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ZCCM-IH shareholders approve Kansanshi royalty transaction

3rd April 2023

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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Shareholders of ZCCM-Investments Holdings (ZCCM-IH) have approved the Kansanshi royalty conversion, in terms of which the company will now receive 3.1% of Zambia copper and gold miner Kansanshi Mining’s total revenue.

The royalty revenue will be paid on a quarterly basis over the entire life of Kansanshi mine which currently extends to 2045.

The approval was given at an extraordinary general meeting (EGM) held in Kitwe on March 31.

The royalty income stream replaces the former model of unpredictable and unguaranteed dividend payouts, ZCCM-IH says.

These were made at the discretion of the board and were dependent on company profitability.

Instead, a royalty is predictable and guaranteed as it will be charged at 3.1% of the company’s total revenue from sales of copper, gold and all other metal products as per the royalty agreement, ZCCM-IH points out.

This guarantees a steady income stream for ZCCM-IH, as long as there is production at Kansanshi.

ZCCM-IH board chairperson Dolika Banda says this will result in a far healthier cash flow for ZCCM-IH, which will, in turn, make it far easier for the company to raise financing to pursue its investment strategy. 

“The royalty arrangement will give us consistent and stable income, and fundamentally will change the financial health of ZCCM-IH by so doing. Our ambition is to make investments throughout the mining value chain – from exploration, through to value addition – so that we may help to create national economic success stories for the benefit of all Zambians; and for our shareholders, value creation and a return on their investment,” Banda highlights.

A comparison of actual dividends received from Kansanshi since 2009 with estimates for future royalty rates shows that overall revenue will be far greater under the royalty model, and also, that the revenue flow is also more predictable and consistent.

In addition, a royalty will see ZCCM-IH benefit from future high copper prices, in the likely event of a price recovery from recent market turmoil.

It also affords protection from the worst of any future price slump as it is paid on production, not profitability. If Kansanshi is in production and earning revenues, a royalty will be paid – even if the mine is producing at a loss, the company points out.

ZCCM-IH will continue to hold 20% of the shares in Kansanshi Mining, retain two out of ten board seats, and thus continue to participate in the governance of Kansanshi, having full visibility of Kansanshi operations.

The completion of the royalty transaction follows extended discussions over the past three years between First Quantum Minerals and ZCCM-IH.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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