ZCCM Investments Holdings Plc

2012 2016 STRATEGIC PLAN

Table of Contents 1.0 EXECUTIVE SUMMARY 2.0 3.0 3.1 3.1.1 3.1.2 3.1.2.1 3.1.2.2 3.1.2.3 3.1.2.4 3.1.2.5 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 3.2.8 3.2.9 3.2.10 VISION, MISSION, VALUES, SITUATION REVIEW AND GOVERNANACE STRUCTURES BUSINESS REVIEW AND POSITION STATEMENT PERFORMANCE OF ZCCM-IH PLC Low cash returns on investments Legacy liabilities Historical environmental liabilities ZCCM Trust Fund Obligations Numerous historical litigation cases Conveyancing of ZCCM Ltd Properties Indebtedness of GRZ Performance of Investee Companies Albidon Limited Copperbelt Energy Corporation Plc Chambishi Metals Plc Chibuluma Mines Plc CNMC Luanshya Copper Mines Plc NFC Africa Mining Plc Equinox Minerals Limited Kansanshi Mining Plc Konkola Copper Mines Plc Maamba Collieries Limited 3 3.2.11 Mopani Copper Mines Plc 3 3.2.12 4.0 Ndola Lime Company Limited THE STRATEGIC PLAN 5

10 13 19 20 21 22 22 22 22 22 22 23 24 25 27 28 29 30 31 32 32 34

35
34

38

4.1

STRATEGY OVER VIEW 5

38

4.1.1

Global Economic Outlook 5

38

4.1.2

Zambian Economic Outlook 6

38

4.2

STRATEGIC OBJECTIVES 6 39

4.2.1

Increase Shareholder Value 6 Strategic Focus Area 1: 6

39

39

4.2.1.1

Leveraging and Consolidating Existing Investments in the Copper Mining Sector and pursue other copper assets 6

39

4.2.1.1.1

Maintain investment in the existing copper mining companies 8

40

4.2.1.1.1.1 Kansanshi Mining Plc 8 4.2.1.1.2 Konkola Copper Mines Plc

40 39 40

4.2.1.1.1.3 Mopani Copper Mines Plc

4.2.1.1.1.4 China Non-Ferrous Metal Mining Company (CNMC) Luanshya Copper Mines Plc 43 4.2.1.1.1.5 Chibuluma Mines Plc 2 4.2.1.1.1.6 NFC Africa Mining Plc 2 4.2.1.1.1.7 Chambishi Metals Plc 3 45 44

44

4.2.1.1.1.8 Invest in Konkola North Copper Company Limited 4 4.2.1.1.2 Invest in other Copper Assets 5 4.2.1.1.3 Cause Investee Company Boards to address the dividend concerns raised

46

47

47 5 4.2.1.1.4 Increase the Zambian ownership and management of the mining assets 6 4.2.1.1.5 Maximise value from the investee companies 6 4.2.1.2 4.2.1.2.1 Strategic Focus Area 2: Diversifying into other minerals Invest in Kariba Minerals Limited 8 4.2.1.2.2 4.2.1.2.3 4.2.1.2.4 4.2.1.2.5 Invest in other gemstone assets Invest in Small Scale Mining Operations 48 47 50 48 49 48

Invest in Ndola Lapidary Gemstone Processing and Lapidary Training Centre 52 Invest in Exploration Activities 0 52

4.2.1.2.6

Invest in other minerals 2

54

4.2.1.3

Strategic Focus Area 3: Investing in Mining Related Sectors 3 55 55 55 56

4.2.1.3.1 4.2.1.3.2 4.2.1.3.3 4.2.1.3.4

Hold Mineral Rights on behalf of the Government Investment in a new Mineral Production and Marketing Monitoring Model Carry out exploration works for Oil & Gas

Invest in new power projects under Maamba Collieries Limited and any other opportunities 56 57 3

4.2.1.3.4.1 Maamba Collieries Limited

4.2.1.3.4.2 Any other opportunities in the energy sector 4.2.1.4 Strategic Focus Area 4: Investing in Mining Related Manufacturing 4.2.1.4.1 4.2.1.4.2 4.2.1.4.3 4.2.1.4.4 4.2.1.4.5 4.2.1.5

55 57

Enhance shareholder value of Ndola Lime Company Limited and list on LuSE 59 Production of Cement 58 Production of Copper Alloys, Wires, Tubes and Rods as well as Steel Production 58 Localization of Supply Chain Strategic Focus Area 5: Reduce Legacy Liabilities 59 60 60 60 61 61 61 61 61 64 64 62 65 65 65 66 66 67 68 69 70 68 Innovative Funding Mechanisms for the Mining Sector Development 59

4.2.1.5.1 Improve Balance Sheet 4.2.1.5.2 Extinguish Environmental Liabilities 4.2.1.5.3 ZCCM Trust Fund 4.2.1.5.4 Extinguish Conveyancing Liabilities 4.2.1.5.5 Extinguish Legacy Litigation 4.2.1.6 4.2.1.6.2 4.2.1.6.3 4.3 4.4 4.4.1 4.4.2 4.4.2.1 Strategic Focus Area 6: Reposition the Company New Organizational Structure Staffing Implementation and Monitoring of the Strategic Plan Business Plan Key Assumptions Projected Performance Investing Activities 4 4.4.2.2 4.4.2.3 4.4.2.4 4.4.2.3 5 Projected Income Projected Costs Financing Financial Position Conclusion 4.2.1.6.1 Realign the Organisation Structure

4.2.1.6.4 Rebranding

APPENDICES ZCCM-IH Plc Investee Companies ZCCM-IH Plc Income Statement 2007-2011 ZCCM-IH Plc Financial Position 2007-2011 IMF World Economics Projections Minerals Resources of Zambia Ndola Lime Company Limited Forecast Income Statement Ndola Lime Company Limited Forecast Financial Position Ndola Lime Company Limited Forecast Cash Flow Statement ZCCM-IH Plc Projected Income Statement ZCCM-IH Plc Projected Cash Flow Statement ZCCM-IH Plc Projected Financial Position

TABLE OF FIGURES

FIGURE #

TITLE

PAGE NUMBER

1 2 3 4 5

Performance of Albidon 2007 to 2010 Performance of CEC 2007 to 2010 CEC Energy Sales (GWh) 2007 to 2010 Chambishi Mines Plcs Financial Performance 2007 to 2010 Chambishi Metals Plcs Production Performance 2007 to 2010 Chibuluma Mines Plcs Financial Performance 2007 to 2010 Chibuluma Mines Production Performance 2007 to 2010 CNMC Luanshya Copper Mines Plcs Financial Performance 2007-2010 CNMC Luanshya Copper Mines Production for 2007 to 2010 NFC Africa Mining Plcs Financial Performance 2007-2010 Financial Performance of Equinox Minerals Ltd Production Performance of Equinox Minerals Ltd Financial Performance of Kansanshi Mining Plc

24 25 25

26 26

6 7 8

27 28 28

9 10

29 29

11 12 13

30 30 31

14

Kansanshi Mining Plcs Production Performance -2007 to 2010 KCMs Financial Performance- 2007 to 2010 Financial Performance of Maamba Collieries Ltd 2007 to 2010 Financial Performance of Mopani Copper Mines Plc -2007 to 2010 Mopani Copper Mines Plcs Production Performance 2007 to 2010 Ndola Lime Company Limiteds Financial Performance 2007 to 2010

31 32

15 16

33

17

33

18

34

19

35

GLOSSARY OF TERMS CEC CEP Citadel CSR DRC FDI FNDP FPI FQM GDP GFC GRZ IPO KCM KMP Copperbelt Energy Corporation Copperbelt Environmental Project Citadel Resource Group Limited Corporate Social Responsibility Democratic Republic of Congo Foreign Direct Investments Fifth National Development Plan Foreign Portfolio Investments First Quantum Minerals Limited Gross Domestic Product Global Financial Crisis Government of the Republic of Zambia Initial Public Offer Konkola Copper Mines Plc Kansanshi Mining Plc

GLOSSARY OF TERMS KDMP KML Konnoco LCM LuSE MCL MCM NBS NFCA NLC NPV SNDP TSX ZCCM ZCCM-IH Konkola Deep Mining Project Kariba Minerals Limited Konkola North Copper Project CNMC Luanshya Copper Mines Plc Lusaka Stock Exchange Maamba Collieries Limited Mopani Copper Mines Plc Nava Bharat (Singapore) Limited NFC Africa Mining Plc Ndola Lime Company Limited Net Present Value Sixth National Development Plan Toronto Stock Exchange Zambia Consolidated Copper Mines Limited ZCCM Investments Holdings Plc

1.0

EXECUTIVE SUMMARY

Efforts to remodel the Value System of the Mining Sector and improve the Value Chain of ZCCM-Investments Holdings Plc (ZCCM-IH) have yielded some positive results, but a lot of work still remains to be done to convert the opportunities that the mining sector offers into real and visible wealth for the shareholders and other stakeholders. The early years (2001 and 2002) were difficult years for ZCCM-IH with losses having been reported at both group and company levels. The subsequent years, serve for 2009 when the company recorded a loss on account of the Global Financial Crisis, ZCCM-IH was profitable. At the time of review of this Strategic Plan, ZCCM-IH Portfolio comprised twelve investee companies, following the sale of shares in Equinox Minerals Plc in June 2011. In this portfolio, all the companies were impacted by the Global Financial Crisis (GFC) and its effects between 2008 and 2010 with the result that a number of the companies recorded a loss in one of these years. Serve for this adverse effect of the GFC, most of the companies - Copperbelt Energy Corporation (CEC), Chibuluma Mines Plc, NFCA Africa Mining Plc (NFCA), Equinox Minerals Plc, Kansanshi Mining Plc (KMP), Mopani Copper Mines Plc (MCM) and Ndola Lime Company Limited (NLC) - were profitable. The companies in the portfolio that have been loss making consistently are Albidon Mining Plc, CNMC Luanshya Copper Mines (CNMC) , Chambishi Metals Plc and Maamba Collieries Limited (MCL). Despite the fairly acceptable profit performance on the part of a number of the investee companies, it is only CEC that exhibited a consistent dividend payment record. The rest of the companies in the portfolio were either not paying dividends or exhibited erratic and unreliable dividend payment patterns. The dividend record reveals the weakness of depending on this revenue stream as the main source of income by ZCCM-IH. A review of the dividend distribution policies of investee companies shows that dividend declaration is not a priority. This situation raises the need, firstly, to review investee companies dividend distribution policies to ensure that dividend declaration receives requisite attention by the Boards of the Investee Companies and secondly for ZCCM-IH to revisit its investment model going forward as well as its involvement in the investee companies. The experiences from 2001 to date have shown that the approach of having a significant 10

minority stake which is then coupled with some Board Representation does not provide ZCCM-IH with adequate influence on matters of the investee companies and certainly does not provide the optimum benefits to ZCCM-IH. Going forward there is need to develop and adopt mechanisms that will allow ZCCM-IH have greater control and involvement in matters of investee companies. The country is still endowed with significant mineral wealth. Realizing this fact, the Strategic Plan (2012-2016) intends to set ZCCM-IH on the path to becoming a global diversified mining investments corporation. The Critical Success Factors to this include the following: a) The nations rich mineral endowment; b) Prioritizing of ZCCM-IH by the Ministry of Mines, Energy and Water Development regarding issuance of licences; c) ZCCM-IH adopting a Four-tier strategy of; i) leveraging and consolidating its existing investments in the copper mining sector and pursuing other copper assets, ii) diversifying into other minerals Coal, Nickel, Manganese, Silver, Gold, Rare Earths, coloured gemstones; iii) Investing in mining related sectors such as Energy Sector (hydro, Thermal, Oil & Gas,); and iv) Investing in mining related manufacturing such as Lime, Cement and other mining related manufacturing business interests; d) Revising the ZCCM-IH Structure to align it with the new strategic direction; e) Adopting approaches such as acquisitions, Joint Ventures, Venture Capitalism; f) Adopting a mixture of financing approaches to fund the investment necessary to support the new Strategic Direction; g) Acquiring relevant skills to support this new strategic direction. It should be acknowledged that the efforts to transform ZCCM-IH into a global diversified mining investments corporation will cover a period exceeding the initial 5 year period of this strategic plan. The transformation will endeavour to maximise shareholder value and resolve legacy liabilities. For the short-term, medium-term and long-term, these efforts will be driven through the following seven Strategic Focus Areas: a) Strategic Focus Area 1: Leveraging and consolidating existing investments in the copper mining sector and pursuing other copper assets; b) Strategic Focus Area 2: Diversifying into other minerals; c) Strategic Focus Area 3: Investing in mining related sectors; d) Strategic Focus Area 4: Investing in mining related manufacturing. e) Strategic Focus Area 5: Treasury management f) Strategic Focus Area 6: Reducing legacy liabilities g) Strategic Focus Area 7: Repositioning the company

11

For the period 2012-2016, ZCCM-IH will pursue the following goals under each Strategic Focus Area: a) Strategic Focus Area 1: leveraging and consolidating existing investments in the copper mining sector and pursuing other copper assets i. Maintain investment in the existing copper mining companies ii. Invest in Konnoco; iii. Invest in other copper assets; iv. Maximise value from the investee companies; v. Cause Investee Company Boards to address the dividend concerns raised; vi. Increase the Zambian ownership and management of the mining assets. b) Strategic Focus Area 2: Diversifying into other minerals: i. ii. iii. iv. v. vi. Invest in Kariba Minerals Limited; Invest in other gemstone assets; Invest in Small Scale Mining Operations; Ndola Lapidary Gemstone and Lapidary Training Centre; Invest in exploration activities; Invest in other minerals assets;

c) Strategic Focus Area 3: Investing in mining related sectors: i. ii. iii. iv. Hold the mineral rights on behalf of the government; Investment in a new Minerals Production and Marketing Monitoring Model; Carry out exploration works for Oil & Gas; Invest in new power projects.

d) Strategic Focus Area 4: Investing in mining related manufacturing: i. ii. iii. iv. Enhance shareholder value of Ndola Lime Company Limited and list it on LuSE; Cement production; Production of copper alloys, wires, tubes, rods and steel; Localisation of supply chain.

e) Strategic Focus Area 5: Treasury management: i. Invest in the money markets and any other investment opportunities. Resolving legacy liabilities:

f) Strategic Focus Area 6: i. ii.

Improve the Balance Sheet; Extinguish Environmental liabilities; 12

iii. iv. v.

Finance the ZCCM-IH Trust Fund; Extinguish Legacy Properties; Extinguish Legacy Litigations. Realigning the organisational structure

g) Strategic Focus Area 7: i. ii.

Re align the organisational structure; Launch the transformed Company.

During the Strategic Planning Period the Company plans to earn income of K4, 028, 037 million, incur total operating costs of K447, 202 million, administrative expenses of K287, 323 million, legacy expenses K119, 660 million and earn Profit Before Tax of K3, 173, 851 million and Profit After Tax of K2, 392, 630 million. 2.0 VISION, MISSION, VALUES, SITUATION REVIEW AND GOVERNANACE STRUCTURES

Every organization wants to anchor its efforts in value creation on clear and accepted Vision, Mission and Values. ZCCM-IH has developed for itself the following Vision, Mission and Values: 2.1 VISION

To be Zambias leading investments Company 2.2 MISSION STATEMENT

To maximize shareholder value with due regard to the interests of all stakeholders 2.2 VALUES Integrity Professionalism Teamwork Accountability Innovation 2.3 SITUATION REVIEW

2.3.1 POLITICAL, ECONOMIC, SOCIAL, TECHNOLOGICAL, ENVIRONMENTAL AND LEGAL (PESTEL) ANALYSIS PEST analysis is a scan of the external macro-environment in which the Company operates. It is expressed in terms of the following factors:

13

o Political which include government regulations and legal issues and define both the formal and informal rules under which the Company must operate; o Economic which affect the Companys cost of capital; o Social which include the demographic and cultural aspects of the external macro-environment; o Technological which can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. o Environmental-include climatic and; mining and industrial activities that will affect the environment in which ZCCM-IH operate in. o Legal-which affect the legislation. The Strategic Plan 2011 to 2016 has therefore taken into consideration PEST factors outlined below that are likely to impact on the Company during the course of implementation. The factors are as follows: Political Political stability after elections Economic The Cost of doing Business in Zambia Single digit inflation as the target Social High illiteracy levels High poverty levels unemployment

High interest rates affecting borrowings High and the cost of doing business levels

Unstable fuel prices negatively affecting Health challenges ( business planning malaria, HIV/AIDS, cancer, diabetes) High electricity tariffs and inadequate power supply negatively affecting Increasing young production population against decreasing senior Unstable exchange rates negatively population affecting business planning Lack of affordable The execution of the Sixth National housing Development Plan in conformity with the Vision 2030 Poor health facilities Declining net FDIs and FPIs Changes to country risk rating Inadequate infrastructure Rebasing of the Kwacha Declining foreign currency reserves 14 Inadequate educational system Increasing labour unskilled

Political

Economic Increase in capital requirements for the banks Issuance of sovereign Bond

Social

Environmental ICT Environmental degradation by industrial activities Unaffordable ICT services Inadequate environmental Obsolete equipment awareness Under-utilization of Information and Climate change Communication Deforestation Technology Lack of infrastructure for Inadequate training in science and management waste technology No Research and Inadequate Development in most dilapidated system and sectors of the economy. of solid

Technological Inadequate infrastructure

Legal Weak legal framework Lack of awareness of legal rights Lack of adequate legal system; Disregard of rule of law Frequent changes to the laws such as Mining and Minerals Act

and sewerage

Management of toxic and hazardous waste.

2.3.2 STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS (SWOT) ANALYSIS SWOT Analysis which is a scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the Company are classified as Strengths or Weaknesses while those external to the Company are classified as Opportunities or Threats. The SWOT analysis provides information that is helpful in matching the Companys resources and capabilities to the competitive environment in which it operates. Strengths Strengths are the Companys resources and capabilities that can be used as a basis for developing a competitive advantage. 15

Weaknesses The absence of certain strengths may be considered as weaknesses. Opportunities The external environment analysis may reveal certain opportunities for profit and growth arising from activities or situations determined by others. Threats The external environment may provide threats achievement of the objectives of the Company. Below is the detailed SWOT analysis applicable to ZCCM-IH: STRENGTHS WEAKNESSES Cash Resources and expected resources through dividends and price Overriding of participation income. and policies. Skilled manpower. Government link.

investment procedures

Legacy liabilities. Low returns on investments.

Strong CSR presence on the Low employee morale. Copperbelt and Kabwe through CEP. Lack of timely implementation decisions. Illiquid portfolio. High political risk exposure.

of

Ineffective Board representation on investee companies. Minority shareholding companies. in investee

Ineffective investor relations. Job insecurity. Delays in decision making. Lack of substantive Chief Financial Officer.

16

OPPORTUNITIES Being a listed entity and therefore subject to a market-determined share price.

THREATS The undiversified investment portfolio is subject to the same market risks.

There are potential hostile take-over An investment portfolio of minimum bids for ZCCM-IH given its portfolio of US$800 million dependent on the investments. investee companies performance. Change in Shareholders vision may The restructuring of balance sheet require restructuring of the entire through a debt-equity swap by the Company. majority shareholder. Uncertainty about global economy. The underlying value in Archives which Competitive alternative employee is subject to external parties interest. opportunities. The investment programme which may yield shorter pay-back periods Failure of investee companies. and specific dividend policies from Dividend policies of the investee potential investee companies. companies are not specific. Profiting from share trades in the investment portfolio. The refinement and enforcement of dividend policies in the existing investee companies.

2.4

GOVERNANCE STRUCTURE

The ZCCM-IH is an investments holdings company in which the Government of the Republic of Zambia (GRZ) holds 87.6% Shares and the remaining 12.4% shares are held by private investors. The Company has investments in the 17

privatised mining companies on the Copperbelt and North-Western Provinces of Zambia as well as in other sectors of the economy. The Company is structured as follows:-

Board of Directors

Executive Chairman

Chief Executive Officer

Investments Department

Technical Department

Legal Department

Company Secretarial Department

Finance Department

Human Resources and Administration Department

Risk and Internal Audit Department

The policy direction of the company is set by the Board of Directors headed by the Executive Chairman. The Board comprises of seven Board members and its representation is from the Ministry of Finance, Ministry of Mines, Energy and Water Development, Bank of Zambia and private sector. ZCCM-IH is run on a day-to-day basis by a dedicated multidisciplinary management team. The most apparent attribute of the team is its heterogeneous composition. Each member of the team brings varied but 18

complimentary skills that range from mining and chemical engineering, economics, project management, Procurement, corporate finance, banking, investment appraisal and management. The management team is overseen by the Executive Chairman. Currently ZCCM-IH employs a total of Eighty-Six (86) employees and structured in investments, Finance, Technical, Environment, Company Secretarial, Human Resources and Administration, Legal and Risk and Internal Audit Departments. 3.0 BUSINESS REVIEW AND POSITION STATEMENT

In an effort to restore the vitality of the mining sector and strengthen the Zambian economy, the Government of the Republic of Zambia (GRZ) commenced the privatisation of the Zambia Consolidated Copper Mines (ZCCM) in 1996. The specific objectives which were intended to be achieved through this privatisation were to: i. ii. iii. iv. v. vi. vii. Transfer control of and operating responsibilities for ZCCMs operations to private sector mining companies as quickly as practicable; Mobilise substantial amounts of committed new capital for operations; new

Ensure that ZCCM realised value for its assets and retained a significant minority interest in principal mining operations; Transfer or extinguish ZCCMs liabilities, including its third party debt; Diversify ownership of Copperbelt assets; Promote Zambian participation in the ownership and management of the mining assets; and Conduct the privatisation as quickly and transparently as consistent with good order, respecting other objectives and observing ZCCMs existing contractual obligations.

After a period of about 15 years, some of the objectives have been achieved while others are still being pursued by ZCCM-IH Plc, the successor company to ZCCM. On the whole the objectives of extinguishing ZCCMs liabilities and promoting Zambian Participation in the ownership and management of mining assets are yet to be achieved. This Strategic Plan (2012-2016) focuses on maximizing Shareholder value while addressing the remaining objectives and other related matters.

19

Following the conclusion of the privatisation programme, the early years of ZCCM-IH Plc placed emphasis on addressing the legacy issues (see brief discussion in section 2.1 below). Starting from 2007 the focus of ZCCM-IH Plc was refined towards that of an investments holdings company. At the time of preparing the Strategic Plan (2012-2016), the companys investment portfolio was as indicated in Appendix 1: Since 2006, the direction and performance of the Zambian economy has been anchored on and guided by the Vision 2030. The Vision 2030 aims to make Zambia become a Prosperous Middle Income Nation by 2030. The Vision 2030 has been operational zed through Five Year National Development Plans, starting with the Fifth National Development Plan (FNDP). Under the FNDP which ran from 2005-2009 the Zambian economy grew by an average of 6.1% per annum. Annual inflation during the period averaged 11.3% even though the target was single digit inflation. Lending rates during the period declined 18.9 percentage points from the highs of 46.2% to 27.3%. The value of the Zambian kwacha against major currencies declined over the period. Against the backdrop of this economic performance, the performance of ZCCM-IH Plc and its investee companies is discussed briefly below. 3.1 PERFORMANCE OF ZCCM-IH PLC During the period 30 June 2008 to 30 June 2010, ZCCM-IH experienced fluctuating profitability. The Companys total comprehensive income was K148 987 million in 2008. This declined to negative K447 066 million in 2009- This was largely as a result of the exchange loss of K409, 784 million that was incurred during that year-, but recovered to K768 930 million in 2010. It is worth mentioning that during the same period, copper and cobalt participation fees received during the period reduced. Price participation income of K79, 729 million was received during the year to June 2008, K25, 389 million for the year to June 2009, whilst none was received in the year ending March 2010. Price participation income was received from Chambishi Metals Plc (CMP) and KCM during the period under review. During the period under review, dividend income fluctuated. CEC has been the most consistent in paying dividends. Dividends were also received from CMP, Chibuluma Mines Plc, Kansanshi Mining Plc, KCM and NFC Africa Mining Plc during the period under review. There was also an increase in Grant income over the years in question as a result of the increase in Environmental works as the Copperbelt Environmental Project (CEP) was working towards closure in March 2011. The World Bank increased funding towards the project resulting in grant income funding increasing by 20

119% over the period, with a corresponding increase of 22% in Environmental expenses for the same period. It should be noted that there was delayed funding on the CEP that adversely affected project implementation and led to most projects running behind schedule and hence were still incomplete by the end of March 2011. The performance of the company is shown in detail in Appendices II & III below. As an investments holdings company, ZCCM-IH Plcs prime objective is that of increasing the value of its shareholders. On the basis of the Performance Reviews discussed above, the performance of the company over the years can be described as fair with shareholders equity having improved to negative K1 001 663 million by June 2010, though it could have been better. There are many factors that have led to this type of performance. The most critical factors are the following: i. ii. Low cash returns on investments, Legacy liabilities: a. Historical environmental liabilities, b. ZCCM Trust Fund Obligations, c. Numerous historical litigation cases, d. Conveyancing of ZCCM Ltd properties e. Indebtedness to GRZ

These factors are briefly discussed below. 3.1.1 Low cash returns on investments The 2008 2010 GFC had a negative bearing on the investment assets of ZCCMIH. This was reflected by the losses incurred by most of the companies during that period and the lack of dividend declarations as the companies liquidity situation tightened. Despite the foregoing, the consolidated shareholders value in respect of ZCCM-IH holdings rose by 127% from K404 035 million as at 30 June 2008 to ZMK917 117 million as at 30 June 2010. The shareholders equity growth was largely driven by a few companies which included KMP, KCM, Equinox Minerals Limited and CEC. The growth in the mentioned companies was itself driven by the continuation of their respective projects which would ultimately enhance the companies performance. With specific regard to dividends, very few of the companies were able to declare and pay out the funds. Those that did tended to declare lower sums compared to their historical declarations. The low returns in this regard reflected ZCCM-IHs challenges of depending on this income stream. The lack of dividend receipts from the companies that performed relatively well also signified the need to establish appropriate mechanisms and approaches that would enable ZCCM-IH realize value and gains through trading of shares. 21

3.1.2 Legacy liabilities 3.1.2.1 Historical environmental liabilities

Mining operations have, over the past 100 years, caused a major disturbance to the natural environment. As a result of the mining sectors poor economic performance throughout the 1980s and 1990s, environmental issues were not adequately addressed and became more acute. In an effort to manage the accumulated environmental liabilities, the Government of Republic of Zambia (GRZ) obtained the support of the World Bank and the Nordic Development Fund (NDF) and established the CEP to address the environmental liabilities and obligations that remained with ZCCM-IH and GRZ following privatisation of the assets of Zambia Consolidated Copper Mines Limited (ZCCM). During the period 2007 to 2011, ZCCM-IH spent US$19.97 million addressing historical environmental and social obligations resulting from historical mining operations. These efforts facilitated reinvestment of over US$3.6 billion by the new mine investors. There are a number of outstanding ZCCM-IH obligations that still need to be attended to do in the coming years. 3.1.2.2 ZCCM Trust Fund Obligations At the time of privatisation of ZCCM Ltd, all ex-employees of ZCCM who had been declared redundant were paid off their accrued terminal benefits in accordance with existing Conditions of Service. The ex-employees who had not been declared redundant and crossed over to the newly privatised companies had their accrued benefits (ZCCM Service) held in Trust. While all other new companies took over Employees Liability for service held in Trust relating to ex-ZCCM employees who were offered employment, KCM and MCM had a varied Agreement in this respect. In this regard, payment of benefits held in Trust is done by KCM, MCM, or ZCCM IH depending on the mode of exit of affected employees. During the period 2007 to 2011, ZCCM-IH has spent K17, 820 million in respect of Trust Fund obligations 3.1.2.3 Numerous historical litigation cases During the period 2007-2011 a total of K13, 960 million has been paid out in legal costs. There are currently about 363 cases involving litigants against ZCCM-IH. Most of the said cases have been dormant for a long time due to non 22

prosecution of the cases by the plaintiffs. ZCCM-IH has put in place an ongoing court process to have the said cases activated and tried or failing that, dismissed. The estimated contingent liability placed on litigation is in excess of K50 billion. However, the rate of success in favour of ZCCM-IH is over 90% in general. Nonetheless, there would be a significant loss to the Company in the event of adverse decisions being passed which would lead to large amounts being paid out in damages. Almost all the cases are civil claims which generally take a while to conclude and concentrated in contractual, employment and claims related to conveyancing. While it is recognized that most of the cases arose in the period prior to privatisation, the protracted process and difficulties connected with conveying houses to purchasers, has had the effect of eroding the publics confidence in the effectiveness of the processes ZCCM-IH has put in place to complete the said program. 3.1.2.4 Conveyancing of ZCCM Ltd properties

At the time of privatisation, it was decided that the assets of ZCCM be unbundled and sold individually as divisions. Following this decision it was therefore necessary for ZCCM to pay off their employees individually for their service with the Company before they could join the new companies formed after the sell. It was further decided that to reduce the cost of the payments due to each employee, the company would sell its approximately 46,002 houses to its employees and deduct the purchase price from their terminal benefits.

Unlike the case of the common conveyancing transactions, the scenario with the sale of ZCCM houses is different from other common transactions. Firstly, most of the houses did not have individual certificates of Title and sat on one huge tracts or parcels of land. This therefore meant that the said big tracts or parcels of land needed to be subdivided in order to prepare assignments. As at December 2011, a total of 44,724 surveys were contracted to various surveyors, a total of 36,899 of those contracted have since been received from the surveyors. As at December 2011, ZCCM-IH had lodged a total of 23,760 assignments and received a total of 21,026 Certificates of Titles. Owing to the passage of time since the commencement of the sale of houses, most of the initial purchasers have since sold the properties to other persons [third parties] and in some instances the houses have changed more than once. However, due to the tax waiver which only covers former employees, it has become extremely difficult to transfer directly to third parties, as the aspect of property transfer tax is triggered and the amounts involved would be huge based on market value and the 23

number of properties. It is planned to consider revising the policy on the sale of houses. It is expected that once the policy is revised most of the bulk of the conveyancing will be disposed of. 3.1.2.5 Indebtedness to GRZ

Prior to and during privatisation of ZCCM Ltd GRZ obtained loans from the World Bank and other cooperating partners to fund the privatisation process. These loans were transferred to ZCCM-IH Plc by GRZ. There are also some other transactions between the Company and GRZ which have been booked as debt owed to GRZ. These amounts are denominated in foreign currency and over the years, the company has suffered astronomical foreign exchange losses arising from these transactions. Efforts are underway to convert the GRZ loans to equity so as to ease the burden of the foreign currency translation losses on the Company and to make it more attractive to external financing.

3.2

PERFORMANCE OF INVESTEE COMPANIES

3.2.1. Albidon Limited As shown in figure 1 below, Albidon Limiteds performance during the period 2007 to 2010 has not been impressive. The company reported a loss of US$100 million in 2008 which dropped to about US$20 million in 2009. Albidon has not reported a profit in the period under review. Mining operations were suspended throughout 2009 as depressed nickel prices and an inability to ramp-up production resulted in the Munali Nickel Project being placed on care and maintenance in March 2009. It is important to note that the company commenced production in mid 2008.1

Having started production in mid 2008, the mine ceased operations when it was placed on care and maintenance in March 2009 to December 2009 largely due to the effects of the 2008/9 Global Financial Crisis and low Nickel prices. The only available production figure was that of 2,809 tonnes for 2010.

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Figure 1: Performance of Albidon 2007 to 2010

Albidon Limited Financial Performance 2007 to 2010 Total Sales 80 60 40 Amount (US$' Mn) 20 0 20 40 60 80 100 120 Year 2007 2008 2009 2010 Cost of Sales Net Profit/(Loss) Dividends

Note: (i) The profit of US$65.1 million is as a result of reversal of impairment of mine property and development. (ii) Unlike other mining companies, Albidon does not reflect operating costs in its financials. 3.2.2. Copperbelt Energy Corporation Plc As can be seen in figure 2 below, CECs profitability in the period under review had been rising steadily despite the impact that the global financial crisis had on the mining companies - who are its customers- as copper prices tumbled. The impact of the credit crunch was felt more in 2009 as some of CECs customers were forced to place their companies under care and maintenance

25

thus reducing its sales to the mines and thereby impacting negatively on revenues. The above situation also partly impacted negatively on dividend payments which reduced from US$20 million in 2007 to US$10 million in 2010.

Figure 2: Performance of CEC 2007 to 2010

CEC Financial Performance 2007 to 2010 Total Sales 200.0 180.0 160.0 Amount (US$' Mn) 140.0 120.0 100.0 80.0 60.0 40.0 20.0 2007 2008 Year 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

The credit crunch that negatively affected the mining companies in 2008 and 2009 also impacted negatively on the energy sales by CEC to the mines. In 2007, CEC sold a total of 3,389GWh which increased slightly in 2008 to 3,981GWh then dropped to 3,339GWh in 2009 before rising again to 3,640GWh in 2010 (see figure 3 below). Figure 3: CEC Energy Sales (GWh) 2007 to 2010

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CEC Energy Sales (GWh) 2007 TO 2010 Energy Sales GWh 4,500 Amount (GWh) 4,000 3,500 3,000 2007 2008 Year 2009 2010

3.2.3. Chambishi Metals Plc (CMP) CMPs financial performance has not been good in the period under review mainly because of the impact that the credit crunch had on commodity prices between 2008 and 2009 (see figure 4 below). Copper and cobalt prices slumped and as a result the company reported losses of US$31.1 million, US$36.3 million and US$59.1 million in 2008, 2009 and 2010 respectively. As a result of the low copper and cobalt prices on the world market, production was suspended in 2008 to about early 2010 at CMP thus resulting in the low productivity that is depicted in figure 5 below. Figure 4: CMPs Financial Performance 2007 to 2010
Chambishi Financial Performance 2007 to 2010 Total Sales 300 250 Amount (US$' Mn) 200 150 100 50 0 50 100 2007 2008 Year 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

Figure 5: CMPs Production Performance 2007 to 2010 27

Chambishi Production Performance 2007 to 2010 Total Production Cu Amount (Tonnes) 25,000 20,000 15,000 10,000 5,000 2007 2008 Year 2009 2010 Total Production Co

3.2.4. Chibuluma Mines Plc Chibuluma Mines Plcs financial performance in the period under review fluctuated as shown in figure 6 below with total sales increasing from US$76.1 million in 2007 to US$113 million in 2008 then dropping to US$61.7 million in 2009 and then rising to US$107.8 million in 2010. Net profits/loss also followed a similar pattern but dropped to a loss of US$5.3 million in 2010 (2010 figures are unaudited). Figure 6: Chibuluma Mines Plc Financial Performance 2007 to 2010
Chibuluma Financial Performance 2007 to 2010 Total Sales 120 100 80 Amount (US$'Mn) 60 40 20 0 2007 20 2008 Year 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

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Production at Chibuluma Mines Plc increased, 36%, from 10,752 tonnes in 2007 to 14,583 tonnes in 2008 (see figure 7 below).2

Figure 7: Chibuluma Mine Production Performance 2007 to 2010

Chibuluma Production Performance 2007 to 2010 Total Production 16,000 14,000 Amount (Tonnes) 12,000 10,000 8,000 6,000 4,000 2,000 2007 2008 Year 2009 2010

3.2.5. CNMC Luanshya Copper Mines Plc (LCM) CNMC Luanshya Copper Mines Plcs (LCM) financial performance has not been good in the period under review mainly because of the impact that the credit crunch had on commodity prices between 2008 and 2009 (see figure 8 below). Copper prices slumped and as a result the company reported losses of US$33.8 million and US$5 million in 2008 and 2010 respectively. Figure 8: LCMs Financial Performance 2007-20103

The 2009 and 2010 production figures were not included in the annual reports as was the practice in the prior periods.
2

29

CNMC Luanshya Financial Performance 2007 to 2010 Total Sales 150 Amount (US$'Mn) 100 50 0 50 2007 2008 Year 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

As a result of the low copper prices on the world market, production was suspended in 2008 to about early 2010 (see figure 9 below) at Luanshya when new majority shareholders took over the operations at the mine. Figure 9: LCM Production for 2007 to 2010
CNMC Luanshya Production Performance 2007 to 2010 Total Production 1,200 1,190 1,180 1,170 1,160 1,150 1,140 2007 2008 Year 2009 2010 Amount (Tonnes)
3

3.2.6. NFC Africa Mining Plc NFC Africa Mining Plcs financial performance has not been consistent in the period under review and this was exacerbated by the impact that the credit crunch had on commodity prices between 2008 and 2009 (see figure 10 below). Copper prices slumped and even though the company reported profits of US$38.4 million and US$17.4 million in 2009 and 2010 respectively, the shareholders equity dropped to negative US$137.4 million by the end of 2010. Except for 2007, the rest of the years figures were unaudited.

The preliminary (unaudited) figures obtained from CNMC Luanshya did not include the other information missing on 2009.

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Figure 10: NFC Africa Mining Plcs Financial Performance 2007-2010

NFCA Financial Performance 2007 to 2010 Total Sales 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 2007 2008 2009 2010 Cost of Sales Net Profit/(Loss) Dividends

The production statistics were not available at the time of reporting. 3.2.7. Equinox Minerals Limited The financial performance of Equinox Minerals Limited is shown in figure 11 below. Total sales for Equinox rose from US$532 million in 2009 to US$1,046 million in 2010 whereas net profits rose from US$173 million in 2008 to US$269 million in 2010 though there was a loss of US$183 million in 2008. Figure 11: Financial Performance of Equinox Minerals Ltd
Equinox Minerals Financial Performance 2007 to 2010 Total Sales 1200 1000 Amount (US$'Mn) 800 600 400 200 0 200 400 2007 2008 Year 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

Production at Equinox increased by over 50% between 2009 and 2010 as shown in figure 12 below, rising from 83,888 tonnes in 2009 to 146,690 tonnes in 2010. It is important to note that production at Lumwana mine which was the only asset in 31

production for Equinox during the review period only commenced on 1st April 2009. Figure 12: Production Performance of Equinox Minerals Ltd
Equinox Production Performance 2007 to 2010 Total Production Amount (Tonnes) 200000 150000 100000 50000 0 2007 2008 Year 2009 2010

3.2.8. Kansanshi Mining Plc (KMP) Total sales for KMP showed a steady growth in the period under review increasing from US$1.12 billion in 2007 to US$1.23 billion in 2009 (see figure 13 below). The net profits however decreased steadily from US$525 million in 2007 to US$281 million in 2009. The company paid a dividend of US$120.5 million in 20094. Figure 13: Financial Performance of KMP

This dividend amount refers to a US$30 million paid during the year 2009. At the board meeting held on 26 March 2010, the directors approved a final dividend of 10% of profit for the year less interim dividends paid during the year amounting to US$13 million. The directors also approved a special dividend amounting to US$92.5 million relating to profits for the years ended 31 December 2007 and 2008 less the 2008 dividend of US$15 million paid in 2009. The special dividend payable is US$77.5 million.

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Kansanshi Financial Performance 2007 to 2010 Total Sales 2000 1800 1600 Amount (US$' Mn) 1400 1200 1000 800 600 400 200 0 2007 2008 Year 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

Kansanshi production performance was satisfactory in the period under review as depicted by the graph above that shows an increase in production from 163,824 tonnes in 2007 to 231,124 tonnes in 2010.

Figure 14: Kansanshi Mining Plc Production Performance -2007 to 2010

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Kansanshi Production Performance 2007 to 2010 Total Production 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 2007 2008 Year 2009 2010

3.2.9. Konkola Copper Mines Plc KCMs financial performance fluctuated in the period under review with total sales rising to US$1.1 billion in 2008 from US$1 billion in 2007 then dropping to US$775 million in 2009 before rising again to US$1.1 billion in 2010 (see figure 15 below). The net profits also depicted a similar trend. The company paid dividends twice during the period under review. In 2008 US$11.47 million was paid whereas US$5.74 million was paid in 2009. Figure 15: KCM Financial Performance- 2007 to 2010
KCM Financial Performance 2007 to 2010 Total Sales 1200 1000 Amount (US$'Mn) 800 600 400 200 0 200 400 2007 2008 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

Amount (Tonnes)

Year

3.2.10.

Maamba Collieries Limited

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The financial performance of Maamba Collieries Limited in the period under review was dismal (see figure 16 below). This was mainly because the company was barely in operation. Figure 16: Financial Performance of Maamba Collieries Ltd 2007 to 2010
MCL Financial Performance 2007 to 2010 Total Sales 60000 40000 Amount (US$' Mn) 20000 0 20000 40000 60000 80000 Year 2007 2008 2009 2010 Total Operating Costs Net Profit/(Loss) Dividends

3.2.11. Mopani Copper Mines Plc MCM Plcs financial performance fluctuated in the period under review with the total sales that peaked at US$1.1 billion in 2007 dropping steadily to US$596 million in 2009 before rising again to US$869 million in 2010 (see figure 17 below). The net profits also depicted a similar trend. Figure 17: MCMs Financial Performance -2007 to 2010
Mopani Financial Performance 2007 to 2010 Total Sales 1,500 Amount (US$' Mn) 1,000 500 Total Operating Costs Net Profit/(Loss) Dividends

2007 (500)

2008 Year

2009

2010*

Mopani reported improvements in its copper production as shown in figure 18 below. 35

Figure 18: MCM Production Performance 2007 to 20105

Mopani Production Performance 2007 to 2010 Total Production Cu 250000 Amount (Tonnes) 200000 150000 100000 50000 0 2007 2008 Year 2009 2010 Total Production Co

3.2.12. Ndola Lime Company Limited In 2007 and 2008 total operating costs for NCL at ZMK112.1 billion and ZMK130.4 billion respectively out stripped total sales of ZMK99.9 billion and ZMK119.4 billion resulting in losses in the respective years. However, for 2009 and 2010 the situation changed and the total sales were higher than the total operating costs resulting in profits of ZMK10.9 billion and ZMK3.8 billion in the two periods (see figure 19 below). With the exception of the 2010 financial year, NLC has reported negative shareholders equity of ZMK18.9 billion, ZMK32.5 billion and ZMK21.6 billion for the 2007, 2008 and 2009 financial years respectively. Ndola Lime only paid a ZMK1.05 billion dividend once in 2009.

Figure 19: Ndola Lime Company Limited Financial Performance 2007 to 2010
5

The 2007 production figure was not available in the annual reports.

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NLC Financial Performance 2007 to 2010 Total Sales 160,000 140,000 120,000 Amount (US$' Mn) 100,000 80,000 60,000 40,000 20,000 2007 2008 2009 2010* Total Operating Costs Net Profit/(Loss) Dividends

(20,000) (40,000)

Year

As can be seen from the review above, apart from the CEC, Kansanshi Mining Plc and KCM which were profitable companies, the rest of the companies in the portfolio were either loss making or exhibited weak profitability. Further, apart from CEC that exhibited a consistent dividend payment record the rest of the companies in the portfolio were either not paying dividends or exhibited erratic and unreliable dividend payment patterns. This situation depicts a generally poorly performing investment portfolio with poor returns on investment. The performance of 42% of the investee companies was poor. Other weaknesses during the period which undermined performance of the business included the high legacy issues as well as a weak balance sheet. Due to this poor performance, the company could not take advantage of the opportunities that the Zambian Economy offered in other sectors of the mining industry such as gemstone mining, manufacturing and supply chain. The opportunity to restructure the companys balance sheet was also not taken advantage of. The high level of copper investments in the portfolio impacted adversely on the companys performance during the period of the Global Financial Crisis and provided a reminder on the need for portfolio diversification. The Zambian economy during the period under review posted macro-economic stability and growing GDP which factors are good for business. Going forward, the company needs to focus on addressing the above matters in order to enhance value creation.

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4.0 4.1.

THE STRATEGIC PLAN STRATEGY OVERVIEW

4.1.1. Global Economic Outlook International Monetary Fund January 2012 predictions of the global economy indicated that the world economy deteriorated sharply as the euro zone crisis adversely impacted global recovery. The IMF revised downwards its forecasts for economic growth in its new World Economic Outlook, released in January 2012. The Euro zone is expected to shrink during 2012, and it was expected that the Euro zone crisis would have adverse effects on growth in other nations. The Italian economy was expected to contract by 2.2% in 2012, while that of Spain was expected to shrink by 1.7%. Overall it was expected that the euro area GDP would fall by 0.5% in 2012 compared to a previous forecast of 1.1% growth. The UK's growth forecast for 2012 was revised downwards to just 0.6% from 1.6% in the IMF's last forecast. The IMF still believed America's GDP would grow by 1.8% during 2012. As for the developing world and the high-growth Asian region, it was expected that their economies would continue to grow faster than those of the advanced economies of Europe, Japan and the US. In 2013, economies are expected to recover slightly. See Appendix IV for additional data on IMF World Economic Outlook. The future outlook for the mining industry is expected to follow a similar pattern. The Asian Economies, led by China will continue to play a key role in the global economy and on the demand for commodities including copper. It is also worth noting that unlike with other commodities such as gold, rare earths and coal, China does not produce much copper relative to its consumption. This being the case, China will remain a big net importer of copper. In addition robust demand for copper is expected from India and other developing countries in the long term as they develop infrastructure and capacity as urbanization increases. 4.1.2. Zambian Economic Outlook The Zambian Governments Sixth National Development Plan (SNDP) which runs from 2011 to 2015 aims to accelerate infrastructure development, economic growth and diversification, rural investment and poverty reduction and enhance human development. The GDP growth rate is projected to be in the range of 6 to 7 percent per annum during this period. During the SNDP period, the mining 38

sectors contribution to GDP will rise to at least 20 percent from the current 9.1 per cent. This will entail the mining sector focusing on increasing exploration projects, increasing production and engaging in sustainable production and management of mineral resources. The mineral resources of Zambia are predicted on Appendix V. For 2012, the Government has set macroeconomic targets of achieving real GDP growth of above 7% and attaining end-year inflation of no more than 7%. This scenario presents opportunities that ZCCM-IH should seize in its efforts to become a diversified investor in mining and create visible value for its shareholders, employees and other stakeholders. 4.2. STRATEGIC OBJECTIVES

Within the framework of the companys Vision and Mission, the favourable macroeconomic environment, the bright prospects for the Zambian economy and the Strategic Tenets of the ZCCM-IH strategy described above, the companys Strategic Objectives during the period 2012 to 2016 are: i. Increase shareholder value; ii. Resolve the legacy liabilities. iii. Reposition the company These are discussed below in detail. 4.2.1. Increase Shareholder Value

Given the nature of business of ZCCM-IH Plc, the Company will increase shareholder value and manage its transformation by focusing on the following Strategic Focus Areas: 4.2.1.1. Strategic Focus Area 1: Leveraging and Consolidating Existing Investments in the Copper Mining Sector and pursue other copper assets ZCCM-IH has substantial investments in the countrys copper mining assets. Copper will remain an important product for many years to come, both locally and internationally. The strategic goals under this area include the following: i. ii. iii. Maintain investment in the existing copper mining assets; Obtain value from Konkola Copper Mines Invest in Konnoco; 39

iv. v. vi. vii.

Invest in other copper assets; Cause Investee Company Boards to address the dividend concerns raised; Increase Zambian ownership and management of the mining assets; Maximise value from the investee companies

The Strategic goals are discussed below: 4.2.1.1.1. Maintain investment in the existing copper mining companies

ZCCM-IH has investments in the following Seven (7) operating copper mining companies, including a smelting company: i. ii. iii. iv. v. vi. vii. Kansanshi Mining Plc; Konkola Copper Mines Plc; Mopani Copper Mines Plc; CNM Luanshya Copper Mines Plc; Chibuluma Mines Plc; NFC Africa Mining Plc Chambishi Metals Plc.

The strategic activities for each of these companies are now discussed below in detail. 4.2.1.1.1.1. Kansanshi Mining Plc KMP is held 80% by First Quantum and 20% by ZCCM-IH. First Quantum Minerals Ltd is a Vancouver, British Columbia based mining and metals company whose principal activities include mineral exploration, development and mining. First Quantum's common shares are listed for trading on the Toronto Stock Exchange in Canada (symbol "FM"), and the London Stock Exchange (symbol "FQM") in the United Kingdom. KMP has adopted a growth and diversification strategy and it has plans to invest at least US$390 million in order to boost the mine's annual copper output by up to 60% by 2015. Copper production will increase to 400,000 metric tons from the current 250,000 tons after the completion of two expansion phases, with the first 16-year phase targeting the exploitation of proven and probable mining reserves. The company plans for the expansion of Kansanshi Mine and the construction of a new smelter at Solwezi, with a total new investment of almost US $1.5 billion. The company operates the lowest per unit cost operation in the country as a result of the open pit mine formation, primary exploitation, and valuable mineral by products. The company whilst primarily operating for the purpose of mining and production of copper and gold has pushed for greater exploration activity 40

under its strategy, spurred by study revelations of higher ore grades and additional resources. The aforementioned revelations showed an increase of 50 percent in the contained copper and 18 percent in the measured and indicated resources that could support a mine life of approximately 13 years at a through-put rate of 24 million tonnes of copper ore per year. The mine life increased to 20 years when the inferred mineral reserves were considered. The Companys dividend policy is 10% of previous year profit. ZCCM-IH has two strategic choices to make with regard to its investment in KMP. The first choice is that of maintaining its 20% investment in KMP. The second strategic choice is to transfer ownership from the KMP level to the FQM level. These two options will be evaluated during 2012 and a decision will be made then. 4.2.1.1.1.2. Konkola Copper Mines Plc KCM is held 79.4% by Vedanta Resources Plc and 20.6% by ZCCM-IH. Vedanta Resources plc (LSE: VED) is a global mining and metals company headquartered in London, United Kingdom. It is the largest mining and nonferrous metals company in India and has mining operations in Australia and Zambia. Its main products are copper, zinc, aluminium, lead and iron ore. It is also developing commercial power stations in India in Orissa (2,400 MW) and Punjab (1,980 MW). It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. KCM has adopted an expansion strategy by way of the Konkola Deep Mining Project (KDMP), which involves expanding the production of copper ore at the Konkola mine from 2 million tonnes per annum to 7.5 million tonnes per annum by accessing the rich ore body that lies beneath what the current operations have been exploiting. This involves the sinking of a new mine shaft to the depth of 1,490 metres, making it the deepest new shaft sinking project in Africa. The project is to extend the mine life by 25 years and enable per unit cost reduction through expanded output at the countrys largest and highest per unit cost operation; the latter due to a high fixed cost structure. The project cost for the KDMP is estimated to be around US $670 million, and amongst other significant infrastructural expenditure is the construction of the Chingola Smelter, expansion of the Nkana refinery, and other works estimated to cost US $700 million in total. All projects are in the main financed from internal resources including shareholder loans. Over the last two years, cash flows have remained very tight despite significant borrowings and the preponderance of repayment of shareholder loans dominant over dividend declarations. As at December 2010, total liabilities stood at US$1.01 billion against pre-external finance quarterly cash flow of US$8 million.

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Despite the absence of projected cashflows and production schedules, it is expected from the above scenario that, capital gains rather than dividend payments are to be realized over the strategic period. Efforts to try and list Konkola Resources have unlocked resources to ZCCM-IH of US$130 million in lieu of future price participation provisions. Unfavorable economic conditions caused the intended listing to be called off twice in December 2010 and June 2011. The listing has now been postponed indefinitely. KCMs dividend policy states that the shareholders will procure that the full amount of KCM profits arising or accumulated from the business of KCM in each year of operation shall be distributed to the shareholders, after: the provision of working capital as determined by the board of directors; and the making of such transfers to reserves and provisions as in the opinion of the board of directors ought reasonably to be made: taking into account the obligation to service all debt and to comply with any financing agreement to which the company is party; and taking into account the interests of the shareholders in minimising the taxation liabilities. This dividend policy is similar to those of other mining companies. It is very clear from this policy that if this matter is not addressed, dividend will remain unpredictable in both timing and amount. The ZCCM-IH strategy for KCM during the Strategic Planning period will be to maintain its 20.6% shareholding. ZCCM-IH will pursue receipt of the US$110 million and will also seek to favorably influence dividend declarations. Should the matter of listing get resuscitated, the decision will be considered at that time dictated by the option that creates the most value. 4.2.1.1.1.3. Mopani Copper Mines Plc MCM is owned 90% by Carlisa Investments Corporation (a joint venture company comprising 73.1% Glencore International AG, 16.9% by First Quantum Minerals Ltd) and 10% by ZCCM-IH. MCM has embarked upon an expansion strategy, through the development of the Synclinorium Shaft, as a result of a very limited life of mine estimate of not more than four years, and low ore grade reserves. Implementation of the synclinorium shaft is the future of the company. The original budget for the project which was at US$206 million, has since been revised to US$240 million, and other major funding requirements including the Smelter Phase III 1st Converter project, purchase of a new converter and refurbishment of another, are to cost US$68 million bringing capital expenditure to a certain minimum of US$308 million during the next three years. 42

To ensure long term mine production at Nkana, MCM plans to undertake the development of the Synclinorium Project at a cost estimated to exceed US$ 300 million. Further, MCM have advised of the intention to develop the deeps section to ensure sustainability of mining at Mufulira Mine, as well as the ongoing development of the Luansobe Ore body and the Mufulira East ore body. The current mineral reserves from the Mufulira Deep have a mine life of 10 years and opportunity to extend the life of Mufulira mine up to 1540 m level with mineral resources of the mine life by a further 38 years when the resources are translated into reserves using available infrastructure and resources. Projections relating to the above undertakings are yet to be availed to enable assessment of dividend payment and/or capital gains. MCMs dividend policy states that the shareholders will procure that the full amount of MCM profits arising or accumulated from the business of MCM in each year of operation shall be distributed to the shareholders, after: the provision of working capital as determined by the board of directors; the making of such transfers to reserves and provisions as in the opinion of the board of directors ought reasonably to be made: taking into account the obligation to service all debt and to comply with any financing agreement to which the Company is party; and taking into account the interests of the shareholders in minimising the taxation liabilities. The ZCCM-IH strategy for MCM during the Strategic Planning period will be to maintain the 10% shareholding, while seeking a better dividend declaration approach. 4.2.1.1.1.4. CHINA NON-FERROUS METAL MINING COMPANY (CNMC) Luanshya Copper Mines Plc CNMC Luanshya Copper Mines Plc is (LCM) owned 85% by China Non-Ferrous Metal Mining (Group) Company Limited and 15% by ZCCM-IH (to move to 80% and 20% respectively after the conclusion of transfer of shares). China Nonferrous Metal Mining (Group) Co., Ltd is a Chinese corporation involved with the mining of non-ferrous mineral resources. It has mines in Zambia, Mongolia and Thailand, and a project in Laos. It invests in copper, aluminum, zinc, nickel, tantalum, niobium, and beryllium. The sale of Luanshya Copper Mines Plc by Enya Holdings to CNMC was effected, with GRZ facilitating the transaction. Operations are yet to commence, and were expected to commence in December 2010.

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The ZCCM-IH strategy for LCM during the Strategic Planning period will be to hold and encourage listing of the entire shareholding on both the Hong Kong Stock Exchange and the Lusaka Stock Exchange. Thereafter, it will be important to establish a dividend policy which ensures consistency and determinability from a shareholder perspective. 4.2.1.1.1.5. Chibuluma Mines Plc Chibuluma Mines Plc is owned 85% by Metorex Limited and 15% by ZCCM-IH. Metorex Limited is a fully owned subsidiary of the Jinchuan Group and interests in mining and exploration activities within and from sub-Saharan Africa through acquiring, developing and managing a portfolio of quality base-metal assets. In as far as the main ore body development and extraction is concerned, Chibuluma mine is at a mature stage. Thus as well as continue to exploit the existing ore body, the company is seeking to tap into incremental deposits as and when they are discovered. To ensure continuity of operations, the company recently obtained a loan of US $36 million to undertake investment in plant and machinery to enable increased copper production, and exploration for reserves to extend the mine life. Details related to the cost of borrowing and projected return on investment are yet to be obtained in order to assess the impact on shareholder value. With annual (2010) revenues of US $108 million and total assets of US$ 110 million, the mine, is from the operations and revenue perspective, at the smaller end of the associate companies linked to ZCCM-IHs portfolio. Nevertheless the company has, due to the relatively high copper grade deposit and low mining costs pulled through recent years of low selling prices arising from the global credit crunch; and paid dividends to the shareholders. With retained earnings of US$34 million as at June 2010, and a historically high correlation between prices and profitability, as result of the open pit high grade nature of the mine, it is anticipated that dividend payment capability will be high during the strategic period. However, without reference to projections, the quantum and timing of any potential payments cannot be presented. The ZCCM-IH strategy for Chibuluma Mines Plc during the Strategic Planning period will be to hold and encourage a listing on the Lusaka Stock Exchange. The hold principle is on account of the consistent payment of dividends which provide an income source to ZCCM-IH. 4.2.1.1.1.6. NFC Africa Mining Plc NFCA Africa Mining Plc is owned 85% by Tongling Nonferrous Metals Group Holdings Company Limited (SZSE: 000630) and 15% by ZCCM-IH. Tongling Nonferrous Metals Group Holdings Company Limited is a state-owned enterprise involved in extracting copper resources and smelting copper and other non44

ferrous metals. It was founded in 1949 in Tongling, Anhui, China and it was put into production in 1952. It is one of the largest copper smelting companies in the country. The subsidiary and listed company of Tongling Nonferrous Metals Group Holdings Company Limited, Tongling Nonferrous Metals Group Company Limited, was established in 1992 and listed on the Shenzhen Stock Exchange in 1996. NFC Africa Mining is undertaking an expansion strategy necessitated by a relatively high fixed cost structure, hence the need to expand output to enable economies of scale and financial viability of the company. To this end, the expansion projects at Chambishi West and Southeast are critical. Whilst the projected cashflows are yet to be obtained, it is apparent that the projects require substantial external funding and repayment obviating the unlikelihood of a dividend payment to the ZCCM-IH in the near future; and prospects for capital gains. The company is progressing with the Chambishi west ore body project. After resources computation with contained sulfide copper (SCu), it is determined that within the West Body, there is a total sum of proved plus inferred resources of 34,151,682 tonnes of ore at 2.03% Cu containing 693,279 tonnes of copper. The designed mining capacity is 3,000t/d whereas the processing capacity of the concentrator can be increased from 6,500t/d to 7,500t/d after upgrading and making use of current surplus capacity. At full capacity, one million tonnes of ore will be produced from the project with 16,500 tonnes of contained copper. The ZCCM-IH strategy for NFC Africa Mining during the Strategic Planning period will be to hold and encourage listing of the entire shareholding on both the Hong Kong Stock Exchange and the Lusaka Stock Exchange. Thereafter, it will be important to seek the establishment of a dividend policy which ensures consistency and determinability from a shareholder perspective. 4.2.1.1.1.7. Chambishi Metals Plc Following the separation of Chambishi Metals plc from the same ownership as Luanshya Mines Plc, Chambishi Metals Plc has embarked on a number of projects to ensure a sustainable future as regards its operations. These include: 1. 2. 3. 4. Ferromanganese production, Copper SX and EW upgrade, Copper/Cobalt recovery from the plant residue, and, Alternative processing route for the slag dump.

Given the unlikely return to profitability by the company in the short term, the financing of the projects will have to be undertaken through shareholder loans as well as external finance. 45

Whilst projections are yet to be obtained, dividends are not expected to be declared over the strategic period. The ZCCM-IH strategy for Chambishi Metals Plc during the Strategic Planning period will be to hold and encourage considerations for listing on the Lusaka Stock Exchange. The company is undertaking a number of projects which are bound to raise the capital value of the shareholding once completed. Being a non-mining entity but more of a manufacturing entity, the crossover automatically impacts positively on ZCCM-IHs diversification programme. Thereafter, it will be important to establish a dividend policy which ensures consistency and determinability from a shareholder perspective. 4.2.1.1.1.8. Invest in Konkola North Copper Company Limited Konnocco is a US$400 million start up copper company owned 40% by African Rainbow Minerals (ARM), 40% by Vale and 20% by ZCCM-IH. ARM has interests in a wide range of mines, including platinum and platinum group metals (PGMs), iron, coal, copper, and gold. ARM's Goedgevonden coalmine near Witbank is a flagship of their joint venture with Xstrata, and produces 6.7 million tons of coal per year. Production is expanding at the Two Rivers platinum mine in Mpumalanga. ARM owns Harmony Gold, a gold mining firm with three mining operations in South Africa. Vale is a Brazilian diversified mining multinational corporation and one of the largest logistics operators in Brazil. In addition to being the second-largest mining company in the world, Vale is also the largest producer of iron ore, pellets, and second largest producer of nickel. Vale also produces manganese, ferroalloys, copper, bauxite, potash, kaolin, alumina and aluminium. In the electric energy sector, the company participates in consortia and currently operates nine hydroelectric plants as well as a coal mining operation in Mozambique. Currently the company is listed on the stock exchanges of So Paulo, New York, Paris, Hong Kong and Madrid. ZCCM-IH will invest US$44.3 million towards both for equity calls and shareholder loans to Konnoco, during the financial year ending March 2012. Additional requirements up to project close will be US$27.9 million for the financial year ending March 2013. This will bring the total financial contribution for ZCCM-IH to US$72.2 million, of which US$49.7 million will be through shareholder debt financing thus allowing ZCCM-IH to accrue financial benefits with the other shareholders before dividend payments are considered. No dividend receipts are anticipated during the strategic period. The ZCCM-IH strategy for Konnoco during the Strategic Planning period will be to ensure funds for the equity and debt contributions are available such that the project completion is undertaken within the set timeframes. Considerations for listing are encompassed within the transaction documents.

46

4.2.1.1.1.9. Invest in other Copper Assets ZCCM-IH intends to increase its investments in the copper mining sector through owning other copper assets. ZCCM-IH will be looking out for copper assets which are at different stages of progression in which to invest. ZCCM-IH will explore the possibility of investing in other copper assets. The following activities will be undertaken for each asset that will be identified: a. b. c. Establishing the possibility of a joint venture partnership in the project with a view of starting a mine within the period of the strategic plan; Review Bankable Feasibility Study report; Engage independent technical consultants to carry out the Mineral Reserves/Resources audit, mining and mine plan scheduling and metallurgical tests to audit the Bankable Feasibility Study Report; In the event of positive investment results, a controlling stake in the operations of the mine will be sought.

d.

4.2.1.1.1.10. Cause Investee Company Boards to address the dividend concerns raised Almost all the investee companies have adopted dividend policies that carry the following format: the provision of working capital as determined by the board of directors; and the making of such transfers to reserves and provisions as in the opinion of the board of directors ought reasonably to be made: taking into account the obligation to service all debt and to comply with any financing agreement to which the Company is party; and taking into account the interests of the shareholders in minimising the taxation liabilities. The effect of these dividend policies has been that: a) The dividend declarations, from both a timing and cash amount perspective, have been uncertain since they are dependent on (i) meeting working capital requirements, (ii) transfers to reserves and provision, (iii) meeting obligations to third party financiers and (iv) minimizing taxation liabilities; Dividend considerations would be on the priority list and therefore, for all practical intents and purposes, is not a priority for most of these companies (Mopani Copper Mines is a very good example). 47

b)

It should be understood that for ZCCM-IH, dividends are a significant revenue stream. This being the case, uncertainties surrounding this revenue stream, as has been the case over the period 2001 to date, has significant adverse implications (including ability to raise funds for investment) on ZCCM-IH. During 2012-2016 and going forward, there is need to ensure that Dividend Declaration receives requisite attention from the Boards of the Investee companies. 4.2.1.1.1.11. Increase the Zambian ownership and management of the mining assets The last few years have seen an increasing concern being raised by Zambian citizens regarding their inadequate participation in the mining sector. These concerns have intensified since 2011. The listing of investee companies on the Lusaka Stock Exchange (LUSE) provides one way of giving a chance to many Zambians to participate in the mining sector through share ownership. Apart from MCL whose Sale and Purchase Agreement provides in Clause 13 to offer shares to the general public in Zambia at a listing on the Lusaka Stock Exchange or its successor, the rest of the investee companies Sale and Purchase Agreements do not have such provisions. This being the case and given the importance of achieving such listings, ZCCM-IH will engage the majority shareholders of investee companies and the Government of the Republic of Zambia to motivate these listings. ZCCM-IH will work with all its investee companies towards promotion of Zambian participation in the ownership and management of the mining assets. This will be done by encouraging all the mining companies to list on LuSE. In addition, as new projects are developed, Shareholder Agreements will be designed in a manner that will compel listing and selling off some shares to the Zambian Public. In selecting strategic partners, ZCCM-IH will encourage Zambian companies to participate. 4.2.1.1.1.12. Maximise value from the investee companies For some time now, concern has been raised by many stakeholders regarding the accuracy of information on the operations of mining companies and therefore the benefits that should have accrued over the years to the Zambian economy and to ZCCM-IH. During 2009, Zambia Revenue Authority (ZRA) commissioned an international team of experts comprising Grant Thornton and Econ Poyry to conduct a review of MCM. The findings raised concerns regarding accuracy and consistency of production figures, sharp increase in labour costs, fuel costs, mining costs, insurance costs, security and safety costs, spares and administration costs, reliability of data sets,

48

treatment of freight charges between Glencore and MCM, agreements regarding revenue as well as derivative transactions. The only way that concerns such as these on the part of ZCCM-IHs investee companies will be settled is through the conduct of forensic audits. Desktop reviews will be conducted to determine the adequacy of the dividends received from the investee companies over the years. Other initiatives will be pursued to increase the benefits of obtaining value from the companies above the line. Shareholder loans will be provided where there are opportunities to do so and would endeavour to provide consultancies. 4.2.1.2 Strategic Focus Area 2: Diversifying into other minerals

ZCCM-IH has over 90% of its investments in copper. It has been acknowledged that the nation is endowed with other minerals other than copper, which ZCCM-IH should diversify into. Appendix V shows the distribution of mineral deposits in Zambia. These include amethyst, emeralds, diamonds, aquamarine, gold, silver, rare earths, coal, Nickel, Uranium, Iron, Tin, lead and Zinc. For a long time now, the potential of Zambias gemstone sector has been acknowledged but not fully exploited. It is strongly felt that the activities of the gemstone sector have not contributed adequately to the nations GDP. The sector has been adversely affected by a number of challenges which range from inadequate financing for exploration works, mine development, operations (lack of requisite technical skills, lack of equipment), poor marketing approaches, and many small scale players with inadequate capacity to exploit the resources successfully. The Government of the Republic of Zambia has been involved in the gemstone sector through its shareholding in Kariba Minerals Limited (KML) and Kagem Zambia Limited. The gemstone sector has also seen an involvement of many Small Scale Miners. ZCCM-IH intends to play a useful role in reorganizing the gemstone sector so that its expected contribution to GDP can be realized. ZCCM-IHs efforts to diversify into other minerals will be further facilitated by exploration efforts in other minerals such as diamonds, aquamarine, gold, silver and rare earths. Exploration work is required to delineate these resources through aerial geophysical surveys, geochemical surveys, drilling, etc. 58% of Zambia has been geologically mapped. ZCCM-IH already has investment in the Coal Mining Sector through its 35% shareholding in MCL. In order to enhance value creation in this sector, ZCCM-IH has fully supported the model of integrating coal mining with thermal power 49

generation. This approach ensures that low grade coal is used for thermal power generation unlike in the past when a lot of it was wasted. During the 2012-2016 Strategic Period, ZCCM-IH will pursue the following diversification strategic goals: i. ii. iii. iv. v. vi. Invest in Kariba Minerals Limited; Invest in other gemstone assets; Invest in Small Scale Mining Operations; Invest in Ndola Lapidary Gemstone Processing and Lapidary Training Centre Invest in exploration activities Invest in other mineral assets.

The Strategic activities are discussed below: 4.2.1.2.1 Invest in Kariba Minerals Limited

KML is an amethyst asset owned 50% by Gemfields Limited and 50% by the Government of the Republic of Zambia. ZCCM-IH has accepted the offer to purchase the 50% GRZ shareholding in KML. ZCCM-IH plans to invest U$11.3million (ZMK53.3 billion) for the purchase of shares and recapitalization of the operations of the Mapatizya Amethyst Mine operated by KML. ZCCM-IH will carry out a further review of the amethyst reserves and resources of the Mapatizya amethyst mine and also embark on exploration diamond drilling that will help ascertain the extent of the Amethyst reserves and resources in the first three years of this strategic plan. In a bid to improve the operations of the mine, ZCCM-IH will work on the restructuring of the labour force by engaging skilled and experienced manpower. The Company will endeavor to redesign the mining method and assist to acquire equipment which is ideal for the operations. ZCCM-IH will also be involved in the operations designs to ensure that productivity is matched with the level of capitalization by constantly visiting the operations to provide technical expertise. 4.2.1.2.2 Invest in other gemstone assets

ZCCM-IH intends to increase its investments in the coloured gemstone sector through strategic partnerships. ZCCM-IH will be looking out for coloured gemstone assets which are at different stages of progression in which to invest. ZCCM-IH will explore the possibility of investing in other coloured gemstone assets. The activities to be undertaken for each possible investment will be as follows: 50

a. b. c.

Establishing the possibility of a joint venture partnership; Review Bankable Feasibility Study report; Engage independent technical consultants to carry out the Mineral Reserves/Resources audit, mining and mine plan scheduling and metallurgical tests to audit the Bankable Feasibility Study Report; In the event of positive investment results, a controlling stake in the operations of the mine will be sought. Invest in Small Scale Mining Operations

d.

4.2.1.2.3

ZCCM-IH is reviewing the Small Scale Mining Sector. This review will result in the profiling of Small Scale Miners in Zambia, particularly in the gemstones sector. From this information, ZCCM-IH will select viable small scale miners to partner with. The partnerships will take the forms of machinery and operations capitalization, shareholding and such other involvement as will be necessary to deliver the intended results. A highlight of the key activities is shown in schedule 2 below:
Schedule 2

Small Scale Mining Sector Implementation Timeframe April 2012 March 2012 US$10m June 2012 July 2012

S/N

Activities Profile Small Scale 1 Miners Establish ZCCM-IH Venture Capitalist 2 Framework Set-Up US$10m Venture 3 Capitalist Fund 4 Launch the initiative

Investment

Deliverable Profiling Report Approved VC Framework US$10million fund set-up Partnerships initiated

ZCCM-IH will continue to engage the small scale gemstone mines within the Restricted Emerald Area and other areas hosting gemstone mining in order to offer financial support aimed at improving the productivity of these mines. Due diligence examinations of the selected mines will be conducted and appropriate recommendations made. ZCCM-IH shall engage consultant geologists who will be assigned to operate in the identified gemstone in the areas. At the time of the partnership, ZCCM-IH shall maintain its presence at the mines for the purpose of ensuring checks and balances and also to ascertain the appropriate use of the shareholder loans. 51

In order to promote small scale mining to formal approaches, ZCCM-IH will set aside a pool of funds initially at the level of US$10 million in order to structure share purchases in small scale mines. It has been noted that most of the limitations with small scale mines tends to be the lack of equipment to enable economic and effective mining methodologies. As such the pool of funds will be largely for the purchase of equipment to enhance mining methodologies. The level of shareholding will be determined on the basis of the funds advanced and the valuation of the company. It is recommended that the equity injection be not more than 50% of the total valuation. Where the level of equity funding reaches 50% and there is still need for additional funding, these will be advanced on the basis of shareholder loans such that the pool of funds is operated on the basis of a revolving fund and thus ensuring its availability to service other potential interests. ZCCM-IH will seek board representation in order to impart business, financial and technical input in the running of the mines as well as ensure that funds are set aside for the exit of ZCCM-IH at an appropriate time. With an expanded Technical Department, it is expected that the Company will second qualified mining personnel to ensure that appropriate mining methodologies are being applied as well as provide training on that basis. Given the likelihood of the small operations, it may be possible that one member of staff could be seconded to several operations at a time such that there is a wide span of applicability. 4.2.1.2.4 Invest in Ndola Lapidary Gemstone Processing and Lapidary Training Centre

The Government has established an institution in Ndola focusing on development of skills for polishing and cutting gemstones particularly for small scale miners. Currently, the institution focuses on courses in gemstone cutting, sorting, and polishing. The plan is to expand the course portfolio to include jewellery and bead making, however, the institution is facing constraints on funding, qualified staff and appropriate equipment. A partnership with ZCCM-IH to develop this Institution will enable Government to provide critical skills to an industry that has great potential to contribute to economic development of the country by improving the efficiency of small scale miners. ZCCM-IH would utilize an opportunity like this to add value to the gemstone industry as most of the polishing and cutting is currently undertaken outside Zambia 4.2.1.2.5 Invest in Exploration Activities

The Vision for the mining sector in the SNDP is a well organized private sector led mineral resource exploration and exploitation that contributes to sustainable social economic development by 2030 and the goal is to raise the sectors contribution to GDP to at least 20 percent. 52

During the SNDP period, the mining sector will focus on increasing exploration projects, sustainable production and management of mineral resources and increase productivity so as to maximize economic benefits from the sector. It can be seen from this that exploration works are an important component in raising the contribution to GDP from the mining sector. Exploration works require significant technical input and financial investments. Exploration works have 10% success rate. These two factors tend to dictate the approach that ZCCM-IH will adopt towards investment in exploration works. ZCCM-IH will adopt an approach of seeking both technical and financial partners in exploration of the current mineral prospecting licenses and mining in order to minimize the risks while maintaining a controlling shareholding in both exploration and mine development whenever opportunities allow. ZCCM-IH has acquired six prospecting licence areas in the Northern part of the country and one licence area in the Kabwe District. The Company has commenced the process of attracting financial and technical joint venture partners. ZCCM-IH estimates that the intended exploration activities for the seven licence areas will cost a total of U$82.8 million (ZMK389 billion). The Company intends to be both a technically and a financially active participant in the exploration activities. The Company will seek to hold a maximum of 35% shareholding in each of the Joint Ventures.
Schedule3: ZCCM-IH Licences
S/N 1 2 3 4 5 6 7 8 Name of licence Location
13860-HQ-LPL 13863-HQ-LPL 13865-HQ-LPL 13855-HQ-LPL 13856-HQ-LPL 13857-HQ-LPL 8251-HQ-LPL 13871-HQ-LPL

Minerals

Area (km2) Date of expiry

336 328 187 748 793 817 95 186 18-Oct-12 22-Jun-12 20-Apr-12 22-Jun-12 22-Jun-12 20-Apr-12 26-Apr-12 5-Aug-13

Diamond Mulilansolo, Isoka/Chinsali Gold, Coal and Copper Chisomo, Serenje Base Metals, Gold and Silver Luswa, Chama Diamond, Base Metals and Rare Earth Metals Nachikulu, Chinsali Diamond, Base Metals and Rare Earth Metals Bwinjimfumu, Chinsali/ Mpika Diamonds and Base Metals Shiwangandu, Chinsali Emerald, Quartz & Aquamarine Kafubu Emerald Project Kabwe Kapiri Mposhi , Kapiri Mposhi Base Metals & Rare Earth Elements

Licence 8251-HQ-LPL relates to Kafubu Emerald Project. ZCCM-IH has been carrying out exploration works under this gemstone prospecting licence in Masaiti district and to date the emerald exploration results have not been good. In 2011, ZCCM-IH carried out further exploration efforts aimed at copper prospecting. These too, were not successful due to very poor copper grades. A total of ZMK2.1 billion has so far been spent on the project. On account of the poor results obtained from the exploration activities, ZCCM-IH intends to surrender the gemstone prospecting licence number 8251-HQ-LPL at the end of April 2012. Licence 13871-HQ-LPL relates to Kabwe-Kapiri Mposhi prospect. The prospect has widespread outcrops of limestone which have been sampled and are being analyzed to determine the quality and possible uses of this limestone. 53

The target generation exploration of surface and subsurface limestone bodies will continue. Once the limestone suitability for lime or cement has been established, intensive exploration, including diamond drilling, to establish the extent and tonnage of the deposit will be carried out. The geological modeling of the limestone will be done as well. Depending on the result of the geological model, preparation of mining plans and schedules and beneficiation plants may begin with the help of accredited consultants. The other key activities on this prospect are as shown in schedule 4 below: Schedule 4: Key Activities for the Kabwe-Kapiri Mposhi Limestone Prospect Implementation Timeframe

S/N

Activities

Investment

1 Preliminary Explorations March 2012 2 Meetings with CNBM February 2012

Deliverable Quantitative/Qua litative Report Report on Meeting Report indicating prospective products Bankable Feasibility

Conduct physical and chemical analysis to determine suitability for June 2012 3 production of cement, lime and building aggregates Detailed Bankable 4 June 2015 Feasibility

The search for other minerals will continue alongside the advanced limestone exploration. There is a high possibility of starting a lime and/or cement manufacturing plant within the strategic plan period. A joint venture is contemplated for this project. 4.2.1.2.6 Invest in other minerals

ZCCM-IH intends to increase its investments in other minerals through strategic partnerships. ZCCM-IH will be looking out for other mineral assets which are at different stages of progression in which to invest. ZCCM-IH will explore the possibility of investing in other mineral assets. The activities to be undertaken for each possible investment will be as follows: a. Establishing the possibility of a joint venture partnership; b. Review Bankable Feasibility Study report;

54

c. Engage independent technical consultants to carry out the Mineral Reserves/Resources audit, mining and mine plan scheduling and metallurgical tests to audit the Bankable Feasibility Study Report; d. In the event of positive investment results, a controlling stake in the operations of the mine will be sought. 4.2.1.3 Strategic Focus Area 3: Investing in Mining Related Sectors

ZCCM-IH recognizes the fact that there are mining related sectors that offer opportunities for value creation. The strategic goals under this area include the following: i. ii. iii. iv. Hold mineral rights on behalf of the government Investment in a new Minerals Production and Marketing Monitoring Model. Carry out exploration works for Oil & Gas; Invest in new power projects under Maamba Collieries Limited and any other opportunities; v. Establish partnerships in skills training for the mining sector The strategic activities are discussed in detail below: 4.2.1.3.1 Hold Mineral Rights on behalf of the Government

ZCCM-IH will seek to hold the mineral rights of the country on behalf of the government. This comes with the realisation that in order for the country to obtain maximum benefit from its rich mineral resources (the extraction of the resources), a focal entity is required to manage these resources. The strategic activities to be undertaken are: i. ii. Design a framework of how the mining rights will be managed Engage the government to transfer the management of the mining rights. Investment in a new Mineral Production and Marketing Monitoring Model

4.2.1.3.2

During the times of ZCCM, functions of metal marketing were carried out by a company called Metal Marketing Corporation (MEMACO). Following the privatisation of ZCCM, the operations of MEMACO were wound up. The new mining companies established their own metal marketing arrangements. Currently there is no reliable monitoring mechanism that would assure complete and reliable data regarding the quantities, quality, value, etc of the minerals that are exported from the country. This being the case, it cannot be confirmed that everything that is due to the nation from the production and sale of minerals has been paid to the treasury by all the mining companies. 55

These concerns were heightened by the pilot audit on Mopani Copper Mines Plc. Further, it is argued that since the mineral proceeds are banked outside Zambia, the full benefits and impact of these mineral revenues on the Zambian economy, particularly on the value of the kwacha in relation to major currency has not filtered through in full. Within the bigger context of metal marketing, there is a component of small scale mining operators who are usually ignored. This being the case, they have been left to their own devices to market products with the result that they are usually exploited by more resourced and connected international mineral buyers. ZCCM-IH working with Government will carry out a comprehensive review of the Metal Marketing situation with a view to designing and implementing a model that addresses all the weaknesses of the current system. This should lead to the appointment of ZCCM-IH as the monitoring agent for the mining sector. 4.2.1.3.3 Carry out exploration works for Oil & Gas

ZCCM-IH has four (4) Oil & Gas exploration licences as shown in schedule 5 below. Schedule 5 Oil & Gas exploration licences
Licence # Block No. PEL012 1 PEL013 4 PEL014 6 PEL015 10 Location Chavuma District, North-Western Province Chavuma/Zambezi Dist ricts, North-Western Province Zambezi/Kapombo Districts, North-Western Province Zambezi District, Nort h-West ern Province Size (Km ) 685 1337 969 868
2

The Strategic activity is for ZCCM-IH to conduct exploration works during the strategic planning period of 2012-2016. This exploration will require the services of specialist consultants in Oil and Gas exploration to carry out the initial exploration works while ZCCM-IH is seeking Technical and Financial Partners. This exploration requires a lot of time and resources to bring the project to identification of a lead (a structure which may contain hydrocarbons). Most of these geological activities will be done by oil and gas exploration experts under a joint venture arrangement. 4.2.1.3.4 Invest in new power projects under Maamba Collieries Limited and any other opportunities

The energy sector is critical for the development of any country. 56

The Zambian economy requires significant investments to be made in the energy sector in order to build capacity necessary to support the rapid economic growth. ZCCM-IH is already involved in the energy sector through 35% shareholding in Maamba Collieries Limited. 4.2.1.3.4.1 Maamba Collieries Limited

Following the engagement of a strategic equity partner to enable the company resource to be exploited as feed stock for substantially higher operating margin thermal power generation, ZCCM-IH is required to invest US$55 million as 35% equity contribution to the thermal power plant project. Whilst the projections for the power plant are yet to be firmed, the payment of dividends over the strategic period is not expected. The ZCCM-IH strategy for MCL during the Strategic Planning period will be to hold and list the company as per Shareholders Agreement. 4.3.1.3.4.2 Any other opportunities in the energy sector

ZCCM-IH intends to increase its investments in other energy assets through strategic partnerships. ZCCM-IH will be looking out for other energy assets which are at different stages of progression in which to invest. ZCCM-IH will explore the possibility of investing in other energy assets. The activities to be undertaken for each possible investment will be as follows: i. ii. iii. iv. Establishing the possibility of a joint venture partnership; Review Bankable Feasibility Study report; Engage independent technical consultants to carry out the Resources audit and development scheduling to audit the Bankable Feasibility Study Report; In the event of positive investment results, a controlling stake in the operations of the asset will be sought. Strategic Focus Area 4: Investing in Mining Related Manufacturing

4.2.1.4

The manufacturing sector is a pivot of economic development through its backward and forward linkages to economic growth, exports and employment creation. It provides a market for primary products and sets the basis for exports with employment generation capacity. The sectors contribution to GDP during the review period averaged 10.2 percent against the target of 15 percent while its annual growth averaged 3.3 percent against the projected growth of 7.5 percent.

57

In the SNDP period, the strategic focus of the sector will be to strengthen and widen the countrys manufacturing base with emphasis on backward and forward linkages given the countrys wide resource base. This will require intensifying the development of the resource-based industries, with the aim of optimizing and adding value to the countrys natural resources. Emphasis will thus be placed on enhancing competitiveness of manufacturing through infrastructure and human development to support growth of the sector. During the previous strategic plan, ZCCM-IH assisted in the manufacturing sector specifically through financing research in the adding of value to copper by producing materials like copper tubes and wires. Going forward, it is recommended that ZCCM-IH Plc focuses on investing a maximum of 20% of the allowable threshold in this sector during the strategic plan period, funds allowing. The investments in the manufacturing sector will be made both at the brown field or mature stage and in partnership with experts in the various subsectors whilst always maintaining the maximum threshold of 35% shareholding. This is because investing at the green field level is more risky and the payback period is longer. The broader mining sector presents opportunities for manufacturing that ZCCM-IH seeks to consolidate, explore and exploit. The Strategic Goals in this area include the following: i) ii) iii) iv) Enhance shareholder value of Ndola Lime Company Limited and list on LuSE; Production of Cement; Production of copper wires, tubes and rods, steel production; Localization of the Mining Sector Supply Chain.

As a way to diversify and increase shareholder value, ZCCM-IH shall consider engaging in value addition activities such as processing of raw materials into secondary or finished products of high value. It is recommended that the Company establish a fund of US$10 million on a revolving fund basis. ZCCM-IH will then set up Special Purpose Vehicles (SPV) with other stakeholders in order to address the matter of mining sector development including other value creation activities such as manufacturing. The SPVs will be established on the basis of commercially driven objectives such that they provide a return to provide funding for other developments and activities. The projects under this umbrella will be established with commercial driven objectives to exploit opportunities within Zambia and the regional markets of COMESA and SADC.

58

It will be critical that the partners have both technical and financial capacity to drive the projects while ZCCM-IH will focus on facilitating the projects on the basis of identifying all the requisite incentives available within the statutory frameworks. In this regard, the Company shall identify opportunities in manufacturing that will add value to its business and thereafter, will either as an individual or through successful partnership, set up processing plants and engage in processing of the products. Where there is need, technical studies will be commissioned such that there is professional guidance as regards the feasible requirements to ensure self sustaining projects. The following is a list of high value finished products that could be produced from further processing of copper. 4.2.1.4.1. Enhance shareholder value of Ndola Lime Company Limited and list on LuSE

Ndola Lime Company (NLC) maintains a monopoly of domestic lime production with its competition being imports mainly from cost effective manufacturing plants in South Africa. In order to overcome the past challenges of the company, the overall strategic approach for NLC going forward will be that of facilitating completion of its capital investment project aimed at sustained profitability through increased production by almost 90%, sales growth, reducing per unit costs and strengthening of its balance sheet. The average projected operating profit margin at 42% compares favourably to the present average operating profit margin of 27%, and, will enable relatively lower product price advantage taking into account transportation costs of imports. The company at present supplies less than 50% of domestic consumption and will have greater scope for penetration of regional markets. The projects financial return attributes are estimated under sensitivity analysis as follows: Vertical Kiln 480 Vertical Kiln 450 Vertical Kiln 420 Item tonnes per day tonnes per day tonnes per day NPV (US $million) 57 34 21 IRR (%) 26.5 22 18 ROI (%) 177 146 129 Pay back(years) 6 7 8

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The boom in the construction industry provides an opportunity for NCL to enter the Cement Industry through Strategic Partnership opportunities for purposes of setting up a Cement Production Facility. The companys dividend policy is being refined to foster dividend predictability and consistency. During 2011 and prior to the proposed listing of NLC, ZCCM-IH will provide shareholder loans of up to US$26 million to partly finance completion of the capital investment project. NLC will obtain another facility of about US$30 million from the capital markets. When the NLC balance sheet is stronger, ZCCM-IH will realise value from the sale of shares on a private placement basis. The realised funds will be provided to NLC as additional shareholder loans to enable the company expand and strengthen its production and distribution systems and enhance attainment of increased shareholder value. The listing on LuSE will thus be conducted at a stage when the company reflects its true capacity to be the monopoly supplier of lime products to Zambia and the neighbouring region. The companys projected operating outlook, projected financial positions and projected cash outlook during the period 2012-2016 are shown in Appendix VI to VIII below. 4.2.1.4.2. Production of Cement

The country has seen an increased demand for cement which has ridden at the back of increased economic activity. This situation has seen fresh investment in the production of cement through La Farge Cement, Zambezi Portland Cement, Oriental Quarries and Dangote Cement Ltd - a start up operation still at development stage. Opportunities exist for ZCCM-IH to enter the cement production sector through Ndola Lime Company Limited or ZCCM-IH with China National Buildings Materials Group (CNBM). The Kabwe-Kapiri Mposhi Limestone Prospect is being explored for this purpose. Further discussions are underway with CNBM to explore Cement Joint Venture Options. 4.2.1.4.3. Production of Copper Alloys, Wires, Tubes and Rods as well as Steel Production

Copper can be used to produce alloys such as brass by mixing copper with zinc. Brass is used for making locks and keys, buttons and rivets on garments such as jackets and jeans. Copper can also be alloyed with aluminium to produce aluminium bronze which can be used to produce higher strength and corrosion resistance roofing sheets.

60

The copper alloys can also be used in making shapes such as cold rolled sheets, hot rolled sheets, flat bars, angles, nuts, bolts, pipes for central heating systems and many more. Copper can be used to manufacture reliable quality decorative light fittings for all domestic, commercial, security and street lighting, distribution boards, distribution panels, meter boards, conduits and cables, circuit boards for computers, circuit breakers, weatherproof enclosures for electrical motor starters and controls. The Company will explore value adding manufacturing activities such as coal briquetting under MCL. 4.2.1.4.4. Localization of Supply Chain

ZCCM-IH will seek investments in local supply to the mining sector with a view of establishing manufacturing concerns to meet the majority of the mining sectors requirements. Equity investments in existing concerns will also be undertaken in order to expand operations such that economies of scale are realized and the imports of competing inputs are minimized. There will therefore be need for a key understanding of the mining companies needs that can be manufactured from within Zambia at a cost effective production level. The basic idea will be to establish a monopoly supply mechanism that is sustainable and provides an adequate return on investment. 4.2.1.4.5. Innovative Funding Mechanisms for the Mining Sector Development

It is recommended that ZCCM-IH establish a fund of US$10 million on a revolving fund basis. ZCCM-IH will then set up Special Purpose Vehicles (SPV) with other stakeholders in order to address the matter of mining sector development and other value creation activities. The SPVs will be established on the basis of commercially driven objectives such that they provide a return to provide funding for other developments and activities. Where there is need, technical studies will be commissioned such that there is professional guidance as regards the feasible requirements to ensure self sustaining projects. 4.2.1.4.6. Treasury management

Efforts will be made to ensure that the available funds are invested in the planned investing activities, placing the surplus funds to earn interest on the funds and sourcing external financing where internally generated funds will not be able to fully cover the operations.

61

4.2.1.5

Strategic Focus Area 5: Reducing the Legacy Liabilities

The legacy liabilities, as was discussed earlier are historical environmental liabilities, ZCCM Trust Fund obligations, historical litigation cases, disposal of properties and debt owed to GRZ. ZCCM-IH Plc has developed specific goals and actions regarding the resolution of each of the legacy liabilities and will be implemented through: Resolving legacy liabilities The following Strategic Goals will be pursued: i) ii) iii) iv) v) Improve the Balance sheet, Extinguish the environmental liabilities, Finance the ZCCM-IH Trust Fund, Extinguish legacy litigations, Extinguish conveyancing liabilities.

The Strategic activities under each strategic goal are discussed below: 4.2.1.5.1. Improve the Balance Sheet

At privatisation, GRZ obtained loans from the World Bank that were passed onto ZCCM Ltd to fund the privatisation process. GRZ also owes ZCCM IH through a number of transactions that the company pays on behalf of the GRZ mainly arising from the CEP payments. Since the debt is denominated in US Dollars, this has caused the company to suffer astronomical foreign exchange losses impacting negatively on the Balance sheet of the company. The strategic activity will be to convert the debt owed to GRZ to equity through a rights issue to all shareholders. 4.2.1.5.2. Extinguish Environmental Liabilities

The number of environmental projects that need to be implemented over the next 5 years after closure of the CEP on 31st March 2011 is twelve (12). The cost for implementation of the outstanding obligations is estimated at US$12.9 million. A total of 13 employees are needed to implement the outstanding obligations with six (6) to be based on the Copperbelt and seven (7) at Kabwe at an approximate cost of US$ 0.2 million for Administrative Expenses and US$ 0.6 million for Staff Expenses. The following strategic activities will be undertaken:

62

1. 2. 3. 4.

Handover of Integrated Case Management Programme (ICM) to the Ministry of Health. Sale or close Tailings Dams (TD) 8, and 10 and Overburden (OB) 54. Construct bundwall around Nchanga OBs and open pits under the Defunct Areas Option Agreement. Handover the Radiation Waste Storage Shed to Radiation Protection Authority. ZCCM Trust Fund

4.2.1.5.3.

The Trust fund is expected to exist till around 2030 to 2034 when the last payouts are to be made. The estimated amount for yearly payouts is US$600,000. The Strategic Activity will be to conduct a study to set up an independent Trust Fund and implement the recommendations. 4.2.1.5.4. Extinguish Conveyancing Liabilities

ZCCM Ltd had a residential housing stock of about 46, 000 and a number of social assets and core assets. At the time of the review of the Strategic Plan about 21, 000 Certificates of Title had been issued by the Ministry of Lands. The remaining 25, 000 are at various stages of completion. The new mining companies and the recipients of social assets are expected to resolve the transfer of the core assets and the social assets on their own. The strategic activity will be to outsource the conveyancing liabilities. 4.2.1.5.5. Extinguish Legacy Litigations

A number of cases arose from the sale of residential properties mainly as a result of the change in the political directives that resulted in sitting tenants being given the right to purchase the houses they were occupied. The ZCCM Ltd employees who had been previously offered and purchased the houses from other divisions were disadvantaged. The other category of cases is related to employment. The total number of cases is about 400. The strategic activity will be to outsource the legacy litigations. 4.2.1.6 4.2.1.6.1. Strategic Focus Area 6: Reposition the Company Realign the organisational structures

Successful implementation of the Strategic Plan will require: a) A review and realignment of the ZCCM-IH organizational Structure; 63

b) Availability of requisite Skills; c) Rebranding 4.2.1.6.2. New Organizational Structure

The current ZCCM-IH organizational structure comprises the following departments: i. ii. iii. iv. v. vi. vii. viii. Investments Department; Finance Department; Technical Department; Environment Department; Company Secretarial Department; Legal Department; Human Resources and Administration; Risk and Internal Audit Department.

The Strategic Focus Areas, Strategic Goals and Strategic Activities identified will require a review of the technical department and investments department first and foremost to ensure availability of structural capacity to handle increased exploration works, working with small scale miners, evaluation and monitoring of new investment areas as well the metal marketing operation. ZCCM-IH will seek the services of organizational restructuring consultants to achieve this. 4.2.1.6.3. Staffing

The Strategic Focus Areas, Strategic Goals and Strategic Activities identified will require a review of the current skills set to ensure that necessary skills are available in all the functions of the organization. The company is expecting to incur additional staff expenses in form of salaries with major recruitments in the technical department, investments department, finance department and the Executive Chairmans office. ZCCM-IH will seek the services of Human Resources consultants to achieve this. 4.2.1.6.4. Rebranding

The Strategic Goals and activities herein are underpinned by the need to be an active participant in the mining sector through the diversification of the company portfolio into operating own mines, actively supporting the small mining and the gemstone sector. The strategic activity will be to launch the Company as such.

64

4.3

Implementation and Monitoring of the Strategic Plan

The Strategic Focus Areas, Strategic Goals and Strategic Activities discussed above form the basis of the deliverables & timelines on Appendix XII to be pursued during the financial years ending 2012 through to 2016. The risks impacting on the achievement of the Strategic Plan have been identified, assessed and treated and incorporated into the Company Action Plan. The strategic activities will caliberated and cascaded down to the departments that will formulate their Departmental Action Plans which will include their departmental objectives and the mitigating strategies to risks identified. The departmental activities will be cascaded to the staff and confirmed in their staff appraisals. Monthly departmental meetings will be held to review departmental action plans and monthly meetings for Risk and internal Audit Coordinators will also be held to report on the departmental action plans that will feed into the Company Action Plan and Risk Register. The Company Action plan and the Risk Register will be discussed at the monthly management meetings. The Plan will be revised as and when necessary over the implementation period and will be flexible enough to incorporate new activities. 4.4 4.4.1. Business Plan Key Assumptions CATEGORY Macro Economic ASSUMPTIONS Single digit Inflation throughout the planning period GDP growth is expected to range between 6 to 9% year on year Base Rates during the period expected to average 16.2% Access to financing will be available Exchange rate assumed at ZMK5,000 to the US$ The global economic recovery is expected to hold Global Economic Fundamentals will remain stable to bullish Copper Prices and other metal prices will remain stable Dividend Policy Refined Balance sheet is restructured Strategic Plan is implemented 65

Global Economy

ZCCM-IH Plc

4.4.2.

Projected Performance

The company is projected to post K2, 392, 630 million profit after tax over the strategic planning period. A total income of K4, 028, 037 million is expected to be earned, while K447, 202 million will be spent on operating expenses, K287, 323 million on Administrative expenses and K119, 660 million on resolving legacy liabilities. The proposed rights issue of shares to the shareholders which will convert GRZ debt into equity will forestall exchange losses arising from GRZ debt and the growth in profitability will see the equity position increase to K5, 956, 369 million by the end of 2016. A positive cash position of K1, 144, 621 million is expected by the end of 2016. The drivers of the projected profitability, cash position and equity are discussed below. 4.4.2.1. Investing Activities

K3, 269, 210 million will be spent on investing activities. K709, 216 million will be equity contributions to new investments and will require additional funding to develop the mines. K555, 835 million will be advanced to the new investments including NLC. A revolving fund will be sent up with a total fund of K70, 430 million. A further K1, 519, 190 million will be spent to develop other mines that will be identified. Explorations works for the Oil & Gas, the Kabwe-Kapiri and Northern part licences will require K349, 313 million. In house development costs will require K244, 416 million and will be spent on research, advisory and forensic audits. The detailed listing of the Investing activities is on Appendix X. Below are some of the activities that will be undertaken: i. Gemstone Sector K70, 430 million will be spent on the activities in the Gemstone sector. ii. Kariba Minerals Limited - US$2.8 million (K14, 000 million) in KML for acquisition of 50% shareholding in 2011-2012. The company intends to recapitalize KML with an injection of a further US$4.65 million (K39, 682 million) in 2011-2012. Maamba Collieries Ltd - The plan for the mine rehabilitation and the thermal power plant development is for funding to be in the ratio of 70%

iii.

66

for debt and 30% for equity. The expenditure profile is over a period of four years. A total of US$87 million (K440, 216 million) is planned to be contributed to MCL by ZCCM-IH as equity. The amount is broken down as US$45.3 million for the thermal power plant development costs and US$41.7 million for the mine development. The funds will be submitted to MCL as equity contributions in order to maintain the equity shareholding of ZCCM-IH at 35%. iv. Konnoco US$21 million will be required as equity contributions within the 2011/12 ZCCM-IH Financial Year while debt contributions of US$34.3 million (K171, 500 million) and US$20.3 million (K101, 500 million) will be required in 2011/12 and 2012/13, respectively. v. Ndola Lime Company US$26 million (K130, 000 million) will be availed to NLC as a shareholder loan. 4.4.2.2. Projected Income

The total income anticipated over the strategic plan period amounts to K4, 028, 037 million. The largest income source is anticipated to be income from disposal of shares in investee companies amounting to K1, 547, 190 million accounting for 38% of the total income. The transfer from KMP to FQM will account for 31% of the total income at K1, 250, 000 million. The other income is forecast as discussed below: i. Dividend Income Over the Strategic Plan period, ZCCM-IH has forecast to earn dividend income of K333, 810 million. ii. Interest Income Bank ZCCM-IH has forecast to earn Bank Interest Income of K115, 426 million. iii. Management Fees Management fees of K53, 367 million is anticipated to be earned from consultancies rendered to the investee companies.

67

iv.

Interest Income Shareholder Loans The total Interest Income on Shareholder Loans that is forecast to be earned is K72, 219 million.

v.

Income from Investment Disposal ZCCM-IH earned a total of K2, 781, 200 million from disposal of investments. K162, 500 million is expected to be earned from its 25% to 40% divestment in Ndola Lime and K14, 700 million from the sale of Kabwe Mine Assets to Alberg Mining. The company also expects to earn K801, 600 million (US$167.5 million) following the takeover of all its investments in Equinox by Barrick Gold of Canada. The divesting of MCL shares through share listing is expected to generate K516, 500 million.

vi.

Price Participation Fees A total of K656, 025 million is expected to be earned from KCM as price participation fee. The detailed projected income is on Appendix IX.

4.4.2.3.

Projected Costs

ZCCM-IHs forecast costs over the Strategic Plan period are as indicated below: i. Operating expenditure The company will spend K447, 202 million on operating expenses. A total of K349, 313 million will be spent on exploration activities, K79, 416 million will be spent on research and K15, 000 million on forensic audits in the investee companies. ii. Administrative Expenditure Administrative expenditure of K278, 323 million is anticipated over the Strategic plan period. iii. Legacy expenses A total of K119, 660 million is expected to be spent on reducing the legacy liabilities. Environmental expenditure of K29, 219 million is anticipated over the next five year period. Another K28, 644 million will be paid towards liquidating the loan to the World Bank for the loan to CEP. Discharging legal liabilities will require K32, 439 million while K7, 550 million will be spent on discharging legacy liabilities related to properties. K21, 808 million will be spent on the ZCCM-IH Trust Fund. 68

The detailed projected costs are shown in Appendix IX. 4.4.2.4. Financing

The Strategic Plan will be financed using a combination of own sources of funds, Balance Sheet Restructuring, divesting from investments as well as Long-term Loans. These are now presented below: i. Disposal of Shares The total income expected from disposal of shares is K2, 797, 190 million rising from divesting from NLC and Maamba (through share listing), transfer from KMP to FQM and; the sale of Equinox shares. ii. Maximising relationships with investees As a result of availing investee companies with shareholder loans and other value adding services, the company is expected to receive K434, 504 million as loan repayments, interest on shareholder loans and management fees. iii. Own Sources The normal funding receipts include dividends of K333, 810 million and Bank interest receipts of K115, 426 million. iv. Improving the ZCCM-IH Balance Sheet The company expects to raise US$26 million (K133, 700 million) through a rights issuance of shares. Minority shareholders are expected to subscribe. v. External Funding sources Inevitably, ZCCM-IH will require financing from sources beyond its own sources. ZCCM-IH will seek financing from Stock Markets, Corporate Bond Market, Project Financing provided by the banks and a combination of other financing sources. It should be appreciated that loan financing of any type is dependent on the borrower having adequate cash inflows and security to support such debt. For ZCCM-IH, it becomes imperative to address the matter of uncertain dividend patterns as well as the strengthening of the ZCCM-IH balance sheet to support any debt financing. These external funding sources are expected to provide funds amounting to K835, 000 million.

69

4.4.2.5.

Financial Position

The forecast equity position is K5, 956, 369 million at the end of the Strategic Planning period. This will be achieved by investments in new mines and resuscitating other mines. Current assets will increase from K536, 077 million to K5, 073, 775 million. The increase will mainly be in receivables and prepayments, while there will be a significant increase in cash from K30, 000 million to K1, 144, 621million. Net current assets are expected to increase to K3, 120, 195 million by the end of 2016. Share capital is expected to increase with the rights issue to all shareholders, with the conversion of GRZ debt to equity. This will increase the share capital by K2, 200, 408 million and eliminating the GRZ debt of K1, 918, 247 million. Over the strategic period, the currently accumulated losses amounting to K63, 628 million will be converted to a profit after tax of K2, 392, 629 million by the end of the Strategic planning period. The details of the financial position are on Appendix XI. 5.0 CONCLUSION

During its formative years, ZCCM-IHs focus on shareholder value creation was being affected by its historical challenges. The historical factors also influenced the structure of the companys portfolio and therefore the portfolio returns. The past 10 years has seen a much more invigorated and robust Zambian economy with many sectors of the economy providing many value creating investment opportunities. ZCCM-IH is repositioning itself to becoming Zambias leading investments company focused on maximizing shareholder value. The companys approach in the next five years will be focused on maximizing shareholder value and anchored on leveraging its already existing investments and coupled with careful diversification into other sectors of the economy.

70

Appendix I6 ZCCM-IH Investee Companies Serial # 1 2 3 4 5 6 7 8 9 10 11 12 13 Investee Company Ndola Lime Company limited Maamba Collieries Ltd Konkola Copper Mines Plc Kansanshi Copper Mines Plc Copperbelt Energy Corporation Plc KONNOCO Zambia CNMC Luanshya Copper Mines plc NFC Africa Mining Plc Chibuluma Mines Plc Mopani Copper Mines Plc Chambishi Metals Plc Equinox Minerals Ltd(Lumwana Copper Mines) Albidon Limited(Munali Nickel Project) Shareholding % 100 35 20.6 20 20 20 20 15 15 10 10 2.3 0.97 Sector Lime Coal Copper Copper Electricity Copper Copper Copper Copper Copper Copper Copper Nickel

As at 31 December 2010s

71

APPENDIX II ZCCM-IH PLC COMPREHENSIVE INCOME STATEMENTS 2010 MARCH 2009 MARCH 2008 JUNE

FOR THE YEARS ENDING

2007 JUNE

Other Income Grant Income Administrative expenses Environmental expenses Operating profit/(Loss) Net Finance income/(Loss) Profit and Loss Before Income Tax Income Tax(Expense)/credit Profit and Loss for the year Other comprehensive income, net of income tax FOR THE YEARS ENDING Net changes in fair value of available for sale financial assets Realised property and equipment reserve Other comprehensive income, net of income tax Total comprehensive income for the year

59,323 12,272 (28,031) (23,293) 20,271 96,370 116,641 (33,682) 82,959

76,231 3,636 (216,808) (17,182) (154,123) (409,731) (563,854) (202,508) (766,362)

109,940 5,597 (29,962) (17,444) 68,131 (117,668) (49,537) (35,768) (85,305) 35,083 (54,864) (19,781) 40,182 20,401

2010 MARCH 114,983 26 115,009 197,968

2009 MARCH (85,746) 26 (85,720) (852,082)

2008 JUNE (1,070) 26 (1,044) (86,349)

2007 JUNE 20,401

72

Appendix III ZCCM-IH PLC FINANCIAL POSITION 2010 MARCH 2009 MARCH 2008 JUNE

AS AT NON CURRENT ASSETS Property plant and equipment Intangible assets Investments in subsidiaries Investments in Associates Available for sale financial assets Deferred tax asset

2007 JUNE

3,750 178 12 374,512 393,790 187,918

4,405 165 12 347,512 278,807 177,417

4,804 80 12 347,512 365,472 -

4,770 106 12 347,512 327,345 679,745 2007 JUNE

AS AT CURRENT ASSETS Receivables and prepayments Investments in treasury bills Cash and cash equivalents

960,160 808,318 717,880 2010 2009 2008 MARCH MARCH JUNE

107,647 5,333 6,950 119,930

68,487 500 2,055 71,042

61,383 500 1,175 63,058

77,197 25,418 18,395 121,010

TOTAL CURRENT ASSETS

1,080,090

879,360

780,938

800,755

73

EQUITY 2010 MARCH Issued share capital Retained earnings Other reserves Total deficit 893 (1,455,989) 215,766 (1,239,330) 2009 MARCH 893 2008 JUNE 893

2007 JUNE 893

(1,538,975) (1,177,655) (1,327,712) 100,810 (1,437,272) 186,582 187,675

(990,780) (1,139,144)

NON CURRENT LIABILITIES

Borrowings Subordinated loan Deferred Tax Liability Retirement benefits obligations Total Non Current Liabilities CURRENT LIABILITIES

1,294,363 865,445 42,870 5,938 2,208,616

1,354,702 865,444 393 6,499 2,227,038

784,630 865,444 42,166 739 1,692,979

985,117 865,444 8,440 181 1,859,182

AS AT Payables and accrued expenses Current income tax

2010 MARCH 64,196 19,608 83,804

2009 MARCH 69,917 19,676 89,593 2,316,631

2008 JUNE 73,460 4,678 78,138 1,771,117

2001 JUNE 76,348 4,370 80,718 1,939,900

TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES

2,292,420

1,053,090

879,359

780,337

800,756

74

Appendix IV

IMF World Economic Projections

Place, subject World Output Advanced Economies United States Euro Area Germany France Italy Spain Japan United Kingdom Canada Other Advanced Economies Newly Industrialized Asian Economies Emerging and Developing Economies Central and Eastern Europe Commonwealth of Independent States Russia Excluding Russia Developing Asia China India ASEAN 5 Latin America and the Caribbean Brazil Mexico Middle East and North Africa (MENA) Sub Saharan Africa South Africa European Union World Growth Based on Market Exchange Rates World Trade Volume (goods and services) Advanced Economies Emerging and Developing Economies Advanced Economies Emerging and Developing Economies Oil Nonfuel (average based on world commodity export weights) Advanced Economies Emerging and Developing Economies On U.S. Dollar Deposits On Euro Deposits Type GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change GDP change Trade Imports Imports Exports Exports Commodity Prices (U.S. dollars) 2010 5.2 3.2 3 1.9 3.6 1.4 1.5 0.1 4.4 2.1 3.2 5.8 8.4 7.3 4.5 4.6 4 6 9.5 10.4 9.9 6.9 6.1 7.5 5.4 4.3 5.3 2.9 2 4.1 12.7 11.5 15 12.2 13.8 27.9 2011 3.8 1.6 1.8 1.6 3 1.6 0.4 0.7 0.9 0.9 2.3 3.3 4.2 6.2 5.1 4.5 4.1 5.5 7.9 9.2 7.4 4.8 4.6 2.9 4.1 3.1 4.9 3.1 1.6 2.8 6.9 4.8 11.3 5.5 9 31.9 2012 3.3 1.2 1.8 0.5 0.3 0.2 2.2 1.7 1.7 0.6 1.7 2.6 3.3 5.4 1.1 3.7 3.3 4.4 7.3 8.2 7 5.2 3.6 3 3.5 3.2 5.5 2.5 0.1 2.5 3.8 2 7.1 2.4 6.1 4.9 2013 3.9 1.9 2.2 0.8 1.5 1 0.6 0.3 1.6 2 2 3.4 4.1 5.9 2.4 3.8 3.5 4.7 7.8 8.8 7.3 5.6 3.9 4 3.5 3.6 5.3 3.4 1.2 3.2 5.4 3.9 7.7 4.7 7 3.6

Commodity Prices (U.S. dollars) Inflation Inflation London Interbank Offered Rate (percent) London Interbank Offered Rate (percent)

26.3 1.6 6.1 0.5 0.8

17.7 2.7 7.2 0.5 1.4

14 1.6 6.2 0.9 1.1

1.7 1.3 5.5 0.9 1.2

75

Appendix V Mineral Resources of Zambia

76

APPENDIX VI

Ndola Lime Company Limited Forecast Income Statement For the financial years ending ZMK Million YEAR 2012 TURNOVER 301, 755 TOTAL OPERATING COSTS (237,733) OPERATING PROFIT/(LOSS) 64,022 TAXATION 19,207 PROFIT AFTER TAX 44,815 DIVIDENDS 0

2013 429, 522

2014 516, 834

2015 590, 603 (299,181) 291,422 101,998 189,424 37,885

2016 620, 877 (316,588) 304,289 106,501 197,788 39,558

(278,207) (289,258) 151,315 52,960 98,355 19,671 227,576 79,652 147,925 29,585

77

Appendix VII Ndola Lime Company Limited Forecast Financial Position For the year ending ZMKmillion 2012 Fixed Assets Net Fixed Assets 151,116 Deferred Tax 403 Asset 151,519 Current Assets Stocks 15,322 Debtors 114,372 Bank Balances 25,842 Total Current 155,537 Assets Current Liabilities Short term Loans Creditors Net Current Assets Net Assets Financed By Share Capital Revaluation Surplus Long-term Liabilities Long-term Loans Retained Profit TOTAL 4 2,663 43,991 128,474 44,837 219,970 4 2,527 43,991 254,851 123,520 424,895 4 2,392 43,991 246,021 241,860 534,269 4 2,256 43,991 208,439 393,399 648,091 4 2,121 43,991 166,956 551,630 764,702

2013 239,225 403 239,628 28,665 49,305 127,498 205,468

2014 201,433 403 201,836 11,729 59,766 284,72 356,219

2015 177,947 403 178,350 12,902 61,260 483,448 557,611

2016 154,461 403 154,864 14,193 62,791 690,536 767,520

21,092 65,993 68,451 219,970

20,201 185,267 424,895

23,786 332,432 534,269

87,871 469,740 648,091

157,684 609,836 764,702

Appendix VIII 78

Ndola Lime Company Limited Projected Cash Flow Statement For the financial years ending ZMKMillion YEAR TOTAL RECEIPTS OPERATING CASH OUTFLOWS (As per Income Statement Less depreciation) Other Operating Cash Flows Taxation Loan Repayment (Principal) TOTAL CASH OUTFLOWS NET CASH SURPLUS 2012 301,755 2013 429,522 2014 516,834 2015 590,603 2016 620,877

226,343

239,844

250,895

260,818

278,225

5,400 19,207

6,000 52,960

0 79,652

0 101,998

0 106,501

29,062 (280,012) 21,742

29,062

29,062

29,062

29,062

(327,866) (359,609) (391,878) (413,788) 101,655 157,225 198,725 207,089

Appendix IX

79

ZCCM-IH Plc Projected Income Statement ZMK Million 2012 Dividends Bank Interest Interest from other shareholder loans Interest from Ndola Lime loan Management fees Metal Price participation fees Investments Disposal Maamba Listing receipts Ndola Lime Listing FQM Kansanshi Investments transfer TOTAL OPERATING INCOME 45,000 11,901 8,614 4,680 9600 100,000 852,200

2013 138,810 17,503 22,161 6,818 18,167 143,525 15,990

2014 50,000 15755 8,018 6,034 9,600 137,500 0

2015 50,000 21992 4,845 4,968 9,600 137,500 0

2016 50,000 48275 2308 3,773 6400 137,500 0 516,500

Total 333,810 115,426 45,946 26,273 53,367 656,025 868,190 516,500 162,500 1,250,000 4,028,037

162,500 0 1,250,000

1,031,995 362,974 1,476,907 391,405 764,756

OPERATING EXPENSES Cost of Borrowings Investment Expenses Exploration Expenses Forensic Audits Investee companies 823 5,000 11,512 3,000 826 59,416 45,723 3,000 680 5,000 100,212 3,000 608 5,000 103,457 3,000 536 5,000 88,409 3,000 96,945 3,473 79,416 349,313 15,000 447,202

20,335 108,965 NET OPERATING INCOME ADMINISTRATIVE EXPENSES

108,892 112,065

1,011,660 254,009 1,368,015 279,340 667,811

3,580,835

35,384

54,510

62,324

65,980

69,125

287,323

LEGACY EXPENSES Environmental Expenses Interest payments on CEP loan Legal Expenses

15,242 7,161 16,139

9,650 0 10,000

1,769 7,161 3,000

1,519 7,161 3,000

1,039 7,161 300

29,219 28,644 32,439

80

Appendix IX ZCCM-IH Plc Projected Income Statement ZMK Million 2012 Cadastral Surveys ZCCM Trust Fund 4000 2,400 44,942

2013 1000 4,852 25,502

2014 1500 4,852 18,282

2015 1000 4,852 17,532

2016 50 4,852 13,402

Total 7,550 21,808 119,660

PROFIT / (LOSS) BEFORE TAX TAX NET PROFIT / LOSS AFTER TAX

931,334 173,997 1,287,409 195,828 585,284 -3659 60,899 450,593 68,540 204,849

3,173,852 781,222

934,993 113,098

836,816 127,288 380,435

2,392,630

Appendix X

81

ZCCM-IH Plc Projected Cash Flows ZMK (K' million) 2012 Operational Receipts Dividends Bank investment Interest Management fees Income from disposal of investments Metal Price Participation fees Konnoco loan repayment Interest from other shareholder loans Ndola lime Shareholder loan repayment Kariba minerals loan repayments Ndola lime listing receipts Restructuring of the ZCCM-IH Balance Sheet Maamba listing receipts FQM Kansanshi investment transfer External funding requirements 45,000 11,901 9,600 138,810 17,503 18,167 50,000 15,755 9,600 50,000 21992 9,600 50,000 48275 6,400 333,810 115,426 53,367 2013 2014 2015 2016 Total

852,200 100,000 28,500

15990 143,525 0

137,500 66,000

137,500 66,000

0 137,500 66,000

868,190 656,025 226,500

8,614

22,161

8,018

4,845

2308

45,946

4,875

6,816

24,000

29,500

29,500

94,691

2,000

4,000

4,000 162,500

4,000

14,000 162,500

0 -

133,700 -

516,500

133,700 516,500

1,250,000

1,250,000

1,062,690

0 362,972

275,000 560,000 1,973,573 1,045,937

0 860,483

835,000 5,305,655

82

Appendix X ZCCM-IH Plc Projected Cash Flows ZMK (K' million) 2012 Investing Activities Ndola lime Shareholder loan Maamba investment Kariba minerals investment Kariba recapitalisation loan Konnoco Other new investments Gemstone sector involvement 2013 2014 2015 2016 Total

130,000 128,500 14,000

0 134,716 0

0 177,000 0

0 0 0

0 0 0

130,000 440,216 14,000

29482 276,500 100,330

38,500 149,513 0

2,550 0 1404300

2,550 0 7280

2,550 0 7280

75,632 426,013 1,519,190

43,430 722,242

0 322,729

9,000 1,592,850

9,000 18,830

9,000 18,830

70,430 2,675,481

Operating expenses Exploration expenses Investment research expenses legal, financial and technical advisory services Forensic Audits - Investee companies

11,512

45,723

100,212

103,457

88,409

349,313

59,416

50,000

50,000

50,000

209,416

5,000

5,000

5,000

5,000

20,000

3,000

3,000

3,000

3,000

3,000

15,000

19,512 Total investment outflows

108,139

158,212

161,457

146,409

593,729

741,754

430,868 1,751,062

180,287

165,239 3,269,210

83

Appendix X ZCCM-IH Plc Projected Cash Flows ZMK (K' million) 2012 2013 2014 2015 2016 Total

Total Operating InFlows

Administrative expenses Taxation Total Administrative expenses

320,936
38,823 3,588 -

-67,896
59,251

222,511
65,224 60,899

865,650
68,880 450,593

695,244 2,036,445
72,025 68,540 304,203 583,620

42,411

59,251

126,123

519,473

140,565

887,823

Legacies Related Environmental expenses 15,242 House refunds Legal Expenses Trust Fund Cadastral Surveys Loan Repayments to Chambishi Metals Plc Loan Repayments to NFCA Loan payments related to Environment Project (World Bank & NDF) Government loan repayment Total legacy costs Net Internal 1,400 16,139 2,400 4,000

9,650 10,000 4,852 1,000

1,769 150 3,000 4,852 1,500

1,519 100 3,000 4,852 1,000

1,039

29,219 100 1,750 300 32,439

4,852 21,808 50 7,550

16,547

- 16,547

13,222

- 13,222

7,161 275,000 351,111 -72,586

25,502 -152,649

7,161 18,432 77,956

7,161 17,632 328,545

7,161 28,644 - 275,000 13,502 541,177 426,179

84

Appendix X ZCCM-IH Plc Projected Cash Flows ZMK (K' million) 2012 Flows TOTAL Balance brought forward TOTAL Balance carried forward 2013 2014 2015 2016 Total

422,178 349,592

349,592 196,943

196,943 274,899

274,899

603,444

603,444 1,144,621

85

Appendix XI ZCCM-IH Plc Projected Balance sheet ZMK Million 2012 2013 2014 2015 2016

NON-CURRENT ASSETS Property, plant & equipment 12,402 Investments in associates 3,232,587 Investments in subsidiaries 12 Other Investments Non-current receivable CURRENT ASSETS Receivables & Prepayments Investments in Treasury bills Cash and Cash Equivalents 281,801

17,143 3,232,587 12 500,740

20,043 1,832,850 12 780,502

22,943 1,832,850 12 886,509

25,843 1,832,850 12 977,468 2,836,173

3,526,802 3,750,482

2,633,407 2,742,314

621,427 73,175

1,390,534 73,175

2,973,529 73,175

4,702,034 73,175

3,855,979 73,175 1,144,621 5,073,775

196,943 349,592 1,044,194 1,660,652

274,899 603,443 3,321,603 5,378,652

CURRENT LIABILITIES Payables & accrued expenses Net Current (Liabilities)/Assets Net Assets EQUITY Issued Share Capital Share capital from restructuring Revaluation Reserves Accumulated Losses Total Deficit

-290,432

-991,674

1,498,442

1,369,523

-1,953,579

753,762

668,978

1,823,161 4,009,129 4,456,568 6,751,443

3,120,196 5,956,369

4,280,564 4,419,460

893 0 2,125,531 138,673

893 2,200,408 1,786,796 251,771

893 2,200,408 987,088 1,088,587

893 2,200,408 3,154,676 1,215,874

893 2,200,408 1,979,167 1,596,309 5,776,777

2,265,097 4,239,868

4,276,976 6,571,851

86

2012 Non-Current liabilities Borrowings Deferred tax liability Deferred Grant Income Total Non-current liabilities 1,918,247 42,165 55,055

2013

2014

2015

2016

82,372 42,165 55,055

82,372 42,165 55,055

82,372 42,165 55,055

82,372 42,165 55,055

2,015,467

179,592

179,592

179,592

179,592

Total Equity & Noncurrent liabilities

4,280,564 4,419,460

4,456,568 6,751,443

5,956,369

87