Stmt re Konkola Copper Mines

ZCCM Invs.Hldgs PLC
20 August 2002



                  (ZCCM-IH logo)
                  ZCCM Investments Holdings plc

                  Incorporated in the Republic of Zambia

                  (Registered number 771)

                  Share code: ZCCM

                  ('ZCCM-IH')



AGREEMENT ON THE FUTURE OF KONKOLA COPPER MINES PLC


Introduction


Further to the cautionary announcements dated 26 January 2002, 28 March 2002 and
4 June 2002, Standard Bank London Limited is authorised to announce on behalf of
ZCCM-IH that pursuant to various signed legally binding agreements, dated 19
August 2002, ZCCM-IH, the Government of the Republic of Zambia ('GRZ'), Zambia
Copper Investments Limited ('ZCI'), ZCI Holdings S.A., Anglo American plc
('Anglo American'), Anglo Operations Limited (an Anglo American subsidiary),
A.R.H. Limited S.A. (an Anglo American subsidiary) ('ARH'), ZCCM (SmelterCo)
Limited ('SmelterCo'), CDC Group plc ('CDC'), CDC Financial Services (Mauritius)
Limited (a subsidiary of CDC) ('CDCFS'), International Finance Corporation
('IFC') and Konkola Copper Mines plc ('KCM') (collectively, 'the Parties') have
reached agreement on the terms on which Anglo American will dispose of its
investment in ZCI, while IFC and CDC will dispose of their respective interests
in KCM and, collectively, the Parties will undertake a series of transactions to
restructure the respective balance sheets of ZCCM-IH, ZCI and KCM ('the
Restructuring'), subject to the fulfilment of certain conditions precedent set
out in paragraph 6 below ('conditions precedent').


Background and rationale for the Restructuring

In March 2000, as part of the privatisation of ZCCM-IH (formerly Zambia
Consolidated Copper Mines Limited), certain assets of the Konkola and Nchanga
Divisions (including the Chingola Refractory Ores) and the Nampundwe Mine were
sold to a consortium of investors through KCM. The principal operations of KCM
are copper and cobalt mining and processing operations, located on the Zambian
Copperbelt. Anglo American invested indirectly in KCM through ZCI, an
intermediate holding company, in which it has a 51% equity interest. ZCI is
listed on the JSE Securities Exchange South Africa ('JSE'), the London Stock
Exchange plc and the Paris Bourse.

On the sale of assets by ZCCM-IH to KCM, ZCI acquired a 65% equity interest in
KCM and CDC (through CDCFS) and IFC, two major international financial
institutions, each acquired a 7.5% equity interest in KCM. The remaining 20%
equity interest in KCM is owned by ZCCM-IH. Since Anglo American (through ZCI),
CDC (through CDCFS) and IFC became investors in KCM, a significant amount of
financial and intellectual capital has been invested in KCM to improve the
efficiency and effectiveness of its assets and mining operations.

On 12 October 2001, KCM announced its intention not to proceed with the
development of the Konkola Deep Mining Project ('KDMP') citing the low copper
price in 2001 and the unavailability of non-recourse project financing on
reasonable commercial terms. KDMP was the primary reason for Anglo American's
initial investment in KCM. On 24 January 2002, Anglo American announced that it
would extend no further funding to KCM beyond the commitments it entered into at
the time of the privatisation and that its preferred option was an orderly
closure of KCM's operations. Without implementation of the KDMP, Anglo American
could not justify further investment in KCM as any further investment in KCM was
unlikely to result in a required rate of return acceptable to Anglo American.

Due to the potential negative impact that the closure of KCM would have on the
Zambian economy and the importance of KCM and the KDMP to the long-term
sustainability of the Zambian Copperbelt, ZCCM-IH and the GRZ have sought to
investigate alternatives to continue KCM as an economically viable entity. The
Parties have thus reached a mutually acceptable agreement whereby Anglo American
will dispose of its interest in ZCI and, at the same time, the Parties will
enter into a series of transactions to restructure the respective balance sheets
of ZCCM-IH, ZCI and KCM. As part of the Restructuring, CDC and IFC will also
dispose of their respective interests in KCM. The effective date of the exit of
Anglo American from ZCI (and hence KCM) and the exit of IFC and CDC from KCM is
16 September 2002. It is anticipated that the completion of the Restructuring
will take place a few weeks after that date.

The key terms of the Restructuring are detailed in paragraph 3 below.

The primary objectives of the Restructuring are to:

  • recapitalise KCM so as to facilitate the continuation of KCM's operations
    in the future;

  • enable KCM to attract new debt funding;

  • enable KCM to attract a new strategic equity investor; and

  • allow for an orderly exit of Anglo American from its indirect investment
    in KCM.

Without the recapitalisation of KCM (including the elimination of all existing
shareholder debt), it is highly unlikely that KCM will be able to attract new
debt funding or attract a strategic equity investor post the exit of Anglo
American.


Upon implementation of the Restructuring:

  • Anglo American will no longer be a shareholder in ZCI;

  • ZCCM-IH's shareholding in KCM will increase from 20% to 42% with ZCI
    owning the remaining 58% equity interest;

  • SmelterCo, which owns the Nkana Smelter and Refinery and a major asset of
    ZCCM-IH, will be acquired by KCM from ZCCM-IH in return for the issue of KCM
    equity to ZCCM-IH;

  • the GRZ will continue to own one special share in KCM which will not have
    any economic participation rights but will allow the GRZ to vote at KCM
    shareholder meetings under certain circumstances; and


  • the Copperbelt Development Foundation ('the Foundation'), a foundation
    with objects referred to below, will hold 44.3% of ZCI, an employee share
    ownership trust ('ESOT'), for the benefit of management and employees of
    KCM, will hold 8% of ZCI and the public will hold the balance of 47.7% of
    the issued share capital of ZCI.


The Foundation will be a new entity established by Anglo American, which will
endow the Foundation with its ZCI shares, whose objectives will be, inter alia,
to:

  • promote the diversification of the economy of the Zambian Copperbelt; and

  • promote the social development, relieve poverty and contribute to the
    provision of health, education and other social and cultural services in the
    Copperbelt Province and the Mumbwa District of the Central Province of the
    Republic of Zambia.


The resulting ownership structure subsequent to the Restructuring will be as
follows:

GRZ          Public          Foundation            ESOT          Public

87.6%        12.4%           44.3%                 8%            47.7%
  -             -                -                 -            -
   -           -                  -                -           -
    -         -                    -               -         -

                                                   ZCI
                                                   100%

         -                                          -
                                              
 ZCCM-IH                   GRZ Special Share       ZCI Holdings S.A.

     42%                    -                      58%
       -                    -                      -
                           KCM   
                           100%
                           -
                           SmelterCo


Subsequent to the Restructuring, it is the intention of the shareholders in KCM
to offer a strategic interest in KCM to a new equity investor.


Terms of the Restructuring

The Restructuring is dependent upon the fulfilment of the conditions precedent
as stated in paragraph 6 below. The key terms of the Restructuring that the
Parties have agreed to are as follows:

  • transitional management arrangements for KCM until 31 January 2003 have
    been agreed in order to ensure a smooth hand over of management
    responsibility and the Anglo American group will provide certain additional
    services until 31 March 2003;

  • certain Parties to the Restructuring will be granted releases in respect
    of their obligations, acts and omissions arising from their involvement in
    KCM or SmelterCo;

  • ARH will make an exit settlement payment to KCM of US$30 million on 16
    September 2002. As part of the Restructuring, ARH will assign its rights in
    respect of this contribution to ZCI and ZCCM-IH in an agreed proportion. ARH
    has agreed to make available to KCM up to US$16.9 million by way of an
    advance of the total exit settlement payment;

  • ARH will make available to KCM subordinated loan facilities of US$18
    million and US$8.5 million on favourable terms, which facilities will have
    the benefit of security over any insurance claim proceeds due to KCM in
    respect of KCM's insurance claim resulting from the Nchanga Open Pit loss in
    April 2001. The US$18 million facility may be drawn upon immediately whilst
    the US$8.5 million facility may only be drawn upon to the extent that KCM
    draws upon matching funding provided by a third party lender. KCM has
    sourced a US$8.5 million loan facility from the GRZ and, hence, KCM has
    US$35 million of loan facilities to draw upon;

  • CDCFS and IFC will each assign their outstanding KCM shareholder loans to
    ARH and their outstanding ZCCM-IH repayable carried interest loans to ZCI in
    exchange for a cash payment of US$25.4 million to be paid by ARH to each of
    IFC and CDCFS. ARH will in turn assign the IFC and CDCFS KCM loans so
    acquired to ZCCM-IH which will in turn immediately assign US$21.8 million
    thereof to ZCI in settlement of all the loans payable by ZCCM-IH to ZCI.
    ZCCM-IH's future carried rights will be simultaneously terminated;

  • IFC and CDCFS will each exchange their respective existing shares in KCM
    for new shares to be issued by ZCI and transfer these new ZCI shares (2.9%
    of ZCI) to the Foundation;

  • Anglo Mercury S.A. (a wholly-owned subsidiary of ARH) will inject US$286.9
     million contributed surplus into ZCI to enable ZCI to repay all but US$31
    million of the debt owed to ARH. ARH will assign the remaining US$31 million
    of debt owed to it by ZCI to GRZ which GRZ will set-off against the same
    amount it owes to ZCI;

  • ARH will transfer its resultant 49.4% shareholding in ZCI to the ESOT and
    to the Foundation in the proportion of 8%:41.4%, respectively;

  • each of the existing issued KCM 'A' Ordinary Shares, the KCM 'A' Ordinary
    Convertible Redeemable Shares and the KCM 'B' Ordinary Shares will be
    divided into one KCM New Ordinary Share and one KCM Deferred Share. The KCM
    Deferred Shares will carry no voting rights or rights to dividends but will
    entitle the holder thereof on a winding-up to a return of US$0.99 per share
    once KCM New Ordinary Shares have received a distribution equal to their par
    value and any share premium created on their issue and which remains
    attributable to them. All of the KCM New Ordinary Shares to be issued
    pursuant to the remaining steps of the Restructuring will be issued credited
    as fully paid as to US$0.01 par value and as to US$0.99 share premium;

  • ZCI and ZCCM-IH will subscribe for 264.2 million and 57.3 million KCM New
    Ordinary Shares, respectively, in return for the shareholder loans owed by
    KCM to them;

  • ZCCM-IH will subscribe for 61.9 million KCM New Ordinary Shares in return
    for the deferred consideration owed to ZCCM-IH by KCM for the assets it
    acquired from ZCCM-IH under the privatisation in March 2000;

  • ZCCM-IH will permit the option to acquire SmelterCo to be exercised by KCM
    in return for the issue of 7 million KCM New Ordinary Shares to ZCCM-IH in
    lieu of the cash consideration payable to ZCCM-IH upon exercise of the
    option. GRZ will subscribe for 87.9 million KCM New Ordinary Shares in
    return for assigning to KCM the debt obligations owed by SmelterCo to GRZ.
    SmelterCo owns the Nkana Smelter and Refinery which is the principal
    processor of KCM's concentrates; and

  • GRZ will then assign its shares in KCM so acquired above to ZCCM-IH for no
    consideration, thus benefiting all the shareholders of ZCCM-IH.

As a result of the above series of transactions, ZCI and ZCCM-IH will hold 58%
and 42%, respectively, of the issued share capital of KCM. KCM will own and
operate the Konkola Mine, Nchanga Mine and Nchanga Open Pit (including the
Chingola Refractory Ores), Nampundwe Mine and, through its wholly-owned
subsidiary, SmelterCo, the Nkana Smelter and Refinery.

At present, the board of directors of KCM consists of six ZCI appointed
directors, two ZCCM-IH appointed directors, one IFC appointed director, one CDC
appointed director and one GRZ appointed director (with no voting rights). On
completion of the Restructuring, it is intended that the board of directors of
KCM will be reconstituted and consist of three ZCI appointed directors, two
ZCCM-IH appointed directors and one GRZ appointed director (with limited voting
rights).


Waiver of mandatory offer

The Restructuring will result in ZCCM-IH increasing its shareholding in KCM from
20% to 42% and pursuant to Rule 56 of the Securities (Take-overs and Mergers)
Rules, 1993, ZCCM-IH is required to make a mandatory offer to the other
shareholders of KCM (namely ZCI, IFC and CDCFS). The Securities Exchange
Commission of Zambia has however waived the requirement that a mandatory offer
be made to the other shareholders of KCM, given that the minority shareholders
of KCM (namely IFC and CDCFS) will formally exit from their investments in KCM
as part of the Restructuring.


Financial effects

The Restructuring will have the following impact on the ZCCM-IH balance sheet
and income statement:

  • ZCCM-IH's interest in the issued share capital of KCM will be increased
    from 20% to 42% (of the 22% increased shareholding, 16% is as a result of
    GRZ assigning its shares in KCM, acquired pursuant to the Restructuring, to
    ZCCM-IH for no consideration), in consideration for which,

  • ZCCM-IH will cease to have the right to receive the deferred consideration
    of US$61.9 million from KCM for the assets it acquired from ZCCM-IH under
    the privatisation in March 2000;

  • ZCCM-IH will cancel KCM's obligation to repay US$29.1 million of
    shareholder loans pursuant to its repayable and free carried interest in
    KCM;

  • IFC, CDCFS and ZCI will cancel ZCCM-IH's obligation to repay US$21.8
    million pursuant to ZCCM-IH's repayable carried interest in KCM; and

  • ZCCM-IH will sell the entire share capital of SmelterCo to KCM in exchange
    for further shares in KCM.


To evaluate whether ZCCM-IH is receiving an equitable exchange of net assets in
the Restructuring, the following needs to be considered:

  • at present (prior to the Restructuring), KCM is highly unlikely to be able
    to repay its shareholder loans (US$291.6 million) or the deferred
    consideration loan (US$61.9 million) owing to ZCCM-IH;

  • without the Restructuring, the current equity value of ZCCM-IH's 20%
    equity interest in KCM is negligible (per the 31 December 2001 audited KCM
    financial statements the liabilities of KCM exceed the assets by US$12.1
    million); and

  • without the Restructuring, ZCCM-IH would still have an outstanding loan
    obligation to ZCI, IFC and CDCFS.

After the Restructuring, ZCCM-IH will have a 42% equity interest in KCM which
will be recapitalised by the conversion of shareholder loans into equity and
funding provided by ARH. KCM will be able to seek fresh equity funding from a
new strategic investor and, if required, approach banks to raise additional
commercial debt. The directors of ZCCM-IH are thus of the view that the
Restructuring is necessary to restore value for ZCCM-IH shareholders and to
ensure that shareholders continue to benefit from the future of KCM.

The table below sets out the financial effects of the Restructuring on the loss
per share, net asset value per share and tangible net asset value per share for
a ZCCM-IH shareholder based upon the unaudited interim financial results of
ZCCM-IH for the six months ended 31 December 2001:


                                               Before the Restructuring1   After the Restructuring2 Change
                                               (Kwacha)                    (Kwacha)                 (%)

Loss per share                                 (363.79)                    (315.85)                 13.2
Net asset value per share                      (18 895.23)                 (12 522.13)              33.7
Tangible net asset value per share             (18 895.23)                 (12 522.13)              33.7
Number of shares in issue                      89 296 423                  89 296 423               -
Weighted average number of shares              89 296 423                  89 296 423               -

Notes:

The amounts in the 'Before the Restructuring' column are based upon the
unaudited interim financial results of ZCCM-IH for the six months ended 31
December 2001.

The amounts in the 'After the Restructuring' column have been calculated as
follows:

  • the loss per share is based on the assumption that the Restructuring was
    effective on 1 July 2001 and hence the loss of SmelterCo for the six months
    ended 31 December 2001 is excluded; and

  • the net asset value per share and tangible net asset value per share are
    based on the assumption that the Restructuring was effective on 31 December
    2001 and hence the terms of the Restructuring as set out in paragraph 3
    above applicable to the ZCCM-IH balance sheet have been used to adjust the
    ZCCM-IH balance sheet at 31 December 2001.

  • The exchange rate used for the conversion of US Dollar denominated
    balances into Kwacha is the official closing exchange rate at 31 December
    2001, being US$1.00 = Kwacha3 600.


Conditions precedent

The Restructuring is conditional upon the fulfilment of, inter alia, the
following conditions precedent:

  • the approval of the shareholders of ZCI to the Restructuring;

  • the consent of the United Kingdom Treasury to the Restructuring;

  • the consent of the United Kingdom Department for International
    Development, which provided loan funds to the GRZ for SmelterCo, to the
    conversion of the loan from GRZ to SmelterCo into KCM New Ordinary Shares;

  • the consent of the Zambia Privatisation Agency pursuant to Section 19 of
    the Privatisation Act (Cap. 386 of the Laws of Zambia) to the issues of KCM
    New Ordinary Shares contemplated by the terms of the Restructuring, or
    written confirmation from GRZ that no such consent is required;

  • IFC and CDCFS complying with their respective obligations pursuant to the
    Restructuring;

  • approvals by the JSE, Paris Bourse, the Securities Regulation Panel in
    South Africa and the South African Reserve Bank of the required circular to
    ZCI shareholders; and

  • the agreement of ZCCM-IH, ZCI and KCM to new articles of association and a
    new shareholders' agreement relating to KCM to be adopted or entered into
    (as applicable) pursuant to the Restructuring.


ZCCM-IH shareholders will be notified in due course as to the fulfilment of the
conditions precedent and hence completion of the Restructuring.


Lusaka

19 August 2002


Financial Advisor to ZCCM-IH and GRZ                                              Sponsoring Broker to ZCCM-IH

(logo)                                     (logo)                                 (logo)

Standard Bank London Limited               Standard Corporate and Merchant Bank   Cavmont Securities Limited

Regulated in the United Kingdom by the     (A division of The Standard Bank of    (Registration number 30472)
Financial Services Authority               South Africa Limited)

(Registration number 2130447 )             (Registration number 1962/000738/06)


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