The first quarter of 2023 saw ZCCM Investments Holdings Plc (“ZCCM-IH” or “the Company”) stocks underperform by a 21.14% average when compared to the Markets on which it is listed. ZCCM-IH has its primary listing on the Lusaka Securities Exchange (“LuSE”), and secondary listings on the Euronext Access in Paris, and the London Stock Exchange (“LSE”). 

The Table below shows the Company’s stock performance on the three (3) listings:

Share price on the LuSE opened and closed at ZMW37.98 (USD1.77) per share, which was also the high and the low for the quarter, representing a 0.00% change in share price for the period. 3,370 shares exchanged hands in 26 trades for a turnover of ZMW127,992.60 (USD5,980.90).

The LuSE All Share Index (“LASI” or “the Market”) shows that the Market was up by 6.83% as at the end of the quarter. When compared to the movement of the Market during the period, ZCCM-IH stock value trading on the LuSE underperformed by 6.83%, having not appreciated in value, while the market moved up by the latter percentage.

Market capitalisation for LuSE traded ZCCM-IH stock stood at ZMW5,692,746,809.70 (approximately ZMW5.7 billion or USD266 million) as at the end of the period. Note that the exchange rate used is at the conclusion of trade for the period.

On the Euronext Access, the shares opened trade for the period at EUR1.48 (USD1.61) per share, which was also the peak for the period. Despite a low of EUR1.22 (USD1.33), Euronext Access stock ended the quarter trading at EUR1.27 (USD1.38) representing an overall 14.19% decrease in share value over the period under review. A total of 145,712 shares were traded in 239 transactions for a turnover of EUR194,944.00 (USD211,937.27).

The Cotation Assistée en Continu All Shares Index (“CAC All Shares” or “the Market”) shows that the market went up 13.39% as at the end of the quarter. When compared to the movement of the CAC All Shares Index during the period, ZCCM-IH stocks listed on this exchange underperformed by 27.58%. The 27.58% difference is accounted for by the ZCCM-IH shares having decreased in value by 14.19% while the Market appreciated by 13.39%.

Market capitalisation on ZCCM-IH stock trading on the Euronext Access stood at EUR13,486,862.79 (approximately EUR13.5 million or USD14.68 million) as at close of trade on the last day of the quarter. Note that the exchange rate used is at the conclusion of trade for the period.

ZCCM-IH stock on the LSE opened and closed the quarter at USD1.65 per share. This represents a 0.00% change in share price for the period. USD1.65 was also the high and the low for the quarter during which no shares were traded.

The Financial Times Stock Exchange All Shares Index (“FTSE All Shares” or “the Market”) shows that the market went up by 0.64% as at the end of the quarter. When compared to the movement of the FTSE All Shares Index during the period, ZCCM-IH stocks trading on the LSE underperformed by 0.64%, having not appreciated in value, while the market moved up by 0.64% over the same period.

Market capitalisation for LSE traded stock stood at USD482,945.10 (approximately USD0.48 million) as at the end of the period.

The need to reduce global greenhouse gas emission levels inspired the European Union (“EU”) to declare a ban on the sale of new petrol and diesel fueled vehicles. This will be effective 2035, after which only vehicles powered by electricity stored in batteries will be offered on the European market.

Zambia is the sixth largest copper producer in the world, holds the second largest cobalt reserves, and has ore mineralization of lithium, manganese, nickel, and graphite, all minerals critical for the Electric Vehicle (“EV”) battery industry. 

The Government of the Republic of Zambia (“GRZ”) is already positioning itself to take advantage of the anticipated global demand for copper and cobalt, as well as the bullish EV battery market. Here is how:

Increasing Copper Output

In 2022 the Government of the Republic of Zambia (“GRZ” or the “Government”) set a national annual copper production target of 3 million metric tonnes to be achieved starting 2031. The 275% increase in annual production from the current 800,000 tonnes will be achieved by expanding output at existing mines and opening up of greenfield projects.

Since the current Government came into power in 2021, First Quantum Minerals (“FQM”) pledged a USD1.25 billion investment to expand operations at Kansanshi Mining Plc (“KMP”). ZCCM-IH in partnership with EMR Capital and KoBold are also in the process of setting up a new copper mine in the next 10 years Mingomba Mine whose detailed exploration works using AI technology commenced during the quarter, will sit on one of the richest ore bodies in the world with an estimated 247 Metric Tonnes (“MTs”) of ore with average grade of 3.64% copper according to the Lubambe Extension Project study.

Revisions to Taxation on Mining to Boost Investment

The first significant revision by the Government to the country’s mining tax regime was to introduce the deductibility of the Mineral Royalty Tax (“MRT”) payments. Previously, MRT was non-deductible which was widely viewed by mining companies as double taxation.

Non-deductibility of MRT meant that mining companies had to pay MRT on revenue in addition to income tax from profits. This resulted in decreased output, as well as an overall decrease in investment by new entrants into Zambia’s mining sector, and reinvestment by mining entities already operating in the country. This is no longer the case, as evidenced by reinvestments in KMP, as well as the USD150 million investment to develop Mingomba Mine among others.

Value Addition to Minerals Used in EV Battery Production.

Zambia is Africa’s second largest producer of both copper and cobalt, eclipsed by the Democratic Republic of Congo (“DRC”) which accounts for 70% of global cobalt production. In spite of this, both countries are considered among the least developed, and continue to export raw metals critical for the EVs industry. To change this narrative, both Zambia and the DRC signed a Memorandum of Understanding (“MoU”) with the United States of America (“USA”) to jointly develop manufacturing plants that will increase their involvement in the global supply chain for EV batteries. 

In addition to the extraction of raw materials needed to produce EV batteries, both countries will be involved in processing, manufacturing, and the assembly of EV batteries and battery components for export. By engaging in the refining of and value addition of minerals extracted to produce EV batteries and battery components, both countries will yield significantly greater economic benefit from their copper and cobalt deposits.

Expected Outcomes for Zambia

Investment in mining, increased commodity output, and value addition to commodities will put Zambia on the path to economic recovery. This is cemented by analyst predictions of copper prices settling around the USD9,000 per tonne mark in the near future, gradually increasing amid widening supply and demand deficits over time.

In time, the country itself will abandon fossil fueled internal combustion engines and shift to using EVs.

ZCCM Investments Holdings (“ZCCM-IH” or “the Company”) on Monday 6 February 2023 commenced distribution of ZMW85.2 million (USD4.43 million) or ZMW0.53 per share being a total final dividend payable to shareholders for the financial year ended 31 December 2020. This was approved by the company’s shareholders at the 18th Annual General Meeting held on 9th December 2022.

The dividend paid was as a result of a Group profit of ZMW2.1 billion (USD109 million), and a Company profit of ZMW568 million (USD29.5 million) recorded for financial year ended 31 December 2020. A Group profit of ZMW307 million (USD15.98 million) and a Company profit of ZMW153 million (USD7.96 million) were recorded the year prior, representing a 594% and 271% increase in profit respectively.

Profit Recorded at Group Level was on account of a 70% increase in the value of dividends received due to improvements in the performance of investee companies. Additionally, two companies paid dividend during the period, as opposed to the year prior where one dividend payment was received by the Company.

Due to favorable copper prices of USD6,200 per ton recorded in 2020, a 3% increase from the USD6,000 per ton recorded in 2019, investee company share of profit on equity increased by 254% during the period.

Total Group assets also increased with value going from ZMW15.2 billion (USD790 million) in 2019 to ZMW 23.7 billion (USD1.2 billion) by the conclusion of 2020. This 55.9% increase was on account of a 63% increase in investment of associates, and a 219% increase in Cash and Cash equivalents resulting from a receipt of ZMW208 million (USD10.8 million) in dividends in 2020.

Further, the Group recorded a 95% increase in retained earnings during the period under review. This increased from ZMW2.1 billion (USD109 million) in 2019 to ZMW4.2 billion (USD218 million) in 2020.

Profit Recorded at Company Level was attributed to a recorded income of K226 million (USD11.75 million) for the year, a growth of 32% when compared to ZMW171 million (USD8.89 million) recorded the year prior.

With most assets being denominated in USD, some gains achieved were a result of the significant depreciation of the Kwacha against the United States Dollar. The years under review saw an average increase of 40.9% in exchange rate gains, with the average rate increasing from ZMW13.2/USD in 2019 to ZMW18.6/USD in 2020.

Retained earnings at Company level also increased, with ZMW1.5 billion (USD78 million) recorded for 2020 from ZMW978 million (USD50.9 million) recorded the year prior, a 53% increase.

Payment of Dividends by ZCCM-IH to its Shareholders is governed by the Company’s Dividend Policy as amended on 29th March 2018. The ZCCM-IH Dividend Policy stipulates that a minimum of 35% of the unconsolidated Net Profit after Tax (“NPAT”) for any financial year in which a positive unconsolidated NPAT is recorded be paid to its shareholders as dividends.

The ZMW85.2 million (USD4.43 million) dividend paid constitutes 37.7% of NPAT and is the fifth consecutive year reported that the Company has declared a dividend for a return on investment to our shareholders.  

To access the Company’s Strategic Plan, kindly click the following link: https://zccm-ih.financifi.com/download/2018-2023-strategic-plan/ 

Note, all USD conversions are as at the closing rate on 6 February 2023 when dividend payment commenced.

In an effort to diversify its energy mix portfolio, Copperbelt Energy Corporation Plc (“CEC” or “the Company”) commissioned a 33.11MW Solar Photovoltaic Plant (Solar PV Plant) in Kitwe on 15 February 2023. This is an upgrade of its 1.04MW Riverside Solar Photovoltaic Plant.

The solar project is being undertaken by CEC Renewables Ltd, a wholly owned subsidiary by CEC, in which ZCCM Investments Holdings (“ZCCM-IH”) currently holds a 31.03% stake. 

Diversifying the CEC Energy Mix 

CEC’s power energy is heavily reliant on hydro power sourced from ZESCO. This makes up approximately 91.05% of its power since the commissioning of the Solar PV Plant that is largely distributed to the mining firms on the Copperbelt. Owing to its extensive infrastructure, CEC has been the sole supplier of power energy to these mining firms in Kitwe, Luanshya, Mufulira, Chambishi Chingola and Chililabombwe since post privatisation operations commenced in 1997.

CEC’s high dependency on ZESCO for power supply however does put the Company business continuity at high risk. This risk is evidenced by what transpired during the expiration and renegotiating of the Bulk Supply Agreement (“BSA”) between CEC and ZESCO in March 2022. While the BSA has since been renewed for an additional thirteen (13) year period with a clause to safeguard CEC’s operations by granting the Company access to ZESCO transmission infrastructure for domestic wheeling purposes added, the continuity of the BSA was threatened. In addition, ZESCO itself is still heavily reliant (81.5%) on hydro-electric power which is prone to climatic and weather changes.

In view of the above, CEC through its wholly owned subsidiary CEC Renewables Limited has responded by taking the bold step to innovate and investing in renewable sources of energy to diversify the energy mix portfolio in order to avert some of the risks associated with the mono-power source that is largely hydro-based.

The Riverside Solar PV Plant Project

CEC Renewables Limited completed construction of the 33.11MW Solar PV Plant, expanding on an existing 1.04MW Solar PV Plant in Kitwe. The location of the plant was strategic as it is close to existing CEC infrastructure thus simplifying grid connectivity, monitoring and operation, as well as maintenance of the facility. The facility’s current total capacity is now 34.15MW which will be used for domestic wheeling. This is the first major step towards power generation, with CEC now being approximately 8.95% less dependent on ZESCO for power and reducing its operational costs at the same time. 

Future CEC Renewables Projects

In its BSA with ZESCO, CEC has a fixed fee power supply limit of 380MW. The 380MW exceeds CEC’s current demand, however this is anticipated to change in the near future. As such, the Company is targeting to develop an installed capacity of 200MW of renewable energy on the Copperbelt by 2024. To this end, in addition to the Riverside Solar PV Plant, CEC:

Benefits to ZCCM-IH

ZCCM-IH has held a 24.1% stake in CEC in since November 2018. This was increased to 31.03% earlier in the year. The increase is as a result of the confidence in CEC’s business continuity and the projected business growth arising from the expansion into renewable energy that is aimed at delivering maximum shareholder value and return. With the global drive to decarbonisation and net zero, CEC is headed in the right direction to become a leading clean energy producer in Zambia. In addition, CEC has been a consistent dividend payer since 2015 with continuous payments on average of USD22 million per annum to its shareholders.

At an Extraordinary General Meeting (“EGM”) held 31 March 2023, ZCCM Investments Holdings Plc (“ZCCM-IH” or “the Company”) shareholders approved the conversion of the 20% profit-based dividend rights in Kansanshi Mining Plc (“KMP” or “the Mine”) to a 3.1% gross revenue royalty right. This conversion entails that the historically unpredictable dividend rights have been replaced with guaranteed quarterly royalty rights of 3.1% of the Mine’s total revenue to be made over the Life of the Mine (“LoM”).

The estimated life of the mine is at least until 2045, during which the Company’s annual income from KMP is anticipated to be consistent and guaranteed. This is due to royalty income being based on sales of all metal products from the mine licence, as such as long as KMP is producing, ZCCM-IH is guaranteed to receive the royalty from the gross sales. The metals will be sold at obtaining commodity prices.

Dividend Vs. Royalty Structures

Dividends, payable at the discretion of the Board of Directors are a percentage of net annual profits paid out to shareholders based on the percentage of shares held at the time. As is the case with KMP, ZCCM-IH held and continues to hold a 20% stake in KMP (albeit with royalty rights now). This resulted in the Company having limited influence in deciding whether dividends were to be paid for a particular year and how much these would be, which was also dependent on some portion of the revenue being held to fund expansion projects. In addition, dividends are neither consistent, predictable, or even guaranteed.

However, the Company’s royalty income will be charged at 3.1% of the KMP’s total revenue from the sale of Copper, Gold, and all other metal products. These payments take into consideration the S3 Expansion Project currently underway at KMP, and will be made prior to any debt repayments, production costs incurred, or tax obligations being considered. As a result, ZCCM-IH is guaranteed consistent and predictable income paid on a quarterly basis.

20% Dividend Payments Vs. 3.1% Royalty Payments

In addition to ZCCM-IH being guaranteed consistent and predictable income, given prevailing commodity prices and anticipated production at KMP, royalty styled payments also means potentially higher income for ZCCM-IH. For instance, comparing actual dividends received from KMP between 2009 and 2021 which yielded a total income of USD337 million for ZCCM-IH, in the same period if the royalty styled payments of 3.1% were in place, ZCCM-IH would have realised an estimated total income of USD672 million (99.4% more) which is nearly double the income for the Company from KMP.

What Royalties Will Mean for ZCCM-IH and its Shareholders

During the EGM, the ZCCM-IH Board Chairperson Ms. Dolika Banda stated that “the royalty arrangement will give the Company consistent and stable income, and fundamentally, will change the financial health of ZCCM-IH by so doing”.

As detailed in the ZCCM-IH Strategic Plan for years 2020 to 2026 (“Strategic Plan”), the Company will use the KMP royalty income to pursue various key investments encompassing the entire mining value chain. These investments include extensive exploration of critical minerals, through to value addition projects with the ultimate goal of increasing value and return on investment for the Company’s shareholders, and to create national economic success stories for the benefit of all Zambians.

To access the Company’s Strategic Plan, kindly click the following link: https://zccm-ih.financifi.com/download/2018-2023-strategic-plan/