba dam were all showing significant increases in flow rates over the past month. Water from the catchment area typically makes its way into the Kariba dam over a period of months with dam recharge occurring from January to June.

In addition to this annual replenishment, electricity availability would be augmented by about 420 MW of new in-country capacity expected online during the current year from projects nearing completion, including 300 MW of thermal power and 120 MW hydropower.

Zambia’s State-run power company Zesco had been importing power from neighbouring countries and recently announced that it would receive additional power imports of up to 300 MW from South Africa’s State-owned power utility Eskom, as well as 200 MW from an independent power producer.

First Quantum also confirmed that plans to reduce its net debt position by over $1-billion by the end of March, 2016, through a combination of asset sales and other strategic initiatives, were going ahead with the continued support of its secured lenders

Source: Zambian Mining Magazine
ZCCM-IH News

ZCCM-IH in the process of constructing a cement plant in Ndola

THE Zambia Consolidated Copper Mines Investment (ZCCM-IH) is in the process of constructing a cement plant in Ndola with an initial investment of US$600 million.
ZCCM-IH chief executive officer, Pius Kasolo said the plant which would be setup at Ndola Lime on the Copperbelt would be completed in three years time and is expected to create more than 1,000 permanent jobs.

Dr Kasolo said in an interview in Lusaka that the plant’s production capacity would be 5,000 tonnes per day and would absorb a good number of retrenched miners on the Copperbelt.

He said at construction stage, ZCCM-IH would create about 10,000 jobs but that once the plant was completed, the number would reduce to over 1,000.

“We have diversified and we are planning to setup a cement plant in Ndola with an initial investment of about $600 million.

“It will be a bigger cement plant which will be producing 5,000 tonnes of cement per day and we will be generating our own energy from the cement plant,” he said.

Dr Kasolo explained that finances were being put in place and the feasibility studies had since been conducted.
He said this was in line with the Zambia International Investment Forum (ZIIF -2016) which would be held under the theme “Investment for Industrialisation, Wealth and Job Creation.”

Commerce Trade and Industry Minister, Margaret Mwanakatwe launched the Investment Forum in Lusaka on Friday.

Dr Kasolo said once the prices of cement drop further, it would mean that more people would be able to construct houses and factories.

He said this meant that the more the prices of cement drop, the more industrialised Zambia would be.

Source: LusakaTimes
Corporate Social Investment, ZCCM-IH News

ZCCM-IH takes part in a Charity Fundraising Golf Tournament at State House

On Sunday 11 January 2015 ZCCM-IH took part in a Charity Fundraising Golf Tournament at the State House to help raise funds for the Kasisi Orphanage. The ZCCM-IH team led by Chief Executive Officer, Dr Pius Kasolo played very well and scored 1 under par over the 18 challenging holes. More importantly ZCCM-IH contributed K20,000 towards the Orphanage with total contributions from all companies exceeding K200,000
ZCCM-IH News

Float shares with credit rating

FLOATING shares on the capital market without a credit rating may inhibit public participation due to lack of information on the risk profile of the company intending to list, Credit Rating Agency (CRA) has observed.
Commenting on the low number of subscribers to the ZCCM Investment Holding (IH) share offer CRA executive director of strategy and business development, Chishimba Yumbe said lack of clarity on the risk profile and operating environment of ZCCM-IH may have discouraged investors.

Almost 28 million Government shares in ZCCM-IH were offered for sale to Zambians, but only 0.81 percentage point shares were bought when the offer closed on November 30, 2015, with the listing company attributing the low subscription to the challenges facing the global copper mining industry.

Mr Yumbe said in an interview on Monday that credit ratings analyse all risk issues and are a vital component of market information to be included in a public offering of shares if the public is to be attracted in the offer, especially during challenging times such as the fall in the prices of base metals on the global market.

CRA is licensed by the Securities and Exchange Commission (SEC) as Zambia’s only authorised provider of credit rating services and it seeks to promote credit ratings spur investments and economic development.
“It was important to understand why the response from public investors could have been low. Investors’ interests are primarily two-fold – reward and risk. The former is often well amplified in the company prospectus through the financial projections, but the latter if not well articulated can be very difficult to decipher by potential investors.”

“One way a risk is easily communicated is through a credit rating. To arrive at a credit rating entails independent assessment of all business and financial risks, and the credit rating report provides detailed pertinent information,” he said.

Mr Yumbe, who described the low participation as unfortunate, said the current economic downturn in base metal prices does not mean future prospects are poor hence, the need to view share offers and long-term investments.
On July 30, 2015, Government offered Zambian citizens 27,961,237 shares, representing 17.4 percent of its shareholding in the mining conglomerate but Stock Brokers Zambia said only 805 applications were received and processed, representing a total of 226,064 shares.

This means the residual shares amounting to 27,735,173 representing 17.3 percent shareholding in ZCCM-IH will still be retained by Government.

Source: Daily Mail
Investee Company News

Mine to save jobs

CHIBULUMA Mines on the Copperbelt is to restructure its operational plan for 2016 and develop the Chifupu copper project in order to prolong the mine’s lifespan from 2018 to 2022.

Chibuluma Mines board chairman Jackson Sikamo said the restructuring plan was scheduled to be carried out in the first quarter of 2016.He said that would result in 263 employees being made redundant.

Mr Sikamo said in order to mitigate the magnitude of job losses and ensure decent alternative jobs, the company has made arrangements for a significant proportion of the employees affected to be taken on by the contractors who would carry out the outsourced services.

He said for the company to continue the development of the Chifupu copper project to prolong the mine’s life from 2018 to 2022, the mining output from Chibuluma South will reduce to 27,000 tons per month from 45,000 tonnes.

“This adopted option will be implemented expeditiously whilst ensuring that all the operational and business risks are identified and a systematic risk management mechanism is put in place to address them,” he said.

Chibuluma Mines Plc was incorporated in October 1997 following the privatization of the then Zambia Consolidated Copper Mines Limited.

The parent company is Metorex (Pty) Limited of South Africa who own 85% of shares while ZCCM Investments Holdings Plc own the remaining 15%.

Metorex is in turn wholly owned by Jinchuan International of China.

Source: Daily Nation
Investee Company News

Chibuluma mines confirms 263 jobs are to go

Chibuluma Mines Plc, majority owned by Metorex of South Africa has confirmed that it is sacking off 236 workers as part of its restructuring process.

The firm says the restructuring plan is scheduled to be carried out within the first quarter of 2016.

The company says the restructuring process is inevitable as its Chibuluma South Mine is fast approaching its end of life.

This is contained in a statement released by Chibuluma Mines Plc – Board Chairman Jackson Sikamo.

‘The mining and geotechnical conditions have become more challenging with the costs of mining continuously rising. Chibuluma Mines Plc’s performance in the financial year 2015 has been characterized by low production volumes and this coupled with the continuously falling copper prices has put severe pressure on the Company’s cash-flow,’ Mr. Sikamo said.

‘The Company is in a loss making situation which, if left unaddressed may force the Company to suspend its operations permanently. Management has therefore resolved to restructure the business, in order to ensure the survival of the Company.’

Mr. Sikamo added that the restructuring places focus on reducing mining rates, substantially outsourcing mining and ore transfer activities and significantly reducing overhead expenditure.

‘Through this process, various mine operating survival options have been considered and though the available options are not economically viable, the Company through its majority shareholder Metorex (Pty) Limited has made a strategic long term decision and selected the survival option with the least losses over the life of the mine,’ he said.

Mr. Sikamo outlined the measures such as the continued development of the Chifupu Copper development project to ensure prolonged Mine life from 2018 to 2022.

He also revealed that management has decided to reduce mining output from Chibuluma South to approximately 27,000 tons per month from 45,000 tons and outsource mining and processing plant ore transfer activities as part of the restructuring plan.

Chibuluma Mines Plc was incorporated in October 1997 following the privatization of the then Zambia Consolidated Copper Mines Limited.

The Company’s copper mining operations are located in Lufwanyama district.
ZCCM-IH News

ZCCM-IH shares snubbed

ABANDA CHULU, Lusaka
ABOUT 28 million Government shares in ZCCM- Investment Holdings (ZCCM-IH) that were offered for sale to Zambians have been shunned. Only 0.1 percentage point shares being bought when the offer closed on November 30, 2015.

ZCCM-IH has attributed the poor response to the preferential secondary market offer to the challenges facing the global copper mining industry.

On July 30, 2015, Government offered Zambian citizens 27,961,237 shares, represents 17.4 percent of its shareholding in the mining conglomerate.

In a statement released by Stock Brokers Zambia last week, only 805 applications were received and processed, representing a total of 226,064 shares (0.1 percent shareholding in ZCCM-IH) that were subscribed.

This means the residual shares amounting to 27,735,173 representing 17.3 percent shareholding in ZCCM-IH will still be retained by Government.

Commenting on the development, ZCCM-IH chief executive officer Pius Kasolo said the results of the preferential offer to Zambian citizens signify the challenges facing the global copper mining industry, and particularly the holding company’s significant portfolio concentration in the industry.

Despite the interim concerns, primarily driven by slower than historical Chinese demand for commodities, we are confident that the long-term prospects of the company remain overwhelmingly strong, and that the present difficulties offer a chance to learn, adapt, diversify, and realise benefits from opportunities that would not otherwise be possible under ‘normal’ market conditions,

he said.

Dr Kasolo said ZCCM-IH will remain committed to enhancing long-term shareholder value by continually seeking viable and sensible investment opportunities, while navigating prudently through challenging times.

ZCCM-IH will engage Government on the need to continually approach both Zambian and foreign investors to maximise their participation in the mining sector,

he said.

The shareholding structure subsequent to allotment will now be 60.3 percent which translates into 96,926,669 shares for Industrial Development Corporation, 17.3 percent (27,735,173 shares) for Government but held directly through the Minister of Finance.

National Pension Scheme Authority holds 15 percent, translating into 24,120,043 shares and other shareholders owns 7.4 percent which is 12,018,401 shares.