At an Extraordinary General Meeting (“EGM”) held 31 March 2023, ZCCM Investments Holdings Plc (“ZCCM-IH” or “the Company”) shareholders approved the conversion of the 20% profit-based dividend rights in Kansanshi Mining Plc (“KMP” or “the Mine”) to a 3.1% gross revenue royalty right. This conversion entails that the historically unpredictable dividend rights have been replaced with guaranteed quarterly royalty rights of 3.1% of the Mine’s total revenue to be made over the Life of the Mine (“LoM”).
The estimated life of the mine is at least until 2045, during which the Company’s annual income from KMP is anticipated to be consistent and guaranteed. This is due to royalty income being based on sales of all metal products from the mine licence, as such as long as KMP is producing, ZCCM-IH is guaranteed to receive the royalty from the gross sales. The metals will be sold at obtaining commodity prices.
Dividend Vs. Royalty Structures
Dividends, payable at the discretion of the Board of Directors are a percentage of net annual profits paid out to shareholders based on the percentage of shares held at the time. As is the case with KMP, ZCCM-IH held and continues to hold a 20% stake in KMP (albeit with royalty rights now). This resulted in the Company having limited influence in deciding whether dividends were to be paid for a particular year and how much these would be, which was also dependent on some portion of the revenue being held to fund expansion projects. In addition, dividends are neither consistent, predictable, or even guaranteed.
However, the Company’s royalty income will be charged at 3.1% of the KMP’s total revenue from the sale of Copper, Gold, and all other metal products. These payments take into consideration the S3 Expansion Project currently underway at KMP, and will be made prior to any debt repayments, production costs incurred, or tax obligations being considered. As a result, ZCCM-IH is guaranteed consistent and predictable income paid on a quarterly basis.
20% Dividend Payments Vs. 3.1% Royalty Payments
In addition to ZCCM-IH being guaranteed consistent and predictable income, given prevailing commodity prices and anticipated production at KMP, royalty styled payments also means potentially higher income for ZCCM-IH. For instance, comparing actual dividends received from KMP between 2009 and 2021 which yielded a total income of USD337 million for ZCCM-IH, in the same period if the royalty styled payments of 3.1% were in place, ZCCM-IH would have realised an estimated total income of USD672 million (99.4% more) which is nearly double the income for the Company from KMP.
What Royalties Will Mean for ZCCM-IH and its Shareholders
During the EGM, the ZCCM-IH Board Chairperson Ms. Dolika Banda stated that “the royalty arrangement will give the Company consistent and stable income, and fundamentally, will change the financial health of ZCCM-IH by so doing”.
As detailed in the ZCCM-IH Strategic Plan for years 2020 to 2026 (“Strategic Plan”), the Company will use the KMP royalty income to pursue various key investments encompassing the entire mining value chain. These investments include extensive exploration of critical minerals, through to value addition projects with the ultimate goal of increasing value and return on investment for the Company’s shareholders, and to create national economic success stories for the benefit of all Zambians.
To access the Company’s Strategic Plan, kindly click the following link: https://zccm-ih.financifi.com/download/2018-2023-strategic-plan/