ZCCM Investments Holdings Plc (Zambia) – HY22 revenue down 10% to ZMW7.5bn, due to decline in copper production

ZCCM Investments Holdings Plc (ZCCM.zm) HY2022 Interim Report

FINANCIAL PERFORMANCE HIGHLIGHTS

Group Performance

• The Group recorded a turnover of ZMW7.5 billion (US$ 435 million) for the six-month period ended 30th June 2022 compared to ZMW8.3 billion (US$ 368 million) reported during the six months to 30th June 2021. The 10% reduction in revenue is attributable to reduced production of copper at Mopani Copper Mines PLC (“Mopani”), which accounts for circa 97% of the total revenue for the Group.
• The Group’s share of profit of equity accounted investee companies was ZMW1.343 billion (US$ 78.4 million) compared to June 2021 of ZMW1.475 billion (US$ 65.6 million). The drop in share of profit by 9% is attributable to the appreciation of the Kwacha against the US Dollar. The Kwacha appreciated from the average of ZMW22.5/US$ in the first half of 2021 to ZMW17.1 in 2022.
• Overall, the Group recorded a loss after tax of ZMW817.4 million compared to a profit of ZMW479.7 million in the six months period to 30th June 2021. This was mainly due to a significant loss recorded by a subsidiary, namely Mopani Copper Mines PLC, of ZMW2.1 billion (US$70 million) in this period.
• The Group’s total assets reduced to ZMW59.1 billion as of 30th June 2022 from ZMW72.8 billion as of 30th June 2021 due to the decrease in foreign denominated assets arising from the appreciation of the Zambian Kwacha during the period.

All financial results for ZCCM-IH’s subsidiaries are combined line by line with ZCCM-IH separate financial statements as per IAS 27: Consolidated and Separate Financial Statements. Under this technique, all assets and liabilities of the subsidiary companies are added to the assets and liabilities of the ZCCM-IH separate financial statements. ZCCM-IH subsidiaries are listed under the sub-heading ‘Structure of the ZCCM-IH Group’ above.

Mopani’s performance is significant to the ZCCM-IH group financial results.

During the period, Mopani contributed 97% and 258% of the group’s reported revenue and loss for the year, respectively. In addition, Mopani accounted for60% and 94% of the group total assets and liabilities, respectively.

Company Performance

• The Company recorded a profit of ZMW1.2 billion (US$ 70.8 million) compared to ZMW208.4 million (US$ 9.3 million) recorded in the same period in 2021. This was mainly due to the increase in dividend received from investee companies from ZMW956.4 million recorded in the six months period to 30th June 2021 to ZMW1.248 billion (US$ 72.9 million) recorded in the six months period to 30th June 2022, which includes a special dividend received from Kansanshi Mining PLC of ZMW769.8 million (US$43.5 million).
• The Company’s total assets increased from ZMW14 billion as of 30th June 2021 to ZMW25.8 billion as of 30th June 2022 due to the increase in fair value of investments in investee companies during the period.

2. KEY OPERATIONS AND STRATEGIC DEVELOPMENTS

(I) Mopani Copper Mines PLC (“Mopani”)
Shareholders are referred to the announcements by ZCCM-IH released on SENS on 21st December 2020, 8th January 2021, and 20th January 2021 regarding the acquisition of the 90% shareholding by ZCCM-IH in Mopani Copper Mines Plc (“Mopani”) (“the Transaction”). Refer to the said announcements for detailed transaction terms and conditions.
Post the approval on 31st March 2021 by ZCCM-IH’s Shareholders, the key strategic need of Mopani remains the completion of the expansion projects which are estimated at US$300 million for the Synclinorium Shaft (USD$00 million), Mindola Shaft (US$110 million), Henderson Shaft (US$40 million), the new Nkana Concentrator (US$5 million), and the Tailings Storage Facility (US$45 million).

Mopani’s copper production was 20,090 tonnes during the period. Copper production was restricted by the funding constraints. In addition, Mopani recorded negative retained earnings due to significant losses reported over the years and huge finance costs related to loans from Glencore group and is therefore unable to declare and pay dividends in the immediate future.

Going forward, key for Mopani will be the completion of the expansion projects which are estimated at US$300 million, and once implemented production of finished copper cathode is expected to increase to 225,000 tonnes by 2026. Mopani will also have the capacity to hoist close to 9 million tonnes of copper ore in the long term.

In June 2022, ZCCM-IH announced the engagement of an international investment bank, Rothschild & Co., South Africa (Pty) Ltd (“Rothschild & Co.”) to assist the Company with the strategic review of Mopani to ensure its sustainability and continued development. Rothschild & Co is a leading global financial services group, with a history of over 200 years at the Centre of the world’s financial markets. It is expected that this process will be concluded within a period of six (6) months from the date of contract award, with the ability to extend for a further 6-month period, considering progress to date and the closing provisions of any transaction agreements that have been signed.

The Board of ZCCM-IH will update the market on the results of this exercise in due course.

(II) Zambia Gold Company Limited (“ZGC” or “Zambia Gold”)

As previously announced, effective 22nd October 2021, the mining and processing operations at Kasenseli Gold Mine (“Kasenseli Mine”) in Mwinilunga, North-Western Province were suspended following a ministerial directive from the Ministry of Mines and Minerals Development to suspend operations and address concerns relating to Kansenseli Mine’s license conditions and safety regulations. The concerns raised by the Ministry mainly related to safety and security, amongst others. Zambia Gold has managed to address all key safety and security matters and the remaining concerns are matters that are expected to be attended toat the mine site.

On 31st May 2022, the Mines Safety Department lifted the suspension of mining and processing operations at Kansenseli Gold Mine in Mwinilunga, the Mining license and directed that full gold production and mining processing shall only commerce upon fulfilment of the statutory obligation which included amongst others:

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