Unaudited Interim report
ZAMBIA COPPER INVESTMENTS LIMITED
(Registered in Bermuda)
('ZCI' or 'the Company')
Consolidated statement of earnings
for the six months ended June 30, 2004
expressed in thousands of US Dollars
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
June 30, 2004 June 30, 2003 December 31, 2003
Turnover 237,500 177,569 356,308
Cost of sales (141,489) (157,004) (286,251)
Gross Profit 96,011 20,565 70,057
Other operating expenses (36,017) (34,357) (75,282)
Depreciation (5,761) (8,186) (9,840)
Profit / (Loss) from operations 54,233 (21,978) (15,065)
Other income / (Loss) (866) 647 2,011
Interest income 5 7 11
Interest expense (832) (596) (1,121)
General and administration expenses (353) (135) (479)
Profit / (Loss) before taxation 52,187 (22,055) (14,643)
Taxation (37) (139) (166)
Profit / (Loss) after taxation 52,150 (22,194) (14,809)
(Profit) / Loss attributable to minority (21,657) 9,256 6,001
interest
Net Profit / (Loss) 30,493 (12,938) (8,808)
per ordinary share in US cents
Headline loss before exceptional item
and amortisation of goodwill 24.16 (10.25) (6.98)
Exceptional income - - -
(none)
Exceptional expenses - - -
(none)
Net profit/(Loss) 24.16 (10.25) (6.98)
Number of ordinary shares in issue 126,197,362 126,197,362 126,197,362
Consolidated statement of financial position
as at June 30, 2004
expressed in thousands of US Dollars
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
June 30, 2004 June 30, 2003 December 31, 2003
Fixed Assets
Tangible fixed assets 142,894 83,102 116,011
Deferred Secondary Expenditure 31,521 28,029 25,771
174,415 111,131 141,782
Current assets
Stocks 85,965 75,891 87,648
Accounts receivable 51,424 43,033 46,924
Cash and short-term investments 15,083 17,803 4,761
152,472 136,727 139,549
Current Liablilites
Short term loans and bank overdrafts (9,158) (13,805) (25,933)
Accounts payable and accrued liabilities (70,613) (42,684) (59,778)
(79,771) (56,489) (85,711)
Net current assets 72,701 80,238 53,838
Total assets less current liabilities 247,116 191,369 195,620
Long term liabilities
Long term loans (35,195) (35,093) (35,142)
Provisions (86,953) (90,843) (89,429)
Minority interest (51,991) (27,079) (29,079)
Net assets 72,977 38,354 41,970
Capital and reserves
Capital 508,807 508,807 508,807
Revaluation reserves - - 1,220
Hedging reserves - - (1,734)
Accumulated deficit (435,830) (470,453) (466,323)
72,977 38,354 41,970
Number of ordinary shares in issue 126,197,362 126,197,362 126,197,362
Net asset value (per ordinary share) in US 57.83 30.39 33.26
Consolidated statement of changes in equity
for the six months ended June 30, 2004
expressed in thousands of US Dollars
Share Contributed Accumulated Revaluation Hedging
capital surplus deficit reserve reserves Total
Balance at 31 December 2002 30,299 478,508 (457,515) - - 51,292
Net loss on Cashflow Hedges - - - - (2,989) (2,989)
Minority Interest on Cashflow
Hedges - - - - 1,255 1,255
Revalutaion on Equity Fund
Investment - - - 1,220 - 1,220
Loss for the year - - (8,808) - - (8,808)
Balance at 31 December 2003 30,299 478,508 (466,323) 1,220 (1,734) 41,970
Released on maturity of Cashflow
Hedges - - - - 2,989 2,989
Released Minority Interest of
Cashflow Hedges - - - - (1,255) (1,255)
Released on disposal of Equity
Fund Investment - - - (1,220) - (1,220)
Profit for the period - - 30,493 - - 30,493
Balance at 30 June 2004 30,299 478,508 (435,830) - - 72,977
Consolidated statement of cash flow
for the six months ended June 30, 2004
expressed in thousands of US Dollars
Unaudited Unaudited Audited
Six months ended Six months ended Year ended
June 30, 2004 June 30, 2003 December 31, 2003
Cash flow from operating activities
Cash received from customers 234,935 180,188 355,792
Cash paid to suppliers and employees (181,583) (188,358) (355,253)
Cash generated / (utilised) by operations 53,352 (8,170) 539
Interest received 5 7 -
Interest paid (780) (692) (1,150)
Income tax paid (41) (170) (256)
Net cash generated / (utilised) by operating
activities 52,536 (9,025) (867)
Cash flow from investing activities
Proceeds from disposal of tangible fixed
assets - 3 11
Proceeds from sale of short term
investment 981 - -
Capital expenditure (32,644) (20,282) (54,838)
Cash absorbed by investing activiites (31,663) (20,279) (54,827)
Cash flow from financing activities
Lease financing received 7,775 - -
Lease financing repaid (331) - -
Cash generated by financing activities 7,444 - -
Net increase / (decrease) in cash 28,317 (29,304) (55,694)
Net cash / (debt) at the beginning of the
year (22,392) 33,302 33,302
Net cash / (debt) at the end of the year 5,925 3,998 (22,392)
Cash deposits and cash at bank 15,083 17,803 3,541
Short term loans and bank overdraft
unsecured (9,158) (13,805) (25,933)
Net cash / (debt) at the end of the year 5,925 3,998 (22,392)
The financial statements were prepared in accordance with International Financial Reporting
Standards and in terms of the same accounting policies applied during the previous financial period.
CHAIRMAN'S STATEMENT
As you will be aware, your Board together with the Board of KCM and KCM's other
shareholders, namely the Government of the Republic of Zambia (GRZ) and ZCCM
Investments Holdings plc (ZCCM-IH), have been actively involved in the search for a
strategic equity partner for our subsidiary, Konkola Copper Mines ("KCM"). The
purpose of this was to introduce a partner capable of providing strong technical
assistance and financial support to ensure KCM's long-term future. After extensive and
careful negotiations, I am pleased to tell you that agreement has been reached on the
terms of the proposed partnership with Vedanta Resources plc.
The transaction is subject to the approval of the shareholders of ZCI at a general
meeting of the Company, which will be convened for this purpose. A circular
informing shareholders of the details of the terms and the actions required to be taken,
will accompany the notice of general meeting which will be circulated in due course.
Under the terms of the agreement Vedanta would subscribe for new KCM shares and
obtain a 51% interest in KCM. In return, Vedanta would inject US$25 million into
KCM, pay ZCI US$23.2 million as deferred consideration payable over four years and
be obliged, should the free cash flow of KCM be negative at any time during a period of
nine years after completion of the transaction, to fund any cash shortfalls up to a
cumulative amount of US$220 million. As a result of the subscription, ZCI's stake in
KCM would be reduced from 58% to 28.4% and ZCCM Investments Holdings plc's
stake in KCM would be reduced from 48% to 20.6%.
The proposed subscription for new shares in KCM by Vedanta would considerably
strengthen the balance sheet of KCM and the payment of US$23.2 million directly to
ZCI would significantly improve ZCI's financial position.
By retaining a 28.4% stake, ZCI shareholders would benefit from the added value that
Vedanta would bring. Vedanta has previously demonstrated its ability to turn round
under-performing assets. The remaining stake is subject to a call option agreement,
which may be exercised by Vedanta in circumstances where the underlying value in
KCM's future development potential would be reflected fully in the exercise price.
On completion of the Vedanta agreement, it is intended that the Board of KCM will be
reconstituted so as to comprise five Vedanta appointed directors, two ZCI appointed
directors, two ZCCM-IH appointed directors and one GRZ appointed director (with
limited voting rights).
The financial effects of the Vedanta investment are in the process of being finalised.
Full disclosure of the financial effects, including the effect on net asset value per share,
net tangible asset value per share and headline loss per share, will be published shortly.
Accordingly, shareholders are advised to continue to exercise caution when dealing in
the securities of the company until such time as a further announcement is made
containing the financial effects of the Vedanta investment.
I turn now to the Company's results for the period ended 30 June 2004. Due largely to
the consistently strong demand for copper and the related higher price levels when
compared to the same period last year, the Company was able to record a consolidated
net profit of US$30.5 million. The average price for copper was US cents 121.1 per
pound (December 2003: US cents 78 per pound). Cobalt sales for the period were at 48
tonnes at a realized price of US$25.60 per pound. However, production of copper at
KCM remained relatively low at 92,566 tonnes. This was due to a number of factors
including a compressor problem at KCM during April 2004, the mining of significant
ore tonnages at the Nchanga Open Pit mine that were not treatable by either the
concentrator or the Nchanga Tailings Leach Plant (NTLP) in May 2004 and, low acid
soluble copper feed into the NTLP in the first half of June 2004.
As always, the directors of ZCI wish to record their appreciation of the efforts made by
all employees of KCM during this busy period, and at a time of great change and
uncertainty for the Company, but which as a result of this new strategic partnership,
promises to be the foundation for renewed stability, development and progress for the
years ahead.
B Ireton Bermuda Registered Office
Chairman September 09, 2004 Clarendon House
2, Church Street
Hamilton, Bermuda
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