ZCCM Investments Holdings - History

History

The company, ZCCM, was formed by a gradual process of nationalization and corporate concatenation which began in January 1970; the process is more completely described in the article Economy of Zambia:

A major switch in the structure of Zambia's economy came with the Mulungushi Reforms of April 1968: the government declared its intention to acquire equity holdings (usually 51% or more) in a number of key foreign-owned firms, to be controlled by a parastatal conglomerate named the Industrial Development Corporation (INDECO). By January 1970, Zambia had acquired majority holding in the Zambian operations of the two major foreign mining corporations, the Anglo American Corporation and the Rhodesia Selection Trust (RST); the two became the Nchanga Consolidated Copper Mines (NCCM) and Roan Consolidated Mines (RCM), respectively. The Zambian government then created a new parastatal body, the Mining Development Corporation (MINDECO). The Finance and Development Corporation (FINDECO) allowed the Zambian government to gain control of insurance companies and building societies. However, foreign-owned banks (such as Barclays, Standard Chartered and Grindlays) successfully resisted takeover. In 1971, INDECO, MINDECO, and FINDECO were brought together under an omnibus parastatal, the Zambia Industrial and Mining Corporation (ZIMCO), to create one of the largest companies in sub-Saharan Africa, with the country's president, Kenneth Kaunda as Chairman of the Board. The management contracts under which day-to-day operations of the mines had been carried out by Anglo American and RST were ended in 1973. In 1982 NCCM and RCM were merged into the giant Zambia Consolidated Copper Mines Ltd (ZCCM).

But after nationalisation, copper prices started declining, oil prices increased and the effects of using the mining industry as a cash cow started showing. Copper production in Zambia plummeted – from its peak of 750,000 tonnes in 1973 to 230,000 tonnes in 2000.

Privatisation of ZCCM

Zambia Consolidated Copper Mines (ZCCM), which operated ten mines, three smelters, two refineries and a tailings leach plant. ZCCM was owned by Zambia Industrial and Mining Corporation (60.3%), an Anglo-American subsidiary ZCI Holdings (27.2%), RST International (7.0%) and the public (5.5%). ZCCM was sold in 1998 for just USD 627 million, split into 7 units, including Konkola Copper Mine (USD 25 million), Kansanshi Mine (USD 28 million), Luanshya Mine (USD 35 million), Chibuluma Mine (USD 17.5 million), Chambishi Mine (USD 20 million) and others. The low price was criticised for being a result of bribery and corruption – with Anglo-American, which sat on the board of ZCCM, buying Konkola Copper Mines, ZCCM’s flagship, for a song, critics alleged. The mines were privatised after the copper prices had dropped from USD 2,300/tonne in 1997 to about USD 1,500/tonne in 1998 – and remained at this level until 2003. As the government was subsidising the mines by approximately USD 1 million a day, the privatisation was encouraged by a bit of arm-twisting: “We were told by advisers, who included the International Monetary Fund and the World Bank that (...) for the next 20 years, Zambian copper would not make a profit. we would be able to access debt relief, and this was a huge carrot in front of us (...). We had no option,” said then Minister of Finance Edith Nawakwi.

The objectives, which the Government was seeking to achieve through the privatisation of ZCCM, were to: · Transfer control of and operating responsibilities for ZCCM’s operations to private sector mining companies as quickly as practicable; · Mobilise substantial amounts of committed new capital for ZCCM’s operations; · Ensure that ZCCM realised value for its assets and retained a significant minority interest in principal mining operations; · Transfer or extinguish ZCCM’s liabilities, including its third party debt; · Diversify ownership of Copperbelt assets; · Promote Zambian participation in the ownership and management of the mining assets; and · Conduct the privatisation as quickly and transparently as consistent with good order, respecting other objectives and observing ZCCM Ltd’s existing contractual obligations.

As part of the privatization process, the Company’s mining assets were unbundled and sold off as separate new entities or business packages to the private sector. The reason for unbundling the ZCCM Ltd into business packages was to promote diversity of ownership and minimise political and economic risks.

A two-stage privatisation process was adopted. Under Stage one, majority interests in the packages relating to certain of ZCCM Ltd’s mining and power distribution operations were offered to trade buyers, which was to leave the transformed ZCCM Ltd as an Investments Holdings Company, with minority interest in each of these packages. Through ZCCM Investments Holdings Plc., Government has retained minority interests of not more than 21% within each of the business packages.

The privatisation of ZCCM commenced in 1996, after GRZ and the Boards of ZCCM and the Zambia Privatisation Agency (ZPA) approved the ZCCM Limited Privatisation Report and Plan presented by UK based financial and legal advisors, NM Rothschild & Sons and Clifford Chance, respectively.

Stage two of the privatisation of ZCCM envisaged GRZ disposing of some or all of its shareholding, with part of this being earmarked for Zambian institutional and private investors as a way of promoting Zambian participation in the mining sector.

GRZ obtained the support of the World Bank and the Nordic Development Fund for the Copperbelt Environment Project (CEP), to address environmental liabilities and obligations remaining with GRZ/ZCCM-IH following the privatization of mining assets.

The Environmental Management Facility (EMF) which is composed of multiple stakeholders, working as the EMF Steering Committee, was established by the Minister of Finance and National Planning as provided for by the protocols, for the purpose of prioritizing and approving subprojects of the CEP for funding. The project which became effective on 31st July 2003 ends in August 2008.

Apart from environmental responsibilities ZCCM-IH has the additional responsibility of managing the ex ZCCM employees trust fund and also the finalization sale of ZCCM properties.

In November 2011, the role and importance of ZCCM-IH have been highlighted, led by the Hon. Zambian Minister of Mines Wylbur Simuusa, representing the major shareholder.

“Through its state mining investment company, Zambia Consolidated Copper Mines Investment Holdings, the government is finalizing plans to start negotiations with mining companies aimed at increasing its stakes in projects to as much as 35%” he told the press.

“There is need for the country to have increased ownership in the mines and ZCCM-IH is an engine which can facilitate the process.”

“ZCCM-IH is an important unit which if properly managed, can help the country realise huge benefits from the mining resources.”

To that purpose, as zambian presidential elections have emerged the victory of Patriotic Front leader Michael Sata, Mr. Wila D. Mung'omba was appointed as Executive Chairman of ZCCM-IH with effect from 1st December 2011.

Mr. Mung'omba who is not new to the affairs of the company, has in the past served as Group A Director of ZCCM Limited in 1996-98. Between 1995-1998, Mr. Mung'omba was World Bank's appointed Team Leader in the initial preparation of the ZCCM Limited privatization Report and Plan by the UK based Investment Bank NM, Rothschild & Sons and international law firm Clifford Chance. Later Mr. Mung'omba was involved in the creation of the present ZCCM-IH.

Mr. Mung'omba is a distinguished lawyer of many years, a former Executive Director of the International Monetary Fund, and former President of the African Development Bank Group. For five years he served as Non-Executive Director on the initial Board of the Emerging African Infrastructure Fund (EAIF), a donor funded financial instrument to encourage public and private sector partnership in infrastructure development in Sub-Sahara Africa

The objectives are to diversify the portfolio (coal, gemstones, oil,…) and to maximise returns from assets and shareholdings. Therefore, the management recently engaged negotiations with mining companies to get unpaid dividends as profits are huge.