Konkola Copper Mines – An account of broken promises
Finance, ZCCM-Investment Holdings Plc

Much has been published regarding the relationship between ZCCM IH and Vedanta (the majority shareholder of Konkola Copper Mines Plc). According to the recently published annual report, ZCCM IH which owns a minority stake of 20.60%, decided to take action in a contentious relationship.

For a relationship that has lasted more than a decade, the following account extracted from ZCCM IH’s annual reports from 2008 provides a glaring account of broken promises and the buildup of discontent.

KCM Declared Revenue and Copper Production From 2008: Source Financial analytics Zambia extracted from annual reports

Since 2008, KCM has declared to its parent’s sales of over US$ 15.881 billion of the 1.727 million tonnes of copper that has been mined. During the same period, KCM has declared losses, profits with and without dividends and committed to payment agreements unfulfilled.

In 2019, ZCCM IH exercised its rights as a minority shareholder and initiated the liquidation process of KCM. The investment group filed the said petition pursuant to Section 56(1)(c) of the Corporate Insolvency Act No. 9 of 2017 and by Order of the Court, Mr. Milingo Lungu Simwanza & Company were appointed as provisional liquidator.

 

Extract from 2008 ZCCM IH Annual Report

Chairman: AJ Lungu; CEO: JM Chikolwa

Sales increased significantly from US$ 1.04 billion in 2007 to US$1.69 billion in 2008. This was in spite of a year-on-year reduction in copper production from 142,126 tonnes in 2007 to 93,747 tonnes in 2008, and mainly attributed to a rise in commodity prices.

A net profit of US$79.51 million was reported during the year, which was in bulk retained to enable ongoing capital investment from internally generated funds. A dividend of US1.39 million was paid out.

The Konkola Deep Mining Project progressed monthly during the period with the highest primary development rate of 1,347 meters per month being achieved in March 2008. A variety of original objectives ranging from completion of sinking and equipping for rock handling to construction of pipe shaft and pump chambers to handle 200,000 cu metres extra water were achieved.

Extract from 2009 ZCCM IH Annual Report

Chairman: AJ Lungu; Acting CEO: W S Musama

Sales decreased substantially from US1.69 billion, as at year ended 30th June 2008 to US$668 million in 2009, US$1.04 billion was reported in 2007. This was as a result of significant reduction in the copper selling price which tumbled from an average of US$3.30 per lb to US$1.64 per lb during the six months of the year. In addition to the price decline, the company cut on production as a measure to forestall loss of value over the same period which saw actual production of 45,000 tonnes being less than 50% of anticipated output.

Despite the decline in prices during the earlier part of the year, prices had by the end of the year began to recover and substantial investment in plant and machinery, in particular at the Konkola Deep Mining Project, continued to the extent of reported investment expenditure of US$ 174 million.

During the year, the company continued to rank amongst the high-cost producers in the country and for the longer term, survival will be dependent on the achievement of the significant economies of scale through Konkola Deep Mining Project (KDMP). The KDMP progressed smoothly during the year with continued achievement of original objectives ranging from completion of sinking and equipping for rock handling to construction of pipe shaft and pump chambers.

A net loss of US$ 174 million was reported during the year following a fall in global commodity prices and reduction in output during the first half of the year. This was against a previous year’s profit of US$ 275 million that was retained to enable on-going capital investment from internally generated funds.

 

Extract from 2010 ZCCM IH Annual Report

Chairman: AJ Lungu; Acting CEO: W S Musama

Revenue of US$643 million for the nine months to March 2010 was below the budget of US$883 million despite above budget metal selling prices, resulting in a corresponding net profit of US$19million. Konkola production and development operations were affected by low equipment availability, reliability, and maintenance related issues. Nchanga open pits mining operations were also affected by the low availability of equipment.

The company’s medium-long term outlook remains dependent on the achievement of significant economies of scale through the Konkola Ore Body Expansion (KOBE) Project to enable profitability under continued subdued price environment and procurement of adequate external financing to cover losses in the interim. Commencement of KOBE was scheduled for 2010 and until then operational losses were set to continue unless selling prices picked up further.

The company was not expected to declare dividends in the near future though payment of accrued price participation income to ZCCM IH was expected to be paid on the basis of repayments of shareholder loans.

 

Extract from 2011 ZCCM IH Annual Report

Chairman: AJ Lungu; CEO: M Muyunda

 

The listing of Konkola Resources Plc (KR) on the London Stock Exchange which was anticipated to take place during the year did not occur, and hence did not result in a cash payment ofUS$130 million to ZCCM IH under the Memorandum of Understanding signed in respect of the Price Participation Agreement and shareholding in KR.

 

KCM’s medium-long term outlook remains dependent on the Konkola Ore Body Expansion (KOBE) project. The objective of the project is to ensure continuity of mining at Konkola Mine, expand production from the current 2 million metric tonnes of ore per annum to final ramp up level of 7.5 million metric tonnes per annum, and extend the life of the mine by up to 30 years. Finished copper production will increase from current level of approximately 50,000 tonnes per annum to approximately 210,000 tonnes per annum.

 

There were no dividends paid during the year (2010: Nil).

 

Extract from 2012 ZCCM IH Annual Report

Chairman: W Mungomba; CEO: M Muyunda

 

The revenue for the year amounted to K9,033 billion (US$1,709.8 million) compared to K8,853 billion (US$1,825.0 million) for the period ended March 2011 and the profit after tax for the year under review amounted to K628.7 billion (US$119.0 million) compared to K824.7 billion (US$170.2 million) for the year ended March 2011.

 

The Konkola Deep Mining Project was on course in the period under review. Shaft 4 was in operation at mid-shaft level and the work was progressing as per schedule for the bottom shaft loading which is likely to finish by 31 December 2013. This will facilitate the acceleration of the primary development rate at KCM so as to ramp up the ore production.

 

KCM declared a total of K118.1 billion (US$25 million) on 23 April 2012 in form of dividends in respect of the year ended 31 March 2012. The amount paid to ZCCM-IH was K23.6 billion (2011: Nil).

 

Extract from 2013 ZCCM IH Annual Report

Chairman: W Mungomba; CEO: M Muyunda

 KCM’s medium-long term outlook remains dependent on the Konkola Ore Body Expansion (KOBE) Project. The objective of the project is to ensure continuity of mining at Konkola Mine, expand production from the current 2 million metric tonnes of ore per annum to final ramp up level of 7.5 million metric tonnes per annum and extend the life of the mine by up to 30 years. Finished copper production will increase from the current level of approximately 50,000 tonnes per annum to approximately 210,000 tonnes per annum.

 On 11 February 2013, ZCCM-IH Plc and Konkola Copper Mines Plc (KCM) entered into a settlement agreement, pursuant to which certain outstanding payments owed by KCM to ZCCM-IH and certain contingent amounts payable under the then existing Price Participation Arrangements (PPAs) which dated back to March 2000 were settled. The PPAs were concurrently terminated. Under the settlement agreement, US$46.3 million was required to be paid by KCM (in installments) to ZCCM-IH on or before 31 August 2013, and a further US$73.4 million (in installments) on or before 30 September 2016.

 

KCM declared a total of K400.37 million (US$75 million) as dividend on 20 October 2012 in respect of the financial year ended 31 March 2013 (2012: Nil). The amount payable to ZCCM-IH was K82.6 million (2012: K8.5 million).

 

Extract from 2014 ZCCM IH Annual Report

Chairman: W Mungomba; CEO: M Muyunda

 Konkola Copper Mines plc (KCM) reported a net loss of K557.5 million (US$89 million) for the financial year ended 31st March 2014 (2013: K34.1 million (US$6.3 million loss). Revenues during the year fell to K7,945.6 million (US$1,271.4 million) in the financial year under review from the K9,434.6 million (US$1,742.8 million reported as at 31st March 2013. Integrated copper production during the year was 177,018 Mt. (2013: 216,059Mt)

 

KCM’s medium to long term outlook remains dependent on the Konkola Deep Mining Project (KDMP). The objective of the project is to ensure continuity of mining at Konkola Mine, expand production from the current 2 million metric tonnes of ore per annum to final ramp up level of 6 million metric tonnes per annum and extend the life of the mine by up to 30 years. Finished copper production will be expected to increase from the current levels to approximately 210,000 tonnes per annum.

 There were no dividends declared during the year (2013:K82.6 million).

 

Extract from 2015 ZCCM IH Annual Report

Chairman: C Mwananshiku; CEO: P Kasolo

 

KCM reported a net loss of K1, 243.6 million (US$191.2 million) for the financial year ended 31st March 2015 (2014: K557.5 million loss (US$89.2 million loss)). Revenue reported for the year, was K7, 005.9 million (US$1,077.1 million), down by 15.0% (2014: K7,945.6 million (US$1,271.4 million)) due to a decline in sale of copper and copper-related products. Copper sales declined by 15.9% and sale of precious metals in slimes declined by 33.9%.

 

Total finished copper production during the year was 168,923 Mt (2014: 177,018Mt). During the year under review, KCM faced operational and financial challenges including cash flow constraints that resulted in KCM purchasing third party concentrates in smaller quantities than what was sought. On 23rd February 2015, the Government amended the documentation requirements to VAT refunds on future exports and this should enable KCM to increase the purchase and treatment of third party concentrates which will lead to an increase in smelter utilization. Additionally, KCM is focusing on increasing production volumes and addressing productivity across all of its operations. To this effect, KCM has been implementing various interventions to improve the overall operating performance and drive higher equipment availability and utilisation.

 

Owing to the operational and financial challenges that KCM faced, K719 million (US$94.9 million) due to ZCCM-IH in the financial year 2014/2015 under the settlement agreement remained unpaid. The total amount has been fully impaired as of 31 March 2015.

 There were no dividends declared during the year under review (2014: Nil).

 

Extract from 2016 ZCCM IH Annual Report

Chairman: C Mwananshiku; CEO: P Kasolo

 

Konkola Copper Mines (KCM) reported total revenue of K9, 607 million (US$972.5 million) for the financial year ended 31st March 2016 (2015: K7, 006 million (US$1,077.1 million)). The reduction in revenue was attributed to lower metal prices. The net loss for the year was at K3, 685.7 million (US$373.1 million) (2015: K1, 243.6 million (US$191.3 million) loss). Total finished copper production during the year was up 7.7% at 182 thousand tonnes for the year ending March 2016 (2015: 169 thousand).

 During the year under review, KCM focused on increasing production volumes and addressing some productivity challenges that the company faced in the past. The increased production was firstly driven by a 22.5% increase at the Konkola Deep underground mine due to improved ore grade and concentrator recoveries, and the completion of the rehabilitation work on 1-Shaft. Secondly, the Tailings Leach Plant (TLP) production improved by 5.8% due to higher plant reliability and higher throughput. Lastly, finished copper production from third parties rose by 3.1% due to higher availability of third party feed.

 However, there was a 25% decline at the Nchanga plant because the plant was placed under care and maintenance in the quarter ending 31st December 2015, due to low copper prices.

Moving forward, KCM’s strategy is to strive for higher operating productivity levels at the Konkola underground mine, more reliable TLP facility with the potential to increase recoveries, increased usage of the smelter by processing third-party concentrates from Zambia and DRC, and improved cost-cutting measures.

 

Subsequent to year-end, ZCCM-IH filed a Claim Form with the English High Court on 6th June 2016 to recover outstanding sums in excess of US$100 million due to it from KCM, pursuant to the terms of the Settlement Agreement entered into in 2013. On 16 December 2016, ZCCM-IH was successful in its application for default judgment. KCM was ordered to pay all sums owed to ZCCM-IH pursuant to the Settlement Agreement (plus associated contractual interest) within thirty (30) days. The total amount to be paid by KCM amounted to approximately US$103 million. KCM was also ordered to reimburse ZCCM-IH 80% of the costs it had incurred in pursuing its claim.

 

Further directions were given to determine whether KCM made payments to Vedanta Group Companies in breach of the prohibition on doing so under the Settlement Agreement. If and to the extent it is determined that such payments were made, ZCCM-IH will be entitled to recover additional sums from KCM.

There were no dividends declared during the year under review (2015: nil).

 

Extract from 2017 ZCCM IH Annual Report

Chairman: E Silwamba; CEO: P Kasolo

Konkola Copper Mines (KCM) reported total revenue of K8,621.47 million (US$874.3 million) for the financial year ended 31st March 2017 (2016: K9,607.04 million (US$972.5 million). The reduction in revenue was attributed to lower metal prices through a large part of the financial year, with copper prices surging upwards in the latter quarter thereof. The net loss for the year was at K1,367.72 million (US$138.7 million) (2016: K3,685.75 million (US$373.1 million loss).

Total finished copper production during the financial year was marginally down 1.1% to 180 000 tonnes for the year ended March 2017 (2016: 182 000) compared to the previous financial year.

During the year under review, KCM production volumes were constrained due to the Nchanga Underground Mine being placed under care and maintenance on the tail end of the previous financial year and lower equipment availability across other operating units.

Moving forward, KCM’s strategy continues to be underpinned by vigorously pursuing higher operating productivity levels at the Konkola underground mine, more reliable TLP facility with potential to increase recoveries, increased usage of the smelter by processing third-party concentrates from Zambia and DRC, and improved cost-cutting measures.

 

There were no dividends declared during the year under review (2016: Nil).

 

Extract from 2018 ZCCM IH Annual Report

Chairman: E Silwamba; CEO: P Kasolo

 

Konkola Copper Mines (KCM) reported total revenue of K12,251.43 million (US$1,283.0 million) for the financial year ended 31st March 2018 [(2017:K8,621.47 million (US$874.3 million)]. The increase in revenue was attributed to higher metal prices and increased sales volumes. The net loss for the year was at K1,102 million (US$115.4 million) [(2017: K1,367.72 (US$138.7 million loss)]. Total finished copper production during the financial year increased by 9 percent to 195,300 tonnes for the year ending March 2018 (2017: 179 800 tonnes) compared to the previous financial year.

 During the year under review, KCM mine metal production volumes remained subdued as lower feed grades and lower copper recoveries at the Tailings Leach Plant offset improvements in production output at both Nchanga and Konkola.

 Moving forward, KCM’s strategy continues to be underpinned by vigorously pursuing higher operating productivity levels at the Konkola underground mine, improving recoveries at the Tailings Leach Plant facility, increasing utilisation of the smelter and cost containment.

 There were no dividends declared during the year under review (2017: Nil).

 Extract from 2019 ZCCM IH Annual Report

Chairman: E Silwamba; CEO: M Chipata

 Konkola Copper Mines (KCM) reported total revenue of ZMW 12.25 billion (US$1,084.80 million) for the financial year ended 31 March 2019 {2018: ZMW12.2 billion (US$1,283.0 million}. The reduction in revenue was as a result of below budget custom production as well as below budget combined concentrate tonnage available for treatment in the smelter. This had an adverse impact on sulphuric acid production which in turn impacted on copper production at the Tailings Leach Plant. KCM’s total mine production for the year recorded at 177,035 tonnes (2018:144,664 tonnes). Loss after tax was ZMW3.72 billion (US$ 332.2 million) {(2018: ZMW1.102 billion loss(US$131.6 million))}

Operational challenges continued to impede production, however, management remains committed to providing resolutions to these issues. A study had been initiated to review operations at the Konkola operations with a view to upgrading production both at No. 3 shaft and No. 4 shaft in the medium term. Work at the No. 3 shaft is centred on upgrading pumping operations on the 985-metre level so that development work can be enhanced. This work ideally should result in an upgraded level of ore production over the two and half years.

There were no dividends declared during the year under review (2018: Nill)

Konkola Copper Mines Plc On 21 May 2019, ZCCM-IH filed a petition in the High Court of Zambia for the winding up of KCM. ZCCM-IH has filed the said petition pursuant to Section 56(1)(c) of the Corporate Insolvency Act No. 9 of 2017. By Order of the Court, Mr. Milingo Lungu Simwanza & Company has been appointed as provisional liquidator.

 

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