Re Agreement
August 19 2002 - 12:11PM
UK Regulatory
RNS Number:1384A
Zambia Copper Investments Ld
19 August 2002
Zambia Copper Investments Limited
(Registered in Bermuda)
("ZCI")
A member of the Anglo American plc group
ZCI announces agreement on the future of the Konkola Copper Mines
("KCM") in Zambia
On January 24, 2002, ZCI announced that, in view of the substantial losses
suffered by KCM, the weak outlook for the copper and cobalt markets and the non
availability of project finance for the Konkola Deep Mining Project, it had been
advised that Anglo American plc ("Anglo American") had concluded that it could
not justify investing further funds in KCM over and above those committed at the
time of the original investment.
Since the announcement on January 24, 2002, ZCI, funded by Anglo American, has
contributed US$82 million to KCM, in order to maintain operations while
negotiations have taken place with the other stakeholders.
ZCI is pleased to announce that agreement on the restructuring of KCM has now
been reached with Anglo American, the Government of the Republic of Zambia
("GRZ"), ZCCM Investments Holdings plc ("ZCCM"), the International Finance
Corporation ("IFC") and CDC Group plc ("CDC"). The primary objectives of the
agreement are the proposed restructuring of KCM and acquisition by it of ZCCM
(SmelterCo) Limited ("SmelterCo") (the "proposed transaction") which will
substantially strengthen KCM's balance sheet. In terms of the agreements, Anglo
American, IFC and CDC will be withdrawing as direct or indirect shareholders of
KCM. KCM is seeking a new strategic equity partner to provide both funding and
technical support. The proposed transaction is subject to regulatory approval,
the approval of ZCI shareholders, and execution of final legal documentation.
The proposed transaction will result in the transformation of ZCI from a heavily
indebted company, owing US$316 million to ARH, a subsidiary of Anglo American,
into a debt free company with a slightly reduced holding in a substantially debt
free KCM which will then also own the Nkana smelter and refinery. This
transformation will be achieved with a marginal reduction in the minorities'
shareholding in ZCI but should improve both ZCI and KCM's prospects of raising
funding in the future.
In terms of the agreement:
* Anglo American will contribute US$30 million in cash to KCM and a further
amount of up to US$26.5 million in loans on favourable terms secured by
anticipated insurance proceeds, in order to fund continued operations at the
mines.
* Transitional management arrangements for KCM have been agreed and Anglo
American will provide certain services until 31 March 2003 in order to assist
in the orderly handover of management responsibility to the new board of
directors of KCM
* The IFC and CDC will each assign to Anglo American their respective interests
in loans to KCM and to ZCI their respective interests in repayable carried
loans to ZCCM in exchange for a payment to each of them by Anglo American of
US$25.4 million. Anglo American will in turn assign the KCM loans to ZCCM. As
part of the restructuring, all repayable carried loans to ZCCM and its future
carried rights will be cancelled.
* The various parties to the restructuring will each grant certain releases in
order to facilitate an orderly exit for the relevant members of the Anglo
American group and IFC and CDC.
* ZCI and ZCCM will each subscribe for new KCM equity in return for the loans
owed by KCM to them.
* ZCCM will permit the option to acquire SmelterCo to be exercised in return for
the issue of further new KCM equity and GRZ will subscribe for new KCM shares
in return for assigning to KCM the debt obligations owed by SmelterCo to GRZ.
GRZ will transfer these new KCM shares to ZCCM for no consideration. SmelterCo
owns the Nkana smelter and refinery which is the principal processor of KCM's
concentrates and the ownership thereof is important in an environment where
logistics make the export of concentrate unattractive and where there are no
alternative local processors.
* The IFC and CDC will each exchange their respective existing shares in KCM for
new shares to be issued by ZCI and transfer these new shares to the Foundation
referred to below for no consideration.
* Anglo American will facilitate the repayment of the loan extended to ZCI by
the Anglo American group.
Prior to these transactions, the shareholders of KCM were ZCI (65%), ZCCM (20%),
IFC (7.5%) and CDC (7.5%). On completion of these transactions, the new
shareholders of KCM will be ZCI (58%) and ZCCM (42%). KCM will own and operate
the Konkola mine, Nchanga underground and open pit mines, the Nampundwe pyrite
mine and the Nkana smelter and refinery.
It is also proposed that Anglo American will establish an independent entity,
the Copperbelt Development Foundation (the "Foundation"), and will transfer to
the Foundation for no consideration a 41.4% shareholding in ZCI. The Foundation
will use income from ZCI to invest in projects aimed at diversifying the economy
of the Zambian Copperbelt, contributing to the provision of health, education
and other social services on the Copperbelt and mitigating the social impact of
the eventual closure of the KCM mines. The balance of ZCI shares held by Anglo
American will be transferred for no consideration to a management and employee
incentive trust intended to align the objectives of the new KCM management team
and workforce with the those of the new shareholders. On completion of the
proposed transaction the structure of KCM and its shareholders will be as
follows:
GRZ Public Foundation Employee Public
Incentive
Trust
87.6% 12.4% 44.3% 8% 47.7%
- - - - -
- - - - -
- - - - -
ZCCM ZCI
- -
- -
- -
- -
42% - - 58%
- -
- KCM - ------------ GRZ
- (special share)
-
-
- 100%
-
SmelterCo
Following the transfer by Anglo American of its ZCI shares to the Foundation and
to the management and employee trust referred to above, and appointment of
independent directors of the Foundation, the Board of ZCI will comprise only
members appointed by its ongoing shareholders.
The Securities Regulation Panel in South Africa has ruled that, in terms of Rule
34 of the Code on Takeovers and Mergers, no offer to the minority shareholders
of ZCI need be made by any person to whom shares in ZCI may be transferred
pursuant to the proposed transaction of KCM. In terms of the Listings
Requirements of the JSE Securities Exchange South Africa ("JSE"), a circular
incorporating a notice of special general meeting will be forwarded to ZCI
shareholders in due course. Resolutions will be proposed at that special general
meeting to approve the proposed transaction. Anglo American has advised that it
intends to vote in favour of the proposed transaction at the Special General
Meeting.
The financial effects of the proposed transaction on the financial position of
ZCI as presented in the audited financial statements for the year ended
December 31, 2001, is illustrated in the table below, on the basis that the
proposed transaction was effected on January 1, 2001. The transfer of ZCI shares
by Anglo American to the Foundation and the management and employee incentive
trust will have no financial effect on ZCI shareholders.
Measure per share Before Transaction After Transaction Change
Headline loss (US cents) 69.68 65.05 6.6%
Loss (US cents) 70.14 65.50 6.6%
Net Asset Value (US cents) (49.76) 144.46 194.22
Number of ordinary shares
in issue 122,559,900 126,197,362 2.97%
Assumptions:
1. KCM has been assumed to have no shareholder loans and its third party loans
during 2001 have been assumed to have been reduced by US$30 million to
reflect the proposed funding by Anglo American. In addition US$35 million of
its remaining third party loans has been assumed to have had the interest
margin reduced by 1.25% to reflect the margin proposed on the new loans. In
addition, ZCI itself is assumed to have had no interest expense or commitment
fees given the proposed settlement of its loan from the Anglo American group.
2. SmelterCo incurred an operating loss of US$17.4 million in calendar year
2001. The SmelterCo interest expense in 2001 has been excluded treating its
funding as having been provided by equity rather than debt. The Net Asset
Value attributable to SmelterCo is US$61.6 million.
3. Full details will be provided in the circular to shareholders.
Lower projected copper prices combined with the fact that KCM is not likely in
the foreseeable future to be able to raise the funding required to implement the
Konkola Deep Mining Project have impacted on the projected life of the Konkola
mine and the values of KCM's assets. In the light of the proposed transaction
and the funding available to KCM as detailed in this announcement, the directors
of ZCI have evaluated the assets and determined the need for an impairment to be
reflected in the accounts. The impairment of the assets at June 30, 2002, which
will be reflected in ZCI's interim financial report, has been determined to
amount to $249 million.
Commenting on the agreement, Simon Thompson, Chief Executive of Anglo American
Base Metals Division and retiring Chairman of ZCI and KCM said: "The
finalisation of these complex negotiations allows KCM to continue to operate in
accordance with the objectives of the Government and provides an opportunity for
Zambia to diversify its economy and reduce its dependence on copper. The newly
formed Copperbelt Development Foundation, endowed by Anglo American, will work
with other stakeholders in pursuit of this goal.
Despite incurring substantial losses, Anglo American has demonstrated its
commitment to acting in a socially responsible manner with regard to its
withdrawal from KCM and has also taken into account the interests of the
minority shareholders in ZCI by providing them with a debt-free vehicle through
which they can continue to participate in the future of KCM."
Bermuda, 19 August 2002
Registered office: Clarendon House, 2 Church Street, Hamilton, Bermuda
This information is provided by RNS
The company news service from the London Stock Exchange
END
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