ZCCM-IH Strategic Plan 2012-2012

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ZCCM Investments Holdings Plc

2012 – 2016 STRATEGIC PLAN



1

Table of Contents

1.0 EXECUTIVE SUMMARY 10

2.0

VISION, MISSION, VALUES, SITUATION REVIEW AND GOVERNANACESTRUCTURES 13

3.0 BUSINESS REVIEW AND POSITION STATEMENT 19

3.1 PERFORMANCE OF ZCCM-IH PLC 20

3.1.1 Low cash returns on investments 21

3.1.2 Legacy liabilities 22

3.1.2.1 Historical environmental liabilities 22

3.1.2.2 ZCCM Trust Fund Obligations 22

3.1.2.3

Numerous historical litigation cases 22

3.1.2.4 Conveyancing of ZCCM Ltd Properties 22

3.1.2.5 Indebtedness of GRZ 22

3.2 Performance of Investee Companies 23

3.2.1 Albidon Limited 24

3.2.2 Copperbelt Energy Corporation Plc 25

3.2.3 Chambishi Metals Plc 27

3.2.4 Chibuluma Mines Plc 28

3.2.5 CNMC Luanshya Copper Mines Plc 29

3.2.6 NFC Africa Mining Plc 30

3.2.7 Equinox Minerals Limited 31

3.2.8 Kansanshi Mining Plc 32

3.2.9 Konkola Copper Mines Plc 32

3.2.10 Maamba Collieries Limited34

3

3.2.11

Mopani Copper Mines Plc35

3

3.2.12 Ndola Lime Company Limited 34

4.0 THE STRATEGIC PLAN38

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4.1 STRATEGY OVER VIEW38

5

4.1.1 Global Economic Outlook 38

5

4.1.2 Zambian Economic Outlook 38

6

4.2 STRATEGIC OBJECTIVES39

6

4.2.1 Increase Shareholder Value39

6

Strategic Focus Area 1:

396

4.2.1.1 Leveraging and Consolidating Existing Investments in the Copper

Mining Sector and pursue other copper assets39

6

4.2.1.1.1 Maintain investment in the existing copper mining companies

408

4.2.1.1.1.1Kansanshi Mining Plc40

8

4.2.1.1.2 Konkola Copper Mines Plc 39

4.2.1.1.1.3Mopani Copper Mines Plc 40

4.2.1.1.1.4China Non-Ferrous Metal Mining Company (CNMC) Luanshya Copper Mines Plc 43

4.2.1.1.1.5Chibuluma Mines Plc

44

2

4.2.1.1.1.6NFC Africa Mining Plc44

2

4.2.1.1.1.7Chambishi Metals Plc45

3



3

4.2.1.1.1.8Invest in Konkola North Copper Company Limited46

4

4.2.1.1.2 Invest in other Copper Assets47

5

4.2.1.1.3 Cause Investee Company Boards to address the dividend concernsraised

475

4.2.1.1.4 Increase the Zambian ownership and management of the mining

assets48

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4.2.1.1.5

Maximise value from the investee companies48

6

4.2.1.2 Strategic Focus Area 2: Diversifying into other minerals 47

4.2.1.2.1 Invest in Kariba Minerals Limited

508

4.2.1.2.2 Invest in other gemstone assets 48

4.2.1.2.3 Invest in Small Scale Mining Operations 49

4.2.1.2.4 Invest in Ndola Lapidary Gemstone Processing and Lapidary TrainingCentre 52

4.2.1.2.5 Invest in Exploration Activities52

0

4.2.1.2.6 Invest in other minerals54

2

4.2.1.3 Strategic Focus Area 3: Investing in Mining Related Sectors

553

4.2.1.3.1 Hold Mineral Rights on behalf of the Government 55

4.2.1.3.2 Investment in a new Mineral Production and Marketing MonitoringModel 55

4.2.1.3.3 Carry out exploration works for Oil & Gas 56

4.2.1.3.4 Invest in new power projects under Maamba Collieries Limited andany other opportunities 56

4.2.1.3.4.1Maamba Collieries Limited 57



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4.2.1.3.4.2 Any other opportunities in the energy sector 554.2.1.4 Strategic Focus Area 4: Investing in Mining Related Manufacturing 57

4.2.1.4.1 Enhance shareholder value of Ndola Lime Company Limited and list

on LuSE 59

4.2.1.4.2

Production of Cement 58

4.2.1.4.3 Production of Copper Alloys, Wires, Tubes and Rods as well as Steel

Production 58

4.2.1.4.4 Localization of Supply Chain 59

4.2.1.4.5 Innovative Funding Mechanisms for the Mining Sector Development 59

4.2.1.5 Strategic Focus Area 5: Reduce Legacy Liabilities 60

4.2.1.5.1 Improve Balance Sheet 60

4.2.1.5.2 Extinguish Environmental Liabilities 60

4.2.1.5.3 ZCCM Trust Fund 614.2.1.5.4 Extinguish Conveyancing Liabilities 61

4.2.1.5.5 Extinguish Legacy Litigation 61

4.2.1.6 Strategic Focus Area 6: Reposition the Company 61

4.2.1.6.1 Realign the Organisation Structure 61

4.2.1.6.2 New Organizational Structure 64

4.2.1.6.3 Staffing 64

4.2.1.6.4 Rebranding 62

4.3

Implementation and Monitoring of the Strategic Plan 65

4.4 Business Plan 65

4.4.1 Key Assumptions 65

4.4.2 Projected Performance 66

4.4.2.1 Investing Activities

66

4

4.4.2.2 Projected Income 67

4.4.2.3

Projected Costs 68

4.4.2.4 Financing 69

4.4.2.3 Financial Position 70

5 Conclusion 68



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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



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TABLE OF FIGURES

FIGURE # TITLE PAGE NUMBER

1 Performance of Albidon – 2007 to 2010 24

2 Performance of CEC – 2007 to 2010 25

3 CEC Energy Sales (GWh) – 2007 to 2010 25

4 Chambishi Mines Plc’s Financial Performance

– 2007 to 2010 26

5 Chambishi Metals Plc’s Production

Performance – 2007 to 2010 26

6 Chibuluma Mines Plc’s Financial Performance

– 2007 to 2010 27

7 Chibuluma Mines’ Production Performance – 2007 to 2010 28

8 CNMC Luanshya Copper Mines Plc’sFinancial Performance 2007-2010 28

9 CNMC Luanshya Copper Mines Production

for 2007 to 2010 29

10 NFC Africa Mining Plc’s FinancialPerformance 2007-2010 29

11 Financial Performance of Equinox MineralsLtd 30

12 Production Performance of Equinox MineralsLtd 30

13 Financial Performance of Kansanshi Mining

Plc 31



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14 Kansanshi Mining Plc’s ProductionPerformance -2007 to 2010 31

15 KCM’s Financial Performance- 2007 to 2010 32

16 Financial Performance of Maamba Collieries

Ltd – 2007 to 2010 33

17 Financial Performance of Mopani Copper Mines Plc -2007 to 2010 33

18 Mopani Copper Mines Plc’s ProductionPerformance – 2007 to 2010 34

19 Ndola Lime Company Limited’s Financial

Performance – 2007 to 2010 35



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GLOSSARY OF TERMS

CEC Copperbelt Energy Corporation

CEP Copperbelt Environmental Project

Citadel Citadel Resource Group Limited

CSR Corporate Social Responsibility

DRC Democratic Republic of Congo

FDI Foreign Direct Investments

FNDP Fifth National Development Plan

FPI Foreign Portfolio Investments

FQM First Quantum Minerals Limited

GDP Gross Domestic Product

GFC Global Financial Crisis

GRZ Government of the Republic of Zambia

IPO Initial Public Offer

KCM Konkola Copper Mines Plc

KMP Kansanshi Mining Plc



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GLOSSARY OF TERMS

KDMP Konkola Deep Mining Project

KML Kariba Minerals Limited

Konnoco Konkola North Copper Project

LCM CNMC Luanshya Copper Mines Plc

LuSE Lusaka Stock Exchange

MCL Maamba Collieries Limited

MCM Mopani Copper Mines Plc

NBS Nava Bharat (Singapore) Limited

NFCA NFC Africa Mining Plc

NLC Ndola Lime Company Limited

NPV Net Present Value

SNDP Sixth National Development Plan

TSX Toronto Stock Exchange

ZCCM Zambia Consolidated Copper Mines Limited

ZCCM-IH ZCCM Investments Holdings Plc



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1.0 EXECUTIVE SUMMARY

Efforts to remodel the Value System of the Mining Sector and improve the ValueChain 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 andother 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 subsequentyears, serve for 2009 when the company recorded a loss on account of theGlobal 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 June2011. 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 adverseeffect 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 portfoliothat have been loss making consistently are Albidon Mining Plc, CNMC

Luanshya Copper Mines (CNMC) , Chambishi Metals Plc and Maamba CollieriesLimited (MCL). Despite the fairly acceptable profit performance on the part of anumber 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 thisrevenue stream as the main source of income by ZCCM-IH. A review of thedividend distribution policies of investee companies shows that dividend

declaration is not a priority. This situation raises the need, firstly, to reviewinvestee companies’ dividend distribution policies to ensure that dividenddeclaration 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 experiencesfrom 2001 to date have shown that the approach of having a significant



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minority stake which is then coupled with some Board Representation does notprovide 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 allowZCCM-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 nation’s 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, VentureCapitalism;

f) Adopting a mixture of financing approaches to fund the investmentnecessary 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 theinitial 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 followingseven Strategic Focus Areas:

a) Strategic Focus Area 1: Leveraging and consolidating existing investments inthe 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 managementf) Strategic Focus Area 6: Reducing legacy liabilitiesg) Strategic Focus Area 7: Repositioning the company



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For the period 2012-2016, ZCCM-IH will pursue the following goals under eachStrategic 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 companiesii. 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. Invest in Kariba Minerals Limited;

ii. Invest in other gemstone assets;iii. Invest in Small Scale Mining Operations;

iv. Ndola Lapidary Gemstone and Lapidary Training Centre;v. Invest in exploration activities;vi. Invest in other minerals assets;

c) Strategic Focus Area 3: Investing in mining related sectors:

i. Hold the mineral rights on behalf of the government;

ii. Investment in a new Minerals Production and Marketing MonitoringModel;

iii. Carry out exploration works for Oil & Gas;iv. Invest in new power projects.

d) Strategic Focus Area 4: Investing in mining related manufacturing:

i. Enhance shareholder value of Ndola Lime Company Limited and list iton LuSE;

ii. Cement production;

iii. Production of copper alloys, wires, tubes, rods and steel;iv. Localisation of supply chain.

e) Strategic Focus Area 5: Treasury management:

i. Invest in the money markets and any other investment opportunities.

f) Strategic Focus Area 6: Resolving legacy liabilities:

i. Improve the Balance Sheet;ii. Extinguish Environmental liabilities;



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iii. Finance the ZCCM-IH Trust Fund;iv. Extinguish Legacy Properties;

v. Extinguish Legacy Litigations.

g) Strategic Focus Area 7: Realigning the organisational structure

i. Re align the organisational structure;

ii. 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, administrativeexpenses 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 andaccepted Vision, Mission and Values. ZCCM-IH has developed for itself the

following Vision, Mission and Values:

2.1 VISION

“To be Zambia’s leading investments Company”

2.2 MISSION STATEMENT

“To maximize shareholder value with due regard to the interests of allstakeholders”

2.2 VALUES

x Integrity

x Professionalismx Teamwork

x Accountability

x 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:



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o Political – which include government regulations and legal issues anddefine both the formal and informal rules under which the Company must

operate;

o Economic – which affect the Company’s 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 thatwill 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 PESTfactors outlined below that are likely to impact on the Company during the

course of implementation. The factors are as follows:

Political Economic Social

Political

stabilityafter

elections

The Cost of doing Business in Zambia

Single digit inflation as the target

High interest rates affecting borrowingsand the cost of doing business

Unstable fuel prices negatively affectingbusiness planning

High electricity tariffs and inadequate

power supply negatively affectingproduction

Unstable exchange rates negatively

affecting business planning

The execution of the Sixth National

Development Plan in conformity with the

Vision 2030

Declining net FDIs and FPIs

Changes to country risk rating

Inadequate infrastructure

Rebasing of the Kwacha

Declining foreign currency reserves

High illiteracy levels

High poverty levels

High unemploymentlevels

Health challenges (

malaria, HIV/AIDS,cancer, diabetes)

Increasing youngpopulation againstdecreasing senior

population

Lack of affordablehousing

Poor health facilities

Inadequate

educational system

Increasing unskilled

labour



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Political Economic Social

Increase in capital requirements for thebanks

Issuance of sovereign Bond

Technological Environmental Legal

Inadequate ICT

infrastructure

Unaffordable ICT services

Obsolete equipment

Under-utilization of

Information andCommunicationTechnology

Lack of infrastructure for

training in science andtechnology

No Research andDevelopment in most

sectors of the economy.

Environmental

degradation by industrialactivities

Inadequate

environmentalawareness

Climate change

Deforestation

Inadequate

management of solidwaste

Inadequate anddilapidated sewerage

system and

Management of toxicand hazardous waste.

Weak legal framework

Lack of awareness oflegal rights

Lack of adequate legalsystem;

Disregard of rule of law

Frequent changes to the

laws such as Mining andMinerals Act

2.3.2 STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS (SWOT) ANALYSIS

SWOT Analysis which is a scan of the internal and external environment is animportant 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 analysisprovides information that is helpful in matching the Company’s resources andcapabilities to the competitive environment in which it operates.

Strengths

Strengths are the Company’s resources and capabilities that can be used as a

basis for developing a competitive advantage.



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Weaknesses

The absence of certain strengths may be considered as weaknesses.Opportunities

The external environment analysis may reveal certain opportunities for profit andgrowth arising from activities or situations determined by others.

ThreatsThe 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

participation income.

Skilled manpower.

Government link.

Strong CSR presence on theCopperbelt and Kabwe through CEP.

Overriding of investment procedures

and policies.

Legacy liabilities.

Low returns on investments.

Low employee morale.

Lack of timely implementation ofdecisions.

Illiquid portfolio.

High political risk exposure.

Ineffective Board representation on

investee companies.

Minority shareholding in investeecompanies.

Ineffective investor relations.

Job insecurity.

Delays in decision making.

Lack of substantive Chief FinancialOfficer.



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OPPORTUNITIES THREATS

Being a listed entity and thereforesubject to a market-determined share

price.

An investment portfolio of minimumUS$800 million dependent on the

investee companies performance.

The restructuring of balance sheetthrough a debt-equity swap by themajority shareholder.

The underlying value in Archives whichis subject to external parties interest.

The investment programme which

may yield shorter pay-back periodsand specific dividend policies frompotential investee companies.

Profiting from share trades in theinvestment portfolio.

The refinement and enforcement of

dividend policies in the existinginvestee companies.

The undiversified investment portfolio issubject to the same market risks.

There are potential hostile take-over bids for ZCCM-IH given its portfolio ofinvestments.

Change in Shareholders’ vision may

require restructuring of the entireCompany.

Uncertainty about global economy.

Competitive alternative employee

opportunities.

Failure of investee companies.

Dividend policies of the investee

companies are not specific.

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



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

as follows:-

The policy direction of the company is set by the Board of Directors headed bythe Executive Chairman. The Board comprises of seven Board members and its

representation is from the Ministry of Finance, Ministry of Mines, Energy andWater 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 itsheterogeneous composition. Each member of the team brings varied but

Board of Directors

ExecutiveChairman

Chief Executive

Officer

InvestmentsDepartment

TechnicalDepartment

LegalDepartment

Risk and

Internal Audit

Department

FinanceDepartment

CompanySecretarial

Department

Human

Resources andAdministration

Department



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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 ininvestments, 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 theZambian 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 achievedthrough this privatisation were to:

i. Transfer control of and operating responsibilities for ZCCM’s operations to

private sector mining companies as quickly as practicable;

ii. Mobilise substantial amounts of committed new capital for new

operations;

iii. Ensure that ZCCM realised value for its assets and retained a significantminority interest in principal mining operations;

iv. Transfer or extinguish ZCCM’s liabilities, including its third party debt;

v. Diversify ownership of Copperbelt assets;

vi. Promote Zambian participation in the ownership and management of themining assets; and

vii. Conduct the privatisation as quickly and transparently as consistent withgood order, respecting other objectives and observing ZCCM’s existing

contractual obligations.

After a period of about 15 years, some of the objectives have been achievedwhile others are still being pursued by ZCCM-IH Plc, the successor company toZCCM. On the whole the objectives of extinguishing ZCCM’s liabilities and

promoting Zambian Participation in the ownership and management of miningassets are yet to be achieved. This Strategic Plan (2012-2016) focuses onmaximizing Shareholder value while addressing the remaining objectives and

other related matters.



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Following the conclusion of the privatisation programme, the early years ofZCCM-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 company’s investment portfolio was as indicated in Appendix 1:

Since 2006, the direction and performance of the Zambian economy has beenanchored on and guided by the Vision 2030. The Vision 2030 aims to make

Zambia become a Prosperous Middle Income Nation by 2030. The Vision 2030has 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 ofthe Zambian kwacha against major currencies declined over the period.

Against the backdrop of this economic performance, the performance ofZCCM-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 Company‘s total comprehensive income was K148987 million in 2008. This declined to negative K447 066 million in 2009- This waslargely as a result of the exchange loss of K409, 784 million that was incurredduring that year-, but recovered to K768 930 million in 2010.

It is worth mentioning that during the same period, copper and cobaltparticipation fees received during the period reduced. Price participation

income of K79, 729 million was received during the year to June 2008, K25, 389million for the year to June 2009, whilst none was received in the year endingMarch 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 themost 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 increasedfunding towards the project resulting in grant income funding increasing by



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119% over the period, with a corresponding increase of 22% in Environmentalexpenses for the same period. It should be noted that there was delayed

funding on the CEP that adversely affected project implementation and led tomost projects running behind schedule and hence were still incomplete by theend of March 2011.

The performance of the company is shown in detail in Appendices II & III below.

As an investments holdings company, ZCCM-IH Plc’s prime objective is that ofincreasing the value of its shareholders. On the basis of the Performance

Reviews discussed above, the performance of the company over the years canbe 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. Low cash returns on investments,ii. Legacy liabilities:

a. Historical environmental liabilities,b. ZCCM Trust Fund Obligations,c. Numerous historical litigation cases,

d. Conveyancing of ZCCM Ltd propertiese. 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 ZCCM-

IH. This was reflected by the losses incurred by most of the companies during

that period and the lack of dividend declarations as the companies’ liquiditysituation tightened. Despite the foregoing, the consolidated shareholders’ value

in respect of ZCCM-IH holdings rose by 127% from K404 035 million as at 30 June2008 to ZMK917 117 million as at 30 June 2010. The shareholders’ equity growthwas largely driven by a few companies which included KMP, KCM, Equinox

Minerals Limited and CEC. The growth in the mentioned companies was itselfdriven 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 sumscompared to their historical declarations. The low returns in this regard reflectedZCCM-IH’s 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 thatwould enable ZCCM-IH realize value and gains through trading of shares.



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3.1.2 Legacy liabilities

3.1.2.1 Historical environmental liabilities

Mining operations have, over the past 100 years, caused a major disturbance tothe natural environment. As a result of the mining sector’s poor economic

performance throughout the 1980s and 1990s, environmental issues were notadequately addressed and became more acute.

In an effort to manage the accumulated environmental liabilities, theGovernment of Republic of Zambia (GRZ) obtained the support of the World

Bank and the Nordic Development Fund (NDF) and established the CEP toaddress 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 addressinghistorical 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 beattended 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 tothe newly privatised companies had their accrued benefits (ZCCM Service) heldin 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 themode of exit of affected employees. During the period 2007 to 2011, ZCCM-IHhas 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



23

prosecution of the cases by the plaintiffs. ZCCM-IH has put in place an ongoingcourt 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 paidout in damages. Almost all the cases are civil claims which generally take awhile 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 toprivatisation, the protracted process and difficulties connected with conveying

houses to purchasers, has had the effect of eroding the public’s confidence in

the effectiveness of the processes ZCCM-IH has put in place to complete thesaid program.

3.1.2.4 Conveyancing of ZCCM Ltd properties

At the time of privatisation, it was decided that the assets of ZCCM beunbundled 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 paymentsdue to each employee, the company would sell its approximately 46,002 houses

to its employee’s and deduct the purchase price from their terminal benefits.

Unlike the case of the common conveyancing transactions, the scenario withthe sale of ZCCM houses is different from other common transactions.

Firstly, most of the houses did not have individual certificates of Title and sat onone 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. Asat 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 fromthe surveyors.

As at December 2011, ZCCM-IH had lodged a total of 23,760 assignments andreceived 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 someinstances the houses have changed more than once. However, due to the taxwaiver 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



24

number of properties. It is planned to consider revising the policy on the sale ofhouses. 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 WorldBank and other cooperating partners to fund the privatisation process. Theseloans were transferred to ZCCM-IH Plc by GRZ. There are also some other

transactions between the Company and GRZ which have been booked as debtowed to GRZ. These amounts are denominated in foreign currency and over the

years, the company has suffered astronomical foreign exchange losses arisingfrom 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 Limited’s performance during the period2007 to 2010 has not been impressive. The company reported a loss of US$100million 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 suspendedthroughout 2009 as depressed nickel prices and an inability to ramp-up

production resulted in the Munali Nickel Project being placed on care andmaintenance in March 2009. It is important to note that the companycommenced production in mid 2008.1

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.



25

Figure 1: Performance of Albidon – 2007 to 2010

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 operatingcosts in its financials.

3.2.2. Copperbelt Energy Corporation Plc

As can be seen in figure 2 below, CEC’s profitability in the period under reviewhad been rising steadily despite the impact that the global financial crisis hadon 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 CEC’scustomers were forced to place their companies under care and maintenance

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26

thus reducing its sales to the mines and thereby impacting negatively onrevenues.

The above situation also partly impacted negatively on dividend paymentswhich reduced from US$20 million in 2007 to US$10 million in 2010.

Figure 2: Performance of CEC – 2007 to 2010

The credit crunch that negatively affected the mining companies in 2008 and2009 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 thendropped to 3,339GWh in 2009 before rising again to 3,640GWh in 2010 (seefigure 3 below).

Figure 3: CEC Energy Sales (GWh) – 2007 to 2010

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27

3.2.3. Chambishi Metals Plc (CMP)

CMP’s financial performance has not been good in the period under reviewmainly because of the impact that the credit crunch had on commodity prices

between 2008 and 2009 (see figure 4 below). Copper and cobalt pricesslumped 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 lowproductivity that is depicted in figure 5 below.

Figure 4: CMP’s Financial Performance – 2007 to 2010

Figure 5: CMP’s Production Performance – 2007 to 2010

3,000

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28

3.2.4. Chibuluma Mines Plc

Chibuluma Mines Plc’s financial performance in the period under reviewfluctuated as shown in figure 6 below with total sales increasing from US$76.1million 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

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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

3.2.5. CNMC Luanshya Copper Mines Plc (LCM)

CNMC Luanshya Copper Mines Plc’s (LCM) financial performance has not been

good in the period under review mainly because of the impact that the creditcrunch 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: LCM’s Financial Performance 2007-20103

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

practice in the prior periods.

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30

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 whennew majority shareholders took over the operations at the mine.

Figure 9: LCM Production for 2007 to 2010

3.2.6. NFC Africa Mining Plc

NFC Africa Mining Plc’s financial performance has not been consistent in theperiod 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, theshareholders’ equity dropped to negative US$137.4 million by the end of 2010.Except for 2007, the rest of the years’ figures were unaudited.

3Thepreliminary(unaudited)figuresobtainedfromCNMCLuanshyadidnotincludetheotherinformationmissing

on2009.

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31

Figure 10: NFC Africa Mining Plc’s Financial Performance 2007-2010

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 11below. 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 in2010 though there was a loss of US$183 million in 2008.

Figure 11: Financial Performance of Equinox Minerals Ltd

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 isimportant to note that production at Lumwana mine which was the only asset in

Ͳ

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production for Equinox during the review period only commenced on 1st April2009.

Figure 12: Production Performance of Equinox Minerals Ltd

3.2.8. Kansanshi Mining Plc (KMP)

Total sales for KMP showed a steady growth in the period under reviewincreasing 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 2007to US$281 million in 2009.

The company paid a dividend of US$120.5 million in 20094.

Figure 13: Financial Performance of KMP

4 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 yearamounting to US$13 million. The directors also approved a special dividend amounting to US$92.5 million relating toprofits 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 production performance was satisfactory in the period under reviewas 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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34

3.2.9. Konkola Copper Mines Plc

KCM’s 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 toUS$775 million in 2009 before rising again to US$1.1 billion in 2010 (see figure 15below). 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

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

3.2.11. Mopani Copper Mines Plc

MCM Plc’s 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: MCM’s Financial Performance -2007 to 2010

Mopani reported improvements in its copper production as shown in figure 18

below.

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Figure 18: MCM Production Performance – 2007 to 20105

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 billionresulting in losses in the respective years. However, for 2009 and 2010 the

situation changed and the total sales were higher than the total operating costsresulting in profits of ZMK10.9 billion and ZMK3.8 billion in the two periods (seefigure 19 below).

With the exception of the 2010 financial year, NLC has reported negativeshareholders’ equity of ZMK18.9 billion, ZMK32.5 billion and ZMK21.6 billion for the2007, 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

5The2007productionfigurewasnotavailableintheannualreports.

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37

As can be seen from the review above, apart from the CEC, Kansanshi MiningPlc and KCM which were profitable companies, the rest of the companies in the

portfolio were either loss making or exhibited weak profitability. Further, apartfrom CEC that exhibited a consistent dividend payment record the rest of the

companies in the portfolio were either not paying dividends or exhibited erraticand unreliable dividend payment patterns.

This situation depicts a generally poorly performing investment portfolio withpoor returns on investment. The performance of 42% of the investee companieswas 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 miningindustry such as gemstone mining, manufacturing and supply chain. The

opportunity to restructure the company’s balance sheet was also not takenadvantage of. The high level of copper investments in the portfolio impactedadversely on the company’s 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.

(40,000)

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38

4.0 THE STRATEGIC PLAN

4.1. STRATEGY OVERVIEW

4.1.1. Global Economic Outlook

International Monetary Fund January 2012 predictions of the global economyindicated 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 theEuro 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 euroarea 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 expectedthat 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 globaleconomy 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 robustdemand for copper is expected from India and other developing countries inthe long term as they develop infrastructure and capacity as urbanization

increases.

4.1.2. Zambian Economic Outlook

The Zambian Government’s Sixth National Development Plan (SNDP) which runs

from 2011 to 2015 aims to accelerate infrastructure development, economicgrowth and diversification, rural investment and poverty reduction and enhancehuman 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



39

sector’s contribution to GDP will rise to at least 20 percent from the current 9.1per cent. This will entail the mining sector focusing on increasing exploration

projects, increasing production and engaging in sustainable production andmanagement of mineral resources. The mineral resources of Zambia arepredicted on Appendix V.

For 2012, the Government has set macroeconomic targets of achieving realGDP 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 tobecome 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 company’s Vision and Mission, the favourablemacroeconomic environment, the bright prospects for the Zambian economyand the Strategic Tenets of the ZCCM-IH strategy described above, the

company’s 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 increaseshareholder 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 country’s copper mining assets.Copper will remain an important product for many years to come, both locallyand internationally.

The strategic goals under this area include the following:

i. Maintain investment in the existing copper mining assets;ii. Obtain value from Konkola Copper Minesiii. Invest in Konnoco;



40

iv. Invest in other copper assets;v. Cause Investee Company Boards to address the dividend concerns

raised;vi. Increase Zambian ownership and management of the mining assets;vii. 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. Kansanshi Mining Plc;

ii. Konkola Copper Mines Plc;

iii. Mopani Copper Mines Plc;iv. CNM Luanshya Copper Mines Plc;v. Chibuluma Mines Plc;vi. NFC Africa Mining Plc

vii. Chambishi Metals Plc.

The strategic activities for each of these companies are now discussed below indetail.

4.2.1.1.1.1. Kansanshi Mining Plc

KMP is held 80% by First Quantum and 20% by ZCCM-IH. First Quantum MineralsLtd is a Vancouver, British Columbia based mining and metals company whoseprincipal activities include mineral exploration, development and mining. FirstQuantum's common shares are listed for trading on the Toronto Stock Exchange

in Canada (symbol "FM"), and the London Stock Exchange (symbol "FQM") in theUnited Kingdom.

KMP has adopted a growth and diversification strategy and it has plans to investat 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 first16-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 aresult of the open pit mine formation, primary exploitation, and valuable mineralby products. The company whilst primarily operating for the purpose of mining

and production of copper and gold has pushed for greater exploration activity



41

under its strategy, spurred by study revelations of higher ore grades andadditional resources. The aforementioned revelations showed an increase of 50

percent in the contained copper and 18 percent in the measured andindicated resources that could support a mine life of approximately 13 years ata 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 Company’s 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 secondstrategic 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 madethen.

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 non-ferrous metals company in India and has mining operations in Australia andZambia. 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) andPunjab (1,980 MW). It is listed on the London Stock Exchange and is a constituentof the FTSE 100 Index.

KCM has adopted an expansion strategy by way of the Konkola Deep MiningProject (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 annumby 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 depthof 1,490 metres, making it the deepest new shaft sinking project in Africa. Theproject is to extend the mine life by 25 years and enable per unit cost reduction

through expanded output at the country’s largest and highest per unit costoperation; 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 theChingola Smelter, expansion of the Nkana refinery, and other works estimated tocost US $700 million in total. All projects are in the main financed from internalresources 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 atDecember 2010, total liabilities stood at US$1.01 billion against pre-externalfinance quarterly cash flow of US$8 million.



42

Despite the absence of projected cashflows and production schedules, it isexpected from the above scenario that, capital gains rather than dividend

payments are to be realized over the strategic period. Efforts to try and listKonkola Resources have unlocked resources to ZCCM-IH of US$130 million in lieuof future price participation provisions. Unfavorable economic conditions

caused the intended listing to be called off twice in December 2010 and June2011. The listing has now been postponed indefinitely.

KCM’s dividend policy states that the shareholders will procure that the fullamount 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 thetaxation 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 millionand will also seek to favorably influence dividend declarations. Should thematter of listing get resuscitated, the decision will be considered at that timedictated 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 QuantumMinerals Ltd) and 10% by ZCCM-IH.

MCM has embarked upon an expansion strategy, through the development ofthe Synclinorium Shaft, as a result of a very limited life of mine estimate of notmore 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 beenrevised to US$240 million, and other major funding requirements including theSmelter 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.



43

To ensure long term mine production at Nkana, MCM plans to undertake thedevelopment 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 ongoingdevelopment 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 andopportunity to extend the life of Mufulira mine up to 1540 m level with mineralresources 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 enableassessment of dividend payment and/or capital gains.

MCM’s dividend policy states that the shareholders will procure that the fullamount of MCM profits arising or accumulated from the business of MCM in

each year of operation shall be distributed to the shareholders, after:


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 tomaintain 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, Mongoliaand 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 waseffected, with GRZ facilitating the transaction. Operations are yet to

commence, and were expected to commence in December 2010.



44

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 KongStock Exchange and the Lusaka Stock Exchange. Thereafter, it will be importantto 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 throughacquiring, 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 asand when they are discovered. To ensure continuity of operations, the companyrecently obtained a loan of US $36 million to undertake investment in plant andmachinery 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 onshareholder 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-IH’s portfolio. Nevertheless the

company has, due to the relatively high copper grade deposit and low miningcosts 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 highcorrelation between prices and profitability, as result of the open pit high gradenature 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 Planningperiod 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 whichprovide 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. TonglingNonferrous Metals Group Holdings Company Limited is a state-owned enterpriseinvolved in extracting copper resources and smelting copper and other non-



45

ferrous metals. It was founded in 1949 in Tongling, Anhui, China and it was putinto production in 1952. It is one of the largest copper smelting companies in the

country. The subsidiary and listed company of Tongling Nonferrous Metals GroupHoldings Company Limited, Tongling Nonferrous Metals Group CompanyLimited, 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 enableeconomies of scale and financial viability of the company. To this end, the

expansion projects at Chambishi West and Southeast are critical. Whilst theprojected cashflows are yet to be obtained, it is apparent that the projectsrequire 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 determinedthat within the West Body, there is a total sum of proved plus inferred resourcesof 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 upgradingand 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 containedcopper.

The ZCCM-IH strategy for NFC Africa Mining during the Strategic Planning periodwill be to hold and encourage listing of the entire shareholding on both theHong Kong Stock Exchange and the Lusaka Stock Exchange. Thereafter, it will

be important to seek the establishment of a dividend policy which ensuresconsistency 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 ofprojects to ensure a sustainable future as regards its operations. These include:

1. Ferromanganese production,2. Copper SX and EW upgrade,

3. Copper/Cobalt recovery from the plant residue, and,4. Alternative processing route for the slag dump.

Given the unlikely return to profitability by the company in the short term, thefinancing of the projects will have to be undertaken through shareholder loans

as well as external finance.



46

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 LusakaStock Exchange. The company is undertaking a number of projects which are

bound to raise the capital value of the shareholding once completed. Being anon-mining entity but more of a manufacturing entity, the crossover automatically impacts positively on ZCCM-IH’s diversification programme.

Thereafter, it will be important to establish a dividend policy which ensuresconsistency 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 AfricanRainbow Minerals (ARM), 40% by Vale and 20% by ZCCM-IH. ARM has interests ina 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 inMpumalanga. ARM owns Harmony Gold, a gold mining firm with three miningoperations in South Africa. Vale is a Brazilian diversified mining multinational

corporation and one of the largest logistics operators in Brazil. In addition tobeing 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 andaluminium. In the electric energy sector, the company participates in consortia

and currently operates nine hydroelectric plants as well as a coal miningoperation in Mozambique. Currently the company is listed on the stock

exchanges of São 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 debtfinancing 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 toensure funds for the equity and debt contributions are available such that theproject completion is undertaken within the set timeframes. Considerations for

listing are encompassed within the transaction documents.



47

4.2.1.1.1.9. Invest in other Copper Assets

ZCCM-IH intends to increase its investments in the copper mining sector throughowning 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. Establishing the possibility of a joint venture partnership in the project witha view of starting a mine within the period of the strategic plan;

b. Review Bankable Feasibility Study report;

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 theoperations of the mine will be sought.

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 carrythe following format:


directors; and

the making of such transfers to reserves and provisions as in the opinionof 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 thetaxation liabilities.

The effect of these dividend policies has been that:

a) The dividend declarations, from both a timing and cash amountperspective, have been uncertain since they are dependent on (i)

meeting working capital requirements, (ii) transfers to reserves andprovision, (iii) meeting obligations to third party financiers and (iv)

minimizing taxation liabilities;

b) Dividend considerations would be on the priority list and therefore, for allpractical intents and purposes, is not a priority for most of thesecompanies (Mopani Copper Mines is a very good example).



48

It should be understood that for ZCCM-IH, dividends are a significant revenuestream. This being the case, uncertainties surrounding this revenue stream, as

has been the case over the period 2001 to date, has significant adverseimplications (including ability to raise funds for investment) on ZCCM-IH. During2012-2016 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 Zambiancitizens 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 manyZambians to participate in the mining sector through share ownership.

Apart from MCL whose Sale and Purchase Agreement provides in Clause 13 tooffer 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 andPurchase Agreements do not have such provisions. This being the case andgiven the importance of achieving such listings, ZCCM-IH will engage the

majority shareholders of investee companies and the Government of theRepublic of Zambia to motivate these listings.

ZCCM-IH will work with all its investee companies towards promotion of Zambianparticipation 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, asnew projects are developed, Shareholder Agreements will be designed in a

manner that will compel listing and selling off some shares to the ZambianPublic.

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 regardingthe accuracy of information on the operations of mining companies and

therefore the benefits that should have accrued over the years to the Zambianeconomy and to ZCCM-IH. During 2009, Zambia Revenue Authority (ZRA)

commissioned an international team of experts comprising Grant Thornton andEcon Poyry to conduct a review of MCM.

The findings raised concerns regarding accuracy and consistency of productionfigures, sharp increase in labour costs, fuel costs, mining costs, insurance costs,security and safety costs, spares and administration costs, reliability of data sets,



49

treatment of freight charges between Glencore and MCM, agreementsregarding revenue as well as derivative transactions.

The only way that concerns such as these on the part of ZCCM-IH’s investeecompanies 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 bepursued to increase the benefits of obtaining value from the companies abovethe 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, whichZCCM-IH should diversify into. Appendix V shows the distribution of mineraldeposits 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 Zambia’s gemstone sector has been

acknowledged but not fully exploited. It is strongly felt that the activities of thegemstone sector have not contributed adequately to the nation’s GDP. Thesector 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 exploitthe resources successfully.

The Government of the Republic of Zambia has been involved in the gemstonesector through its shareholding in Kariba Minerals Limited (KML) and KagemZambia 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-IH’s efforts to diversify into other minerals will be further facilitated byexploration efforts in other minerals such as diamonds, aquamarine, gold, silver

and rare earths. Exploration work is required to delineate these resourcesthrough aerial geophysical surveys, geochemical surveys, drilling, etc. 58% ofZambia 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



50

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 followingdiversification strategic goals:

i. Invest in Kariba Minerals Limited;

ii. Invest in other gemstone assets;iii. Invest in Small Scale Mining Operations;iv. Invest in Ndola Lapidary Gemstone Processing and Lapidary Training

Centrev. Invest in exploration activities

vi. 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 Mineoperated by KML.

ZCCM-IH will carry out a further review of the amethyst reserves and resources ofthe Mapatizya amethyst mine and also embark on exploration diamond drilling

that will help ascertain the extent of the Amethyst reserves and resources in thefirst 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 engagingskilled 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 beinvolved in the operations designs to ensure that productivity is matched withthe 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 colouredgemstone assets which are at different stages of progression in which to invest.ZCCM-IH will explore the possibility of investing in other coloured gemstoneassets.

The activities to be undertaken for each possible investment will be as follows:



51

a. Establishing the possibility of a joint venture partnership;


c. Engage independent technical consultants to carry out the MineralReserves/Resources audit, mining and mine plan scheduling andmetallurgical tests to audit the Bankable Feasibility Study Report;

d. In the event of positive investment results, a controlling stake in theoperations of the mine will be sought.

4.2.1.2.3 Invest in Small Scale Mining Operations

ZCCM-IH is reviewing the Small Scale Mining Sector. This review will result in theprofiling 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 operationscapitalization, shareholding and such other involvement as will be necessary to

deliver the intended results. A highlight of the key activities is shown in schedule2 below:

Schedule 2

Small Scale Mining Sector

S/N Activities

Implementation

Timeframe Investment Deliverable

1

Profile Small Scale

Miners April 2012 Profiling Report

2

Establish ZCCM-IH

Venture CapitalistFramework March 2012 US$10m

Approved VCFramework

3Set-Up US$10m VentureCapitalist Fund June 2012

US$10millionfund set-up

4 Launch the initiative July 2012Partnershipsinitiated

ZCCM-IH will continue to engage the small scale gemstone mines within the

Restricted Emerald Area and other areas hosting gemstone mining in order tooffer financial support aimed at improving the productivity of these mines. Duediligence examinations of the selected mines will be conducted andappropriate 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 andbalances and also to ascertain the appropriate use of the shareholder loans.



52

In order to promote small scale mining to formal approaches, ZCCM-IH will setaside 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 thelimitations with small scale mines tends to be the lack of equipment to enableeconomic 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 advancedand the valuation of the company. It is recommended that the equity injectionbe 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 beadvanced 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 toservice other potential interests.

ZCCM-IH will seek board representation in order to impart business, financial andtechnical 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 expandedTechnical Department, it is expected that the Company will second qualified

mining personnel to ensure that appropriate mining methodologies are beingapplied as well as provide training on that basis. Given the likelihood of the smalloperations, 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 smallscale 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 toprovide critical skills to an industry that has great potential to contribute to

economic development of the country by improving the efficiency of smallscale 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 undertakenoutside 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 sustainablesocial economic development by 2030” and the goal is “to raise the sector’scontribution to GDP to at least 20 percent”.



53

During the SNDP period, the mining sector will focus on increasing explorationprojects, sustainable production and management of mineral resources and

increase productivity so as to maximize economic benefits from the sector. Itcan be seen from this that exploration works are an important component inraising 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 theapproach 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 inorder 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 hascommenced the process of attracting financial and technical joint venture

partners. ZCCM-IH estimates that the intended exploration activities for theseven 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 participantin the exploration activities. The Company will seek to hold a maximum of 35%shareholding in each of the Joint Ventures.

Schedule3: ZCCM-IH Licences

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 thepoor results obtained from the exploration activities, ZCCM-IH intends tosurrender 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.

1 13860-HQ-LPL Mulilansolo, Isoka/Chinsali Diamond 336 18-Oct-122 13863-HQ-LPL Chisomo, Serenje Gold, Coal and Copper 328 22-Jun-12

3 13865-HQ-LPL Luswa, Chama Base Metals, Gold and Silver 187 20-Apr-12

4 13855-HQ-LPL Nachikulu, Chinsali Diamond, Base Metals and Rare Earth Metals 748 22-Jun-12

5 13856-HQ-LPL Bwinjimfumu, Chinsali/ Mpika Diamond, Base Metals and Rare Earth Metals 793 22-Jun-12

6 13857-HQ-LPL Shiwangandu, Chinsali Diamonds and Base Metals 817 20-Apr-12

7 8251-HQ-LPL Kafubu Emerald Project Emerald, Quartz & Aquamarine 95 26-Apr-12

8 13871-HQ-LPL Kabwe Kapiri Mposhi , Kapiri Mposhi Base Metals & Rare Earth Elements 186 5-Aug-13



54

The target generation exploration of surface and subsurface limestone bodieswill continue. Once the limestone suitability for lime or cement has been

established, intensive exploration, including diamond drilling, to establish theextent and tonnage of the deposit will be carried out. The geological modelingof the limestone will be done as well. Depending on the result of the geological

model, preparation of mining plans and schedules and beneficiation plantsmay 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

S/N Activities

Implementation

Timeframe Investment Deliverable

1 Preliminary Explorations March 2012Quantitative/Qualitative Report

2 Meetings with CNBM February 2012Report onMeeting

3

Conduct physical and

chemical analysis todetermine suitability for

production of cement,lime and buildingaggregates

June 2012Report indicatingprospectiveproducts

4Detailed BankableFeasibility

June 2015BankableFeasibility

The search for other minerals will continue alongside the advanced limestoneexploration. There is a high possibility of starting a lime and/or cementmanufacturing 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 strategicpartnerships. 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 thepossibility of investing in other mineral assets.


a. Establishing the possibility of a joint venture partnership;




55

c. Engage independent technical consultants to carry out the MineralReserves/Resources audit, mining and mine plan scheduling andmetallurgical 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. Hold mineral rights on behalf of the government

ii. Investment in a new Minerals Production and Marketing Monitoring Model.

iii. Carry out exploration works for Oil & Gas;iv. 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 toobtain maximum benefit from its rich mineral resources (the extraction of theresources), a focal entity is required to manage these resources.

The strategic activities to be undertaken are:

i. Design a framework of how the mining rights will be managedii. Engage the government to transfer the management of the mining rights.

4.2.1.3.2 Investment in a new Mineral Production and Marketing Monitoring

Model

During the times of ZCCM, functions of metal marketing were carried out by a

company called Metal Marketing Corporation (MEMACO). Following theprivatisation of ZCCM, the operations of MEMACO were wound up. The newmining companies established their own metal marketing arrangements.

Currently there is no reliable monitoring mechanism that would assure completeand reliable data regarding the quantities, quality, value, etc of the minerals

that are exported from the country. This being the case, it cannot be confirmedthat 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.



56

These concerns were heightened by the pilot audit on Mopani Copper MinesPlc.

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 currencyhas not filtered through in full.

Within the bigger context of metal marketing, there is a component of smallscale 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 areusually 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 modelthat 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

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 ofspecialist consultants in Oil and Gas exploration to carry out the initialexploration works while ZCCM-IH is seeking Technical and Financial Partners. This

exploration requires a lot of time and resources to bring the project toidentification of a “lead” (a structure which may contain hydrocarbons).

Most of these geological activities will be done by oil and gas explorationexperts 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.

Licence # Block No. Location Size (Km2)

PEL012 1 Chavuma Dist rict , North-Western Province 685

PEL013 4 Chavuma/Zambezi Dist ricts, North-Western Province 1337

PEL014 6 Zambezi/Kapombo Districts, North-Western Province 969

PEL015 10 Zambezi Dist rict , North-Western Province 868



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The Zambian economy requires significant investments to be made in theenergy 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 companyresource 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 tohold 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 throughstrategic partnerships. ZCCM-IH will be looking out for other energy assets whichare at different stages of progression in which to invest. ZCCM-IH will explore the

possibility of investing in other energy assets.


i. Establishing the possibility of a joint venture partnership;

ii. Review Bankable Feasibility Study report;iii. Engage independent technical consultants to carry out the Resources

audit and development scheduling to audit the Bankable Feasibility StudyReport;

iv. In the event of positive investment results, a controlling stake in the

operations of the asset will be sought.

4.2.1.4 Strategic Focus Area 4: Investing in Mining Related Manufacturing

The manufacturing sector is a pivot of economic development through itsbackward and forward linkages to economic growth, exports and employment

creation. It provides a market for primary products and sets the basis for exportswith employment generation capacity. The sector’s contribution to GDP during

the review period averaged 10.2 percent against the target of 15 percent whileits annual growth averaged 3.3 percent against the projected growth of 7.5percent.



58

In the SNDP period, the strategic focus of the sector will be to strengthen andwiden the country’s manufacturing base with emphasis on backward and

forward linkages given the country’s wide resource base. This will requireintensifying the development of the resource-based industries, with the aim ofoptimizing and adding value to the country’s natural resources. Emphasis will

thus be placed on enhancing competitiveness of manufacturing throughinfrastructure 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 isrecommended that ZCCM-IH Plc focuses on investing a maximum of 20% of the

allowable threshold in this sector during the strategic plan period, fundsallowing. 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 sub-

sectors 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 thatZCCM-IH seeks to consolidate, explore and exploit.

The Strategic Goals in this area include the following:

i) Enhance shareholder value of Ndola Lime Company Limited and liston LuSE;

ii) Production of Cement;iii) Production of copper wires, tubes and rods, steel production;iv) 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 arevolving 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 suchthat 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 ofCOMESA and SADC.



59

It will be critical that the partners have both technical and financial capacity todrive the projects while ZCCM-IH will focus on facilitating the projects on the

basis of identifying all the requisite incentives available within the statutoryframeworks.

In this regard, the Company shall identify opportunities in manufacturing that willadd value to its business and thereafter, will either as an individual or through

successful partnership, set up processing plants and engage in processing of theproducts.

Where there is need, technical studies will be commissioned such that there isprofessional 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 productionwith its competition being imports mainly from cost effective manufacturingplants 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 increasedproduction 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 tothe present average operating profit margin of 27%, and, will enable relativelylower 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 project’s financial return attributes are estimated under sensitivity analysis asfollows:

Item

Vertical Kiln 480

tonnes per day

Vertical Kiln 450

tonnes per day

Vertical Kiln 420

tonnes per day

NPV (US $million) 57 34 21

IRR (%) 26.5 22 18

ROI (%) 177 146 129

Pay back(years) 6 7 8



60

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 company’s dividend policy is being refined to foster dividend predictability

and consistency.

During 2011 and prior to the proposed listing of NLC, ZCCM-IH will provideshareholder loans of up to US$26 million to partly finance completion of thecapital 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 willrealise 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 thecompany 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 themonopoly supplier of lime products to Zambia and the neighbouring region.

The company’s projected operating outlook, projected financial positions and

projected cash outlook during the period 2012-2016 are shown in Appendix VI toVIII 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 throughNdola Lime Company Limited or ZCCM-IH with China National BuildingsMaterials 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 SteelProduction

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 corrosionresistance roofing sheets.



61

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 ofestablishing manufacturing concerns to meet the majority of the mining sectors’

requirements. Equity investments in existing concerns will also be undertaken inorder 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 effectiveproduction 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 andother value creation activities. The SPVs will be established on the basis of

commercially driven objectives such that they provide a return to providefunding 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 selfsustaining projects.

4.2.1.4.6. Treasury management

Efforts will be made to ensure that the available funds are invested in theplanned 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.



62

4.2.1.5 Strategic Focus Area 5: Reducing the Legacy Liabilities

The legacy liabilities, as was discussed earlier are historical environmentalliabilities, ZCCM Trust Fund obligations, historical litigation cases, disposal ofproperties 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 beimplemented through:

Resolving legacy liabilities

The following Strategic Goals will be pursued:

i) Improve the Balance sheet,ii) Extinguish the environmental liabilities,

iii) Finance the ZCCM-IH Trust Fund,

iv) Extinguish legacy litigations,v) 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 ontoZCCM 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 mainlyarising from the CEP payments.

Since the debt is denominated in US Dollars, this has caused the company tosuffer astronomical foreign exchange losses impacting negatively on theBalance sheet of the company.

The strategic activity will be to convert the debt owed to GRZ to equity througha rights issue to all shareholders.

4.2.1.5.2. Extinguish Environmental Liabilities

The number of environmental projects that need to be implemented over thenext 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 obligationswith 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$ 0.6million for Staff Expenses.

The following strategic activities will be undertaken:



63

1. Handover of Integrated Case Management Programme (ICM) to theMinistry of Health.

2. Sale or close Tailings Dams (TD) 8, and 10 and Overburden (OB) 54.3. Construct bundwall around Nchanga OBs and open pits under the

Defunct Areas Option Agreement.

4. Handover the Radiation Waste Storage Shed to Radiation ProtectionAuthority.

4.2.1.5.3. ZCCM Trust Fund

The Trust fund is expected to exist till around 2030 to 2034 when the last payoutsare 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 Planabout 21, 000 Certificates of Title had been issued by the Ministry of Lands. Theremaining 25, 000 are at various stages of completion. The new mining

companies and the recipients of social assets are expected to resolve thetransfer 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 Ltdemployees 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 Strategic Focus Area 6: Reposition the Company

4.2.1.6.1. Realign the organisational structures

Successful implementation of the Strategic Plan will require:

a) A review and realignment of the ZCCM-IH organizational Structure;



64

b) Availability of requisite Skills;c) Rebranding

4.2.1.6.2. New Organizational Structure

The current ZCCM-IH organizational structure comprises the followingdepartments:

i. Investments Department;

ii. Finance Department;iii. Technical Department;iv. Environment Department;

v. Company Secretarial Department;

vi. Legal Department;vii. Human Resources and Administration;

viii. 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 firstand foremost to ensure availability of structural capacity to handle increasedexploration 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 toachieve this.

4.2.1.6.3. Staffing

The Strategic Focus Areas, Strategic Goals and Strategic Activities identified willrequire a review of the current skills set to ensure that necessary skills areavailable in all the functions of the organization.

The company is expecting to incur additional staff expenses in form of salarieswith major recruitments in the technical department, investments department,finance department and the Executive Chairman’s 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 anactive participant in the mining sector through the diversification of the

company portfolio into operating own mines, actively supporting the smallmining and the gemstone sector.

The strategic activity will be to launch the Company as such.



65

4.3 Implementation and Monitoring of the Strategic Plan

The Strategic Focus Areas, Strategic Goals and Strategic Activities discussedabove 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 thatwill formulate their Departmental Action Plans which will include their

departmental objectives and the mitigating strategies to risks identified. Thedepartmental activities will be cascaded to the staff and confirmed in their staffappraisals.

Monthly departmental meetings will be held to review departmental actionplans and monthly meetings for Risk and internal Audit Coordinators will also be

held to report on the departmental action plans that will feed into theCompany 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 periodand will be flexible enough to incorporate new activities.

4.4 Business Plan

4.4.1. Key Assumptions

CATEGORY ASSUMPTIONS Macro Economic Ǧ Single digit Inflation throughout the

planning period

Ǧ GDP growth is expected to rangebetween 6 to 9% year on year

Ǧ Base Rates during the period expected

to average 16.2%Ǧ Access to financing will be available

Ǧ Exchange rate assumed at ZMK5,000

to the US$

Global Economy Ǧ The global economic recovery is

expected to hold

Ǧ Global Economic Fundamentals willremain stable to bullish

Ǧ Copper Prices and other metal priceswill remain stable

ZCCM-IH Plc Ǧ Dividend Policy Refined

Ǧ Balance sheet is restructured

Ǧ Strategic Plan is implemented



66

4.4.2. Projected Performance

The company is projected to post K2, 392, 630 million profit after tax over thestrategic planning period. A total income of K4, 028, 037 million is expected tobe earned, while K447, 202 million will be spent on operating expenses, K287,

323 million on Administrative expenses and K119, 660 million on resolving legacyliabilities.

The proposed rights issue of shares to the shareholders which will convert GRZdebt 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 millionby 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 discussedbelow.

4.4.2.1. Investing Activities

K3, 269, 210 million will be spent on investing activities. K709, 216 million will beequity contributions to new investments and will require additional funding to

develop the mines. K555, 835 million will be advanced to the new investmentsincluding 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 partlicences will require K349, 313 million. In house development costs will requireK244, 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, 682million) in 2011-2012.

iii. 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%



67

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 toMCL 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 themine development. The funds will be submitted to MCL as equity

contributions in order to maintain the equity shareholding of ZCCM-IH at35%.

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 toK4, 028, 037 million. The largest income source is anticipated to be income from

disposal of shares in investee companies amounting to K1, 547, 190 millionaccounting 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 dividendincome 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 fromconsultancies rendered to the investee companies.



68

iv. Interest Income – Shareholder Loans

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

v. Income from Investment Disposal

ZCCM-IH earned a total of K2, 781, 200 million from disposal ofinvestments. 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 earnK801, 600 million (US$167.5 million) following the takeover of all its

investments in Equinox by Barrick Gold of Canada. The divesting of MCLshares 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 priceparticipation fee.

The detailed projected income is on Appendix IX.

4.4.2.3. Projected Costs

ZCCM-IH’s 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 totalof K349, 313 million will be spent on exploration activities, K79, 416 millionwill be spent on research and K15, 000 million on forensic audits in theinvestee 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 legacyliabilities. Environmental expenditure of K29, 219 million is anticipated over

the next five year period. Another K28, 644 million will be paid towardsliquidating the loan to the World Bank for the loan to CEP. Discharginglegal liabilities will require K32, 439 million while K7, 550 million will be spent

on discharging legacy liabilities related to properties. K21, 808 million willbe spent on the ZCCM-IH Trust Fund.



69

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 andother value adding services, the company is expected to receive

K434, 504 million as loan repayments, interest on shareholder loans andmanagement fees.

iii. Own Sources

The normal funding receipts include dividends of K333, 810 million andBank 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 ownsources. ZCCM-IH will seek financing from Stock Markets, Corporate Bond

Market, Project Financing provided by the banks and a combination ofother financing sources. It should be appreciated that loan financing ofany type is dependent on the borrower having adequate cash inflows

and security to support such debt. For ZCCM-IH, it becomes imperative toaddress the matter of uncertain dividend patterns as well as the

strengthening of the ZCCM-IH balance sheet to support any debtfinancing.

These external funding sources are expected to provide funds amounting

to K835, 000 million.



70

4.4.2.5. Financial Position

The forecast equity position is K5, 956, 369 million at the end of the StrategicPlanning period. This will be achieved by investments in new mines andresuscitating 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 asignificant 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 of2016.

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-IH’s focus on shareholder value creation was

being affected by its historical challenges. The historical factors also influencedthe structure of the company’s portfolio and therefore the portfolio returns. The

past 10 years has seen a much more invigorated and robust Zambian economywith many sectors of the economy providing many value creating investmentopportunities.

ZCCM-IH is repositioning itself to becoming Zambia’s leading investmentscompany focused on maximizing shareholder value. The company’s approachin the next five years will be focused on maximizing shareholder value andanchored on leveraging its already existing investments and coupled with

careful diversification into other sectors of the economy.



71

Appendix I6

ZCCM-IH Investee Companies

Serial

#

Investee Company Shareholding

%

Sector

1 Ndola Lime Company limited 100 Lime

2 Maamba Collieries Ltd 35 Coal

3 Konkola Copper Mines Plc 20.6 Copper

4 Kansanshi Copper Mines Plc 20 Copper

5 Copperbelt Energy Corporation Plc 20 Electricity

6 KONNOCO Zambia 20 Copper

7 CNMC Luanshya Copper Mines plc 20 Copper

8 NFC Africa Mining Plc 15 Copper

9 Chibuluma Mines Plc 15 Copper

10 Mopani Copper Mines Plc 10 Copper 11 Chambishi Metals Plc 10 Copper

12 Equinox Minerals Ltd(Lumwana Copper Mines) 2.3 Copper

13 Albidon Limited(Munali Nickel Project) 0.97 Nickel

6Asat31December2010s



72

APPENDIX II

ZCCM-IH PLC

COMPREHENSIVE INCOME STATEMENTS

FOR THE YEARS ENDING

2010

MARCH

2009

MARCH

2008

JUNE 2007 JUNE

Other Income 59,323 76,231 109,940

Grant Income 12,272 3,636 5,597

Administrative expenses (28,031) (216,808) (29,962)

Environmental expenses (23,293) (17,182) (17,444)

Operating profit/(Loss) 20,271 (154,123) 68,131 35,083

Net Financeincome/(Loss) 96,370 (409,731) (117,668) (54,864)

Profit and Loss Before

Income Tax 116,641 (563,854) (49,537) (19,781)

IncomeTax(Expense)/credit (33,682) (202,508) (35,768) 40,182

Profit and Loss for theyear 82,959 (766,362) (85,305) 20,401

Other comprehensiveincome, net of income

tax

FOR THE YEARS ENDING

2010

MARCH

2009

MARCH

2008

JUNE 2007 JUNE

Net changes in fair

value of available for sale financial assets 114,983 (85,746) (1,070) -

Realised property and

equipment reserve 26 26 26 -

Other comprehensiveincome, net of incometax 115,009 (85,720) (1,044) -

Total comprehensiveincome for the year 197,968 (852,082) (86,349) 20,401



73

Appendix III

ZCCM-IH PLC

FINANCIAL POSITION

AS AT

2010

MARCH

2009

MARCH

2008

JUNE 2007 JUNE

NON CURRENT ASSETS

Property plant andequipment 3,750 4,405 4,804 4,770

Intangible assets 178 165 80 106

Investments insubsidiaries 12 12 12 12

Investments in

Associates 374,512 347,512 347,512 347,512

Available for salefinancial assets 393,790 278,807 365,472 327,345

Deferred tax asset 187,918 177,417 - -

960,160 808,318 717,880 679,745

AS AT2010

MARCH2009

MARCH2008

JUNE 2007 JUNE

CURRENT ASSETS

Receivables and

prepayments 107,647 68,487 61,383 77,197

Investments in treasury

bills 5,333 500 500 25,418

Cash and cash

equivalents 6,950 2,055 1,175 18,395

119,930 71,042 63,058 121,010

TOTAL CURRENT ASSETS 1,080,090 879,360 780,938 800,755



74

EQUITY

2010

MARCH

2009

MARCH

2008

JUNE 2007 JUNE

Issued share capital 893 893 893 893

Retained earnings (1,455,989) (1,538,975) (1,177,655) (1,327,712)

Other reserves 215,766 100,810 186,582 187,675

Total deficit (1,239,330) (1,437,272) (990,780) (1,139,144)

NON CURRENTLIABILITIES

Borrowings 1,294,363 1,354,702 784,630 985,117

Subordinated loan 865,445 865,444 865,444 865,444

Deferred Tax Liability 42,870 393 42,166 8,440

Retirement benefitsobligations 5,938 6,499 739 181

Total Non Current

Liabilities 2,208,616 2,227,038 1,692,979 1,859,182

CURRENT LIABILITIES

AS AT

2010

MARCH

2009

MARCH

2008

JUNE 2001 JUNE

Payables and accrued

expenses 64,196 69,917 73,460 76,348

Current income tax 19,608 19,676 4,678 4,370

83,804 89,593 78,138 80,718

TOTAL LIABILITIES 2,292,420 2,316,631 1,771,117 1,939,900

TOTAL EQUITY AND

LIABILITIES 1,053,090 879,359 780,337 800,756



75

Appendix IV

Place,subject Type 2010 2011 2012 2013

WorldOutput GDP

change 5.2 3.8 3.3 3.9

AdvancedEconomies GDPchange 3.2 1.6 1.2 1.9

UnitedStates GDPchange 3 1.8 1.8 2.2

EuroArea GDPchange 1.9 1.6 Ͳ0.5 0.8

Germany GDPchange 3.6 3 0.3 1.5

France GDPchange 1.4 1.6 0.2 1

Italy GDPchange 1.5 0.4 Ͳ2.2 Ͳ0.6

Spain GDPchange Ͳ0.1 0.7 Ͳ1.7 Ͳ0.3

Japan GDPchange 4.4 Ͳ0.9 1.7 1.6

UnitedKingdom GDPchange 2.1 0.9 0.6 2

Canada GDPchange 3.2 2.3 1.7 2

OtherAdvanced

Economies GDPchange 5.8 3.3 2.6 3.4

NewlyIndustrialized

AsianEconomies GDP

change 8.4 4.2 3.3 4.1

Emergingand

DevelopingEconomies GDPchange 7.3 6.2 5.4 5.9

CentralandEastern

Europe GDPchange 4.5 5.1 1.1 2.4

Commonwealthof

IndependentStates GDPchange 4.6 4.5 3.7 3.8

Russia GDPchange 4 4.1 3.3 3.5

ExcludingRussia GDPchange 6 5.5 4.4 4.7

DevelopingAsia GDPchange 9.5 7.9 7.3 7.8

China GDPchange 10.4 9.2 8.2 8.8

India GDPchange 9.9 7.4 7 7.3

ASEANͲ5 GDPchange 6.9 4.8 5.2 5.6

Latin

America

and

the

Caribbean GDPchange 6.1 4.6 3.6 3.9

Brazil GDPchange 7.5 2.9 3 4

Mexico GDPchange 5.4 4.1 3.5 3.5

MiddleEastandNorth

Africa(MENA) GDPchange 4.3 3.1 3.2 3.6

SubͲSaharanAfrica GDPchange 5.3 4.9 5.5 5.3

SouthAfrica GDPchange 2.9 3.1 2.5 3.4

EuropeanUnion GDPchange 2 1.6 Ͳ0.1 1.2

WorldGrowthBasedon

MarketExchangeRates GDPchange 4.1 2.8 2.5 3.2

WorldTradeVolume

(goodsandservices) Trade 12.7 6.9 3.8 5.4

AdvancedEconomies Imports 11.5 4.8 2 3.9

Emergingand

DevelopingEconomies Imports 15 11.3 7.1 7.7

AdvancedEconomies Exports 12.2 5.5 2.4 4.7

Emergingand

DevelopingEconomies Exports 13.8 9 6.1 7

Oil CommodityPrices(U.S.dollars) 27.9 31.9 Ͳ4.9 Ͳ3.6

Nonfuel(averagebased

onworldcommodity

exportweights) CommodityPrices(U.S.dollars) 26.3 17.7 Ͳ14 Ͳ1.7

AdvancedEconomies Inflation 1.6 2.7 1.6 1.3

Emergingand

DevelopingEconomies Inflation 6.1 7.2 6.2 5.5

OnU.S.DollarDeposits LondonInterbankOfferedRate(percent) 0.5 0.5 0.9 0.9

OnEuroDeposits LondonInterbankOfferedRate(percent) 0.8 1.4 1.1 1.2

IMFWorldEconomicProjections



76

Appendix V

Mineral Resources of Zambia



77

APPENDIX VI

Ndola Lime Company LimitedForecast Income Statement

For the financial years ending

ZMK’ Million

YEAR 2012 2013 2014 2015 2016

TURNOVER 301, 755 429, 522 516, 834 590, 603 620, 877

TOTAL OPERATING

COSTS (237,733) (278,207) (289,258) (299,181) (316,588)

OPERATING

PROFIT/(LOSS) 64,022 151,315 227,576 291,422 304,289

TAXATION 19,207 52,960 79,652 101,998 106,501PROFIT AFTER TAX 44,815 98,355 147,925 189,424 197,788

DIVIDENDS 0 19,671 29,585 37,885 39,558



78

Appendix VII

Ndola Lime Company Limited Forecast Financial Position

For the year ending

ZMK’million2012 2013 2014 2015 2016

Fixed Assets

Net Fixed Assets 151,116 239,225 201,433 177,947 154,461

Deferred TaxAsset

403 403 403 403 403

151,519 239,628 201,836 178,350 154,864

Current Assets

Stocks 15,322 28,665 11,729 12,902 14,193

Debtors 114,372 49,305 59,766 61,260 62,791

Bank Balances 25,842 127,498 284,72 483,448 690,536Total Current

Assets

155,537 205,468 356,219 557,611 767,520

Current Liabilities

Short term Loans 21,092

Creditors 65,993 20,201 23,786 87,871 157,684

Net CurrentAssets 68,451 185,267 332,432 469,740 609,836

Net Assets 219,970 424,895 534,269 648,091 764,702

Financed By

Share Capital 4 4 4 4 4

Revaluation

Surplus

2,663 2,527 2,392 2,256 2,121

Long-termLiabilities

43,991 43,991 43,991 43,991 43,991

Long-term Loans 128,474 254,851 246,021 208,439 166,956

Retained Profit 44,837 123,520 241,860 393,399 551,630

TOTAL 219,970 424,895 534,269 648,091 764,702

Appendix VIII



79

Ndola Lime Company Limited

Projected Cash Flow Statement

For the financial years ending

ZMK’Million

YEAR 2012 2013 2014 2015 2016

TOTAL RECEIPTS 301,755 429,522 516,834 590,603 620,877

OPERATING CASHOUTFLOWS

(As per IncomeStatement Less

depreciation) 226,343 239,844 250,895 260,818 278,225

Other Operating Cash

Flows 5,400 6,000 0 0 0

Taxation 19,207 52,960 79,652 101,998 106,501

Loan Repayment

(Principal) 29,062 29,062 29,062 29,062 29,062

TOTAL CASH OUTFLOWS (280,012) (327,866) (359,609) (391,878) (413,788)

NET CASH SURPLUS 21,742 101,655 157,225 198,725 207,089

Appendix IX



80

ZCCM-IH Plc

Projected Income Statement

ZMK ‘Million

2012 2013 2014 2015 2016 Total

Dividends 45,000 138,810 50,000 50,000 50,000 333,810

Bank Interest 11,901 17,503 15755 21992 48275 115,426

Interest from other

shareholder loans 8,614 22,161 8,018 4,845 2308 45,946

Interest from NdolaLime loan 4,680 6,818 6,034 4,968 3,773 26,273

Management fees 9600 18,167 9,600 9,600 6400 53,367

Metal Price

participation fees 100,000 143,525 137,500 137,500 137,500 656,025

Investments Disposal 852,200 15,990 0 0 0 868,190

Maamba Listing

receipts 516,500 516,500Ndola Lime Listing 162,500 162,500

FQM Kansanshi

Investments transfer 0 1,250,000 1,250,000

TOTAL OPERATING

INCOME 1,031,995 362,974 1,476,907 391,405 764,756 4,028,037

OPERATING EXPENSES

Cost of Borrowings 823 826 680 608 536 3,473

Investment Expenses 5,000 59,416 5,000 5,000 5,000 79,416

Exploration Expenses 11,512 45,723 100,212 103,457 88,409 349,313

Forensic Audits -Investee companies 3,000 3,000 3,000 3,000 3,000 15,000

20,335 108,965 108,892 112,065 96,945 447,202

NET OPERATING

INCOME 1,011,660 254,009 1,368,015 279,340 667,811 3,580,835

ADMINISTRATIVE

EXPENSES 35,384 54,510 62,324 65,980 69,125 287,323

LEGACY EXPENSES

EnvironmentalExpenses 15,242 9,650 1,769 1,519 1,039 29,219

Interest payments on

CEP loan 7,161 0 7,161 7,161 7,161 28,644

Legal Expenses 16,139 10,000 3,000 3,000 300 32,439



81

Appendix IX

ZCCM-IH Plc

Projected Income Statement

ZMK ‘Million

2012 2013 2014 2015 2016 Total

Cadastral Surveys 4000 1000 1500 1000 50 7,550

ZCCM Trust Fund 2,400 4,852 4,852 4,852 4,852 21,808

44,942 25,502 18,282 17,532 13,402 119,660

PROFIT / (LOSS)

BEFORE TAX 931,334 173,997 1,287,409 195,828 585,284 3,173,852

TAX -3659 60,899 450,593 68,540 204,849 781,222

NET PROFIT / LOSS

AFTER TAX 934,993 113,098 836,816 127,288 380,435 2,392,630

Appendix X



82

ZCCM-IH Plc

Projected Cash Flows

ZMK (K' million)

2012 2013 2014 2015 2016 Total

Operational Receipts

Dividends 45,000 138,810 50,000 50,000 50,000 333,810

Bank investment

Interest 11,901 17,503 15,755 21992 48275 115,426

Managementfees 9,600 18,167 9,600 9,600 6,400 53,367

Income from

disposal ofinvestments 852,200 15990 - - 0 868,190

Metal Price

Participationfees 100,000 143,525 137,500 137,500 137,500 656,025

Konnoco loan

repayment 28,500 0 66,000 66,000 66,000 226,500

Interest from

other shareholder

loans 8,614 22,161 8,018 4,845 2308 45,946

Ndola limeShareholder loan

repayment 4,875 6,816 24,000 29,500 29,500 94,691

Kariba mineralsloan

repayments 2,000 0 4,000 4,000 4,000 14,000

Ndola limelisting receipts 162,500 162,500

Restructuring

of the ZCCM-IHBalance Sheet - 0 133,700 - - 133,700

Maamba

listing receipts - - - 516,500 516,500FQM Kansanshi

investmenttransfer - 1,250,000 - - 1,250,000

External

fundingrequirements - 0 275,000 560,000 0 835,000

1,062,690 362,972 1,973,573 1,045,937 860,483 5,305,655



83

Appendix X

ZCCM-IH Plc


ZMK (K' million)

2012 2013 2014 2015 2016 Total

Investing

Activities

Ndola limeShareholder loan 130,000 0 0 0 0 130,000

Maambainvestment 128,500 134,716 177,000 0 0 440,216

Kariba mineralsinvestment 14,000 0 0 0 0 14,000

Kariba

recapitalisationloan 29482 38,500 2,550 2,550 2,550 75,632

Konnoco 276,500 149,513 0 0 0 426,013

Other new

investments 100,330 0 1404300 7280 7280 1,519,190

Gemstonesector

involvement 43,430 0 9,000 9,000 9,000 70,430

722,242 322,729 1,592,850 18,830 18,830 2,675,481

Operating

expenses

Exploration

expenses 11,512 45,723 100,212 103,457 88,409 349,313

Investment

researchexpenses

Ͳ

59,416 50,000 50,000 50,000 209,416

legal, financial

and technicaladvisory

services 5,000 - 5,000 5,000 5,000 20,000Forensic Audits

- Investeecompanies 3,000 3,000 3,000 3,000 3,000 15,000

19,512 108,139 158,212 161,457 146,409 593,729

Total

investment

outflows 741,754 430,868 1,751,062 180,287 165,239 3,269,210



84

Appendix X

ZCCM-IH Plc


ZMK (K' million)

2012 2013 2014 2015 2016 Total

Total

Operating In-

Flows 320,936 -67,896 222,511 865,650 695,244 2,036,445

Administrative

expenses 38,823 59,251 65,224 68,880 72,025 304,203

Taxation 3,588 - 60,899 450,593 68,540 583,620

Total

Administrative

expenses 42,411 59,251 126,123 519,473 140,565 887,823

Legacies Related

Environmental

expenses 15,242 9,650 1,769 1,519 1,039 29,219

House refunds 1,400 - 150 100 100 1,750

Legal Expenses 16,139 10,000 3,000 3,000 300 32,439

Trust Fund 2,400 4,852 4,852 4,852 4,852 21,808CadastralSurveys 4,000 1,000 1,500 1,000 50 7,550

LoanRepayments toChambishi

Metals Plc 16,547 - - - - 16,547

LoanRepayments to

NFCA 13,222 - - - - 13,222

Loan

paymentsrelated to

EnvironmentProject (World

Bank & NDF) 7,161 - 7,161 7,161 7,161 28,644

Governmentloanrepayment 275,000 - - - - 275,000

Total legacy

costs 351,111 25,502 18,432 17,632 13,502 426,179

Net Internal -72,586 -152,649 77,956 328,545 541,177



85

Appendix X

ZCCM-IH Plc


ZMK (K' million)

2012 2013 2014 2015 2016 Total

Flows

TOTAL Balance

brought

forward 422,178 349,592 196,943 274,899 603,444

TOTAL Balance

carried forward 349,592 196,943 274,899 603,444 1,144,621



86

Appendix XI

ZCCM-IH Plc

Projected Balance sheet

ZMK’ Million

2012 2013 2014 2015 2016

NON-CURRENT ASSETS

Property, plant &equipment 12,402 17,143 20,043 22,943 25,843

Investments in

associates 3,232,587 3,232,587 1,832,850 1,832,850 1,832,850

Investments insubsidiaries 12 12 12 12 12

Other Investments 281,801 500,740 780,502 886,509 977,468

Non-current

receivable 3,526,802 3,750,482 2,633,407 2,742,314 2,836,173

CURRENT ASSETS

Receivables &Prepayments 621,427 1,390,534 2,973,529 4,702,034 3,855,979

Investments inTreasury bills 73,175 73,175 73,175 73,175 73,175

Cash and CashEquivalents 349,592 196,943 274,899 603,443 1,144,621

1,044,194 1,660,652 3,321,603 5,378,652 5,073,775

CURRENT LIABILITIES

Payables &

accrued expenses -290,432 -991,674

-

1,498,442

-

1,369,523 -1,953,579

Net Current

(Liabilities)/Assets 753,762 668,978 1,823,161 4,009,129 3,120,196

Net Assets 4,280,564 4,419,460 4,456,568 6,751,443 5,956,369

EQUITY

Issued ShareCapital 893 893 893 893 893

Share capital fromrestructuring 0 2,200,408 2,200,408 2,200,408 2,200,408

Revaluation

Reserves 2,125,531 1,786,796 987,088 3,154,676 1,979,167

AccumulatedLosses 138,673 251,771 1,088,587 1,215,874 1,596,309

Total Deficit 2,265,097 4,239,868 4,276,976 6,571,851 5,776,777



2012 2013 2014 2015 2016

Non-Current liabilities

Borrowings 1,918,247 82,372 82,372 82,372 82,372

Deferred tax liability 42,165 42,165 42,165 42,165 42,165

Deferred GrantIncome 55,055 55,055 55,055 55,055 55,055

Total Non-current

liabilities 2,015,467 179,592 179,592 179,592 179,592

Total Equity & Non-

current liabilities 4,280,564 4,419,460 4,456,568 6,751,443 5,956,369

ZCCM-IH Strategic Plan 2012-2012

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