ZCCM Investments Holdings Plc (ZCCM-IH) shareholders have approved the Kansanshi royalty conversion, which will guarantee the company a steady income stream. The company will now receive 3.1% of Kansanshi Mining Plc’s total revenue on a quarterly basis over the entire life of the mine, which currently extends to the year 2045. This replaces the former model of unpredictable and unguaranteed dividend pay-outs, which were made at the discretion of the board and dependent on company profitability.
ZCCM-IH Board Chairperson Ms. Dolika Banda states that the royalty arrangement will give them a consistent and stable income, resulting in a far healthier cash flow. This will make it easier for the company to raise financing to pursue its ambitious investment strategy. The royalty model will not only provide greater overall revenue but also more predictable and consistent revenue flow.
A comparison of actual dividends received from Kansanshi since 2009 with estimates for future royalty rates shows that the royalty model will benefit ZCCM-IH 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.
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 have full visibility of Kansanshi operations. The completion of the Royalty Transaction follows extended discussions over the past three years between First Quantum Minerals (FQM) and ZCCM-IH.
This move will result in a far healthier cash flow for ZCCM-IH, which will make it easier for the company to raise financing and pursue its ambitious investment strategy. Ms Banda said that their ambition is to make investments throughout the mining value chain, from exploration through to value addition, so that they may help create national economic success stories for the benefit of all Zambians, and for their shareholders, value creation and a return on their investment.
ZCCM-IH shareholders’ approval of the Kansanshi royalty transaction will guarantee a steady income stream for the company, affording protection from future price slumps and giving them a consistent and stable income. This move will ultimately result in a far healthier cash flow for ZCCM-IH and make it easier for the company to raise financing and pursue its ambitious investment strategy.