Zambia Copper Investments Limited ("the Company")
Incorporated in Bermuda and registered in the Republic of South Africa
as an external company. Registration no. EC 1626)
Share code: ZCI
ISIN : BMG988431240
(All figures expressed in thousands of US Dollars, unless stated
otherwise)
Consolidated statement of earnings
2002 2001
(USD'000) (USD'000)
Turnover 394,096 370,689
Cost of sales (344,463) (406,788)
------ ------
Gross Profit / (Loss) 49,633 (36,099)
Other operating expenses (68,986) (27,106)
Depreciation (30,272) (20,243)
Impairment of tangible (240,369) -
fixed assets
------ ------
(289,994) (83,448)
------ ------
Other income 4,696 4,711
Interest income 17 1,589
Interest expense (9,516) (21,916)
Commitment fees on loan (102) (1,680)
facility
General and administration (784) (1,073)
expenses
Amortisation of goodwill - (565)
Impairment of goodwill (66,066) -
Contributions to finance 16,876 -
restructuring
Restructuring costs (4,687) -
------ ------
Loss before taxation (349,560) (102,382)
Taxation (193) (3,883)
------ ------
Loss after taxation (349,753 ) (106,265)
Loss attributable to - 20,296
minority interest
------ ------
Net Loss (349,753) (85,969)
------ ------
per ordinary
share in US
cents
Headline loss before (44.90) (69.68)
exceptional items and
amortisation and impairment
of goodwill
Net loss (282.94) (70.14)
Consolidated statement of financial position
2002 2001
(USD'000) (USD'000)
Fixed Assets
Intangible assets - 8,265
Tangible fixed assets 100,195 260,756
------ ------
100,195 269,021
Investments and advances - 45,932
------ ------
100,195 314,953
------ ------
Current assets
Stocks 88,308 105,462
Accounts receivable 46,658 68,924
Cash and cash equivalents 39,126 4,772
------ ------
174,092 179,158
Current liabilities
Short term loans and bank overdrafts 5,824 98,566
Accounts payable and accrued liabilities 53,171 62,172
------ ------
58,995 160,738
------ ------
Net current assets 115,097 18,420
------ ------
Total assets less current liabilities 215,292 333,373
Long term liabilities
Long term loans (35,033) (263,346)
Provisions (92,632) (69,451)
Deferred purchase consideration - (61,557)
Minority interest (36,335) -
------ ------
Net assets / (liabilities) 51,292 (60,981)
------ ------
Capital and reserves
Capital 508,807 46,781
Accumulated deficit (457,515) (107,762)
------ ------
Shareholders' equity/(deficit) 51,292 (60,981)
------ ------
Consolidated statement of changes to equity
Share Contributed Accumulated
capital surplus deficit Total
(USD'000) (USD'000) (USD'000) (USD'000)
Balance at 31 29,426 17,355 (21,793) 24,988
December 2000
Loss for the year - - (85,969) (85,969)
----- ----- ----- -----
Balance at 31 29,426 17,355 (107,762) (60,981)
December 2001
Shares issued 873 - - 873
Contributed on - 461,153 - 461,153
restructuring
Loss for the year - - (349,753) (349,753)
----- ----- ----- -----
Balance at 31 30,299 478,508 (457,515) 51,292
December 2002
----- ----- ----- -----
Consolidated statement of cash flows
2002 2001
(USD'000) (USD'000)
Cash flow from operating activities
Cash received from customers 398,559 361,945
Cash paid to suppliers and employees (378,425) (465,756)
------ ------
Cash generated / (absorbed) by 20,134 (103,811)
operations
Interest received - 356
Interest paid (1,343) (5,314)
Income tax paid (80) (351)
------ ------
Net cash generated / (absorbed) by 18,711 (109,120)
operating activities
------ ------
Cash flow from investing activities
Investment in KCM - (2,832)
Proceeds from disposal of tangible 334 -
fixed assets
Capital expenditure (58,277) (107,297)
------ ------
Cash absorbed by investing (57,943) (110,129)
activities
------ ------
Cash flow from financing activities
Proceeds from external borrowings - 154,000
Advances by minority shareholders in - 21,000
KCM
Shareholders long-term loans 97,813 -
received
Other loans received 35,000 -
Contributions received to finance 33,637 -
restructuring
Short term loans repaid (60,000) -
------ ------
Cash generated by financing 106,450 175,000
activities
------ ------
Net increase / (decrease) in cash 67,218 (44,249)
Net (debt) / cash at the beginning (33,916) 10,333
of the year
------ ------
Net cash / (debt) at the end of the 33,302 (33,916)
year
------ ------
Cash deposits and cash at bank 39,126 4,650
Bank overdraft - unsecured (5,824) (38,566)
------ ------
Net cash / (debt) at the end of the 33,302 (33,916)
year
------ ------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Consolidated financial statement presentation
On January 24, 2002 the Company issued an announcement to the effect
that, following advice from Anglo American plc, it would not be in a
position to provide funding to its principal subsidiary, KCM, beyond its
obligations under the Subscription and Shareholders Loan Agreement
("SSLA"). Furthermore, the announcement stated that KCM's financial
projections, that are based on current metal prices, indicate that in
order to sustain its operations KCM will require funding, over and above
that pledged under the SSLA, from around the end of the first quarter of
2002 and it was decided to restructure KCM.
Following the announcement on January 24, 2002 a KCM Shareholders'
Steering Committee had been established on which was represented all the
shareholders including the GRZ, to explore all options available to the
Company following ZCI's announcement. Negotiations took place between
the shareholders, which culminated in Agreements to restructure KCM,
which were signed on 16 August 2002 and became effective on 17 September
2002.
Following the restructuring, the directors are of the view that the
Company is a going concern and the financial statements have been
prepared on this basis.
The financial statements are prepared in accordance with International
Financial Reporting Standards. The preparation of financial statements
in conformity with International Financial Reporting Standards requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
These financial statements are presented in United States Dollars since
that is the currency in which the majority of the operations of the
Company are denominated.
The financial statements have been prepared on the historical cost
basis. The accounting policies applied are consistent with the previous
year. The financial information has been audited by the Company's
auditors, Deloitte & Touche, (Bermuda), whose unqualified audit opinion
is available for inspection at the offices of the Company's
administrators, Maitland Management Services SA, 6 rue Adolphe Fischer,L-
1520, Luxembourg.
Principal activity and segmental information
The principal activity of the Group is the mining and production of
copper and cobalt, and toll treatment of copper concentrates. The sales
revenue can be analysed as follows:
2002 2001
(USD'000) (USD'000)
Copper 355,591 325,132
Cobalt 30,603 44,511
Other 7,902 1,046
------ ------
394,096 370,689
------ ------
The Group has one reportable segment, its principal activity.
Geographical segments
The Group mining operations are located in Zambia. The following table
provides an analysis of the Group's sales by geographical market:
2002 2001
(USD'000) (USD'000)
Sales
revenues
Asia 321,556 257,870
Europe 63,416 60,652
Rest of 7,653 52,167
Africa
America 1,471 -
------ ------
394,096 370,689
------ ------
Contributions to finance restructuring
A surplus of USD 16,875,662 resulted from the restructuring effective 17
September 2002. This represents the ZCI share of the USD 30 million
exit settlement received by KCM and other amounts received from Anglo
American for working capital requirements.
Loss per share
2002 2001
(USD'000) (USD'000)
Net loss attributable to 349,753 85,969
shareholders (USD '000)
Add exceptional income:
Contributions to finance 16,876 -
restructuring
Less exceptional expenses:
Impairment of tangible (240,369) -
fixed assets
Amortisation of goodwill - (565)
Impairment of goodwill (66,066) -
Restructuring costs (4,687) -
------ ------
Headline loss before 55,507 85,404
exceptional items and
amortisation and impairment of
goodwill
------ ------
Weighted average number of 123,616 122,560
shares in issue (thousands)
Headline loss per share (US 44.90 69.68
cents per share)
Basic net loss per share (US 282.94 70.14
cents per share)
Basic loss per share is calculated by dividing the net loss attributable
to the shareholders by the weighted average number of shares in issue
during the year.
Impairment adjustment
Impairment adjustments are a result of changes in economic
circumstances, including the fall in market prices of KCM's products and
the suspension of the Konkola Deep Mining project resulting in a
reduction of the economic life of the business. As a result, the
directors consider that the carrying amounts of the Group's tangible and
intangible fixed assets may not be recoverable. Accordingly, a provision
in the amount of USD 248,634,000 for impairment of those assets was
recorded in the consolidated financial statements at June 30, 2002 in
accordance with the requirements of IAS 36: Impairments of Assets.
The impairment adjustment represents the amount by which the carrying
amount of the tangible and intangible assets of the Group at June 30,
2002 exceed their estimated recoverable amount. The Group has been
considered as a single cash-generating unit for the purpose of the
review. The recoverable amount is the value in use, which was determined
at a discount rate of 15%.
Due to the historical operating losses within KCM (SmelterCo) and the
uncertainty of future profits, the directors consider it prudent to
reduce the carrying amounts of the goodwill that arose on the
acquisition of KCM (SmelterCo). Accordingly, a provision in the amount
of USD 57,801,000 for impairment of the goodwill has been raised in
accordance with the requirements of IAS 36: Impairment of Assets.
Long term loans
2002 2001
(USD'000) (USD'000)
Loan from A.R.H. Limited S.A. - 190,000
to ZCI
Capitalised interest and - 23,706
commitment fee thereon
------ ------
Amount due to A.R.H Limited - 213,706
S.A.
Loans from minority
shareholders to KCM,
including capitalised interest - 49,640
------ ------
- 263,346
------ ------
Loans received during the year 35,000 -
by KCM
Capitalised interest 33 -
------ ------
35,033 263,346
------ ------
As part of the restructuring process, Anglo American injected USD
286,892,675 contributed surplus into ZCI, the majority of which was used
to repay in full the amount owed by ZCI to ARH under the Revolving
Credit Facility Agreement. On completion of the restructuring, the ZCI
Group repaid its loan to ARH and the Revolving Credit Facility was
terminated.
The loans to KCM from its minority shareholders were also extinguished
as part of the restructuring.
Report to shareholders
The year under review was one of difficulty and uncertainty for the
company but the Board is pleased to report that, as a result of a
successful restructuring, the company was able both to strengthen the
Balance Sheet and set a new and more positive course for the future.
As you will be aware, the company was faced in January of 2002 with an
announcement by Anglo American plc (Anglo American) that after less than
two years involvement as a majority shareholder, it had decided to
withdraw from its investment and that it would make no additional
funding available to the company's subsidiary, Konkola Copper Mines plc
(KCM) beyond its existing commitments at the time of its original
investment in March 2000.
Anglo American also set a deadline for the withdrawal of its management
team and certain essential services and stated that a managed closure of
KCM's operations was its 'preferred option'. This would have had
predictably negative and serious consequences both for the company's
shareholders and for the economy of Zambia.
A lengthy period of negotiation followed as a result of which agreement
was reached in August 2002 with the shareholders of KCM and The
Government of the Republic of Zambia (GRZ) upon a restructuring whereby
Anglo American agreed to relinquish control of the company and to:
* transfer a shareholding of 41.4% in the company without
consideration to the newly formed Copperbelt Development Foundation
(CDF), whose objectives are, inter alia, to promote diversification of
the economy of the Copperbelt Province of Zambia and to promote the
social development, relieve poverty and contribute to the provision of
health, education and other social services in the Copperbelt Province
and Mumbwa District of the Central Province of Zambia, and to
* transfer the balance of its shareholding totalling 8% in the
company without consideration to an Employee Share Ownership Trust
(ESOT).
In addition and as part of the overall restructuring agreement, Anglo
American undertook, inter alia, to:
* facilitate the repayment of the loan extended to ZCI by the Anglo
American group;
* make an exit payment of USD 30 million to KCM; and
* provide USD 26.5 million as loans to KCM on favourable terms,
and at the same time:
* CDC Financial Services (Mauritius) Limited (CDC) and International
Finance Corporation (IFC) agreed to exchange their respective shares in
KCM for new shares in ZCI and transfer these new ZCI shares (2.9% of
ZCI) to the CDF;
* the Government of the Republic of Zambia agreed to provide USD 8.5
million as a loan to KCM;
* KCM exercised an option to acquire ZCCM (SmelterCo) Limited; and
* all loan amounts owed to shareholders of KCM were converted to KCM
equity.
As a consequence of this restructuring, the company is now owned 47.7%
by public shareholders, 44.3% by the CDF and 8% by the ESOT. The exit of
Anglo American and the connected withdrawal of CDC and IFC as
shareholders of KCM, results in KCM now being owned 58% by the company
and 42% by ZCCM Investment Holdings PLC. The Government of the Republic
of Zambia continues to retain its golden share in KCM.
The restructuring has had the effect of considerably strengthening the
company's Balance Sheet. KCM's Balance Sheet was also strengthened as a
result and provided thereafter a basis for its continued operation
pending the introduction of new management, the development of a new
business plan and the introduction of additional finance.
As a further consequence of this restructuring, there has been a
fundamental reorganisation of the Board.
Mr Barrie Ireton was appointed as a director of the company on 27th
September 2002 and as Chairman following the completion of the
restructuring agreement. Mr Ireton also serves as Chairman of KCM and as
a representative of the United Kingdom Department for International
Development on the Board of the CDF. Mr David Rodier, who was appointed
to the Board of CDF by the International Centre for Mining and
Metallurgy, was also appointed as a director of the company and of KCM.
Mr Steven Georgala was appointed as an independent director. Mr Robin
Mills, who has now returned to Anglo American, served as a director
during the latter part of the year and was replaced by Mr Russell Alley
the newly appointed Chief Executive Officer of KCM on 1 February 2003.
Russell has long experience of the international mining business having
previously served, inter alia, with Cyprus Amax, Phelps Dodge and
Southern Peru Copper.
During 2002, ZCI incurred a net loss of USD 350 million due to depressed
metal prices throughout the year and a combination of negative
impairment adjustments and restructuring costs. Annual production of
copper was up over 12%. In spite of this creditable performance in
production terms, market conditions continue to be difficult as the
average price for copper was US cents 71.5 per pound (2001: US cents
71.6 per pound).
Over recent months, the Board has undertaken a strategic review of the
future prospects for the group in order to establish a basis for
continued viable commercial operations by development of credible
business plans.
In order to ameliorate the risks of current market conditions, the Board
is in the process of seeking a strategic equity partner in KCM to
replace Anglo American and to provide further technical assistance and
financial support in the longer term.
Since the completion of the restructuring just six months ago, KCM:
* has undertaken a complete technical and strategic review;
* is putting in place a new twenty year life of mine plan and related
business plans;
* successfully recruited a new Chief Executive Officer and management
team; and
* has undertaken an extensive international review of potential
strategic equity partners.
In recent weeks, the Board of KCM has made good progress in its review
of potential strategic equity partners which involved discussions with
47 companies world-wide and elicited expressions of interest from nearly
20 companies.
Following completion of a pre-qualification process, 8 companies who met
all of the criteria set were invited to participate. Bidders were
subsequently involved in an extensive due diligence process following
which competing bids were submitted to shareholders of KCM. These
proposals are now under consideration by shareholders of KCM. The
company will keep shareholders informed of developments in this
connection and if proposals are forthcoming which meet the company's
requirements and acceptable commercial terms are agreed, proposals will
be submitted to shareholders for approval. The Board is satisfied that
the steps which have been taken to restructure and stabilise the
business in recent months together with the adoption of coherent long
term plans for the future of KCM and the introduction of new management
offer the prospect of a positive future for the company.
The year ahead will not be without its challenges but the Board believes
that the measures which it has put in place will begin to show results
in the year ahead and provide a realistic platform from which the
business can be developed.
The Board expects that the company's audited financial statements will
be posted to shareholders within the next two weeks.
On behalf of the Board of Directors
R Alley S Georgala
Director Director
Luxembourg
30 April 2003