ZCCM-IH Board Chairperson Ms. Dolika Banda says that 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 pursue its ambitious investment strategy.
Ms. Banda further states that “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.”
A comparison of actual dividends received from Kansanshi since 2009 with estimates for future royalty rates shows that not only will overall revenue be far greater under the royalty model – but 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 then producing at a loss.
ZCCM-IH will continue to hold 20% of the shares in Kansanshi Mining Plc, retain 2 out of 10 board seats, and thus continue to participate in the governance of Kansanshi and having full visibility of Kansanshi operations.
- Key Terms:
- Dividend: Payable depending on satisfactory performance of a company and is at the discretion of the Board of Directors. Relies on company profitability.
- Royalty: Charged as a percentage of the amount of minerals produced and sold over a specified period, at the market price. Paid irrespective of profitability.
- Equity Interest:
- Retention of 20% Class A shares with varied rights.
- Retain two Board seats on Kansanshi Board to ensure visibility into the operations of the Company.
- The grant of a life of mine royalty to ZCCM-IH in respect of the gross value of all metal products to be extracted from the Kansanshi mine as per the Royalty Agreement to be executed on the Transaction closing date.
- 3.1% of the Gross Value of all Metal Products extracted from the Royalty Area
- Royalty based on the Gross Value of Royalty Products (Copper, Gold, and all other metal products) sold or otherwise extracted at Kansanshi.
- Royalty will be quarterly payments for the entire Life of Mine of Kansanshi.
- Replaces dividend payment.
- VAT Refunds:
- Kansanshi will pay ZCCM-IH 20% of all VAT refunds receivable, on receipt of refunds from ZRA, up to the effective date of the Royalty Agreement.