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Dr Pius C Kasolo
CEO, ZCCM-IH
With stakes in mining, energy and other sectors, ZCCM-IH is one of Zambia’s leading investment companies, with listings on the Lusaka, London and Euronext stock exchanges. CEO Dr Pius C Kasolo discusses the firm’s continuing diversification as it consolidates its copper interests and expands into new sectors, including other minerals, manufacturing, agriculture, property and more, in its bid to deliver a stronger future for itself, Zambians and international investors alike
You became CEO of ZCCM-IH in October 2014. What have been some of the key milestones or accomplishments you have achieved since then?
There have been a number of milestones, but I would first like to mention the ZCCM-IH dividend payout of $40 million in 2014. It was the first ever dividend paid out since the privatisation of the company, and the biggest on the Lusaka Securities Exchange. We are also proud to have secured funding for the $830 million 300MW thermal power plant project owned by Maamba Collieries Limited, in which ZCCM-IH has a 35 per cent stake and Nava Bharat Ventures has 65 per cent. There was also the successful legal suit against Konkola Copper Mines (KCM) for $105 million owed for outstanding payments under a 2013 copper price participation deal. KCM has since been making payments as agreed, and we continue to enjoy a cordial relationship. In fact, ZCCM-IH has a 20.6 per cent stake in KCM. As a company holding minority stakes in various mines, we need to ensure value is derived for the good of the company and the country at large. Besides those milestones, we have successfully diversified into real estate. I’ve also been growing the investment department to both keep up with new investments and to manage our existing portfolio of 15 companies.
Another major achievement has been the enhancement of our brand position. The ZCCM-IH brand had been largely unknown locally and internationally since its privatisation. But this is still the biggest company by market capitalisation on the Lusaka Securities Exchange, and a company with global partners such as Vedanta, FQM, Gemfields and Glencore. We ought to be out there if we are going to attract partners for the new projects we intend to undertake in energy, mining, manufacturing and agriculture. So I’ve had to ramp up visibility through enhanced brand awareness and publicity both locally and internationally. In the same line, I also directed a complete redesign of our website and we began actively using social media tools.
What is your strategy for diversification?
ZCCM-IH’s overall strategy is in line with the Seventh National Development Plan, which was launched by President Edgar Lungu in June 2017. Given the company’s exposure to the mining sector, diversification is key considering the cyclical nature of industrial metals. Therefore, our diversification agenda is aimed at de-risking our portfolio so as to optimise returns. Our focus is to further increase our foothold in various sectors. Manufacturing is one area we are looking at, and we have found that access to affordable cement can contribute to the industrialisation agenda of the country and ZCCM-IH. ZCCM-IH is setting up a $548 million state-of-the-art cement plant, which will be able to produce 5,000 metric tons of clinker cement daily. This will help reduce the price of cement and spur growth in the construction industry. Energy is another focus because the growth we are experiencing in key sectors such as mining, agriculture and manufacturing will require a consistent power supply. We have already invested $830 million in a coal-powered thermal power plant that can now generate 300MW, which we are feeding into the national grid. Together with our partners, Nava Bharat Ventures, we are now working on phase two of the project, which aims to add an additional 300MW. This, coupled with renewable energy – another area with significant potential – can help diversify the energy mix of the country. Finally, diversification in the agriculture sector is also key and should include value addition throughout the value chains in livestock, crops and aquaculture. Zambia needs to move from being dependent largely on maize production and take advantage of its vast natural resources and arable land. This is why ZCCM-IH intends to invest in high-end agricultural projects with strategic partners.
“This is the biggest company by market capitalisation on the Lusaka Securities Exchange and a company with global partners”
The mining sector makes up the vast majority of your holdings. How will this be affected by the company’s diversification strategy?
Mining accounts for 12 per cent of Zambia’s GDP and 70 per cent of total export value, and more than 80 per cent is in raw form. Furthermore, more than 90 per cent of the mining industry supply needs are imported. The mining sector will remain critical to our strategy, and ZCCM-IH is looking at participating in mineral beneficiation processes and value addition. We are also examining diversifying into less traditional minerals such as manganese, iron, gypsum and gold. On the other side of value chain, ZCCM-IH intends to play a vital role in providing key goods and services to the local mining sector. In terms of copper, our strategy is to participate in the entire copper value chain from exploration to manufacturing final products, including supplying goods and services to its investee companies.
The Industrial Development Corporation (IDC) was incorporated in 2014 to promote investment. How do you evaluate the synergies between ZCCM-IH and IDC?
The formation of IDC was long overdue. Apart from overseeing all state-owned enterprises, IDC is a great avenue through which to enhance domestic capital formation, wealth creation and preservation through focusing on exploiting our country’s advantages in natural resources. With this in mind, IDC can help stimulate investment in strategic non-mining industries and increasing exports. That’s why, at ZCCM-IH, we can gain leverage from its strategy of raising long-term finance for projects while lowering the investment risk profile by serving as co-investors alongside private sector investors.
ZCCM-IH is listed on the Lusaka Stock Exchange, London Stock Exchange and Euronext. What is the strategy for public listings going forward?
Our strategy is to develop, run and list. ZCCM-IH will develop opportunities into investment grade and then list the shares on the Lusaka Stock Exchange (LuSE). Not only will listing of the shares enable ZCCM-IH to realise value from the investments, it will also generate an alternative source of income and enable other investors worldwide to participate directly in the sectors where ZCCM-IH is investing. This, in turn, will facilitate a vibrant local stock market. The percentage of interest that ZCCM-IH will retain will be determined on a case-by-case basis. In cases where private equity investors were used to fund the project, the listing of shares will be used to generate funds to pay the investors at the end of the investment period. Consideration will also be given to other attractive markets, and not just the LuSE.
The listing on the London Stock Exchange market is historic. The performance is largely driven by the type of shareholders, who have bought shares with the intention of having capital gains over time. As such, I would say the liquidity of our listing there is dormant due to the nature of the shareholders – they are largely not active traders compared to our Euronext Access shareholders. This is the same with our Lusaka Stock Exchange shareholders – they have bought shares as property and are interested in long-term capital gains and dividend payouts. They are anticipating that the value of company is going to increase.
“ZCCM-IH is the only entry point to the Copperbelt mineral assets, and we have a dividend policy of 20 per cent of realised profits”
For investors thinking of buying stock, what would you say makes ZCCM-IH a good investment?
ZCCM-IH is a good investment because we are a well-established investment company with a diversified portfolio and significant investment in the mining and energy sectors. ZCCM-IH is the only entry point to the Copperbelt mineral assets. Apart from this, as a company we have a clean balance sheet with no debt. Much more, we have a dividend policy of 20 per cent of realised profits.
And speaking about investment in this country more generally – why invest in Zambia, and why now?
Zambia remains an attractive investment destination with substantial untapped resources. In mining, these opportunities lie in exploration for new mineral deposits, gemstone cutting and polishing, the establishment of new mines, and reclaiming – recovering copper from slag tailing dumps. Agriculture, energy, manufacturing and tourism offer lucrative brownfield and greenfield investment opportunities. The investment environment is characterised by a stable macroeconomic climate, predictable laws and policies, investment guarantees and security and a stable political system inter alia. Recent ratings by globally reputed institutions attest to the conduciveness and competitiveness of Zambia as the best destination for investment despite the global and domestic challenges.
With the rise in copper prices, Zambia’s currency has been buoyant and more revenue is being collected. What impact is this having on the country’s economy and mining sector?
Copper remains key in driving the country’s economy, and the rise in the global price of the commodity can only spell out a positive impact in terms of growth. For instance, in 2016 a copper price shock saw inflation top 20 per cent and the exchange rate top 16 kwacha to the dollar. It’s a different picture now. Copper prices have recovered, the exchange rate has been stabilised and inflation is now down to 6.5 percent. And forecasts for growth in 2017 are up – at around four percent. I believe there will be increased production this year, and hopefully mining companies will make a profit and in turn declare a dividend to ZCCM-IH. However, the over-dependence on copper mining has resulted in vast unexplored and unexploited mineral wealth. Considering the lessons learnt from the impact of the cyclical nature of the commodities market, particularly copper, the shift is now towards promoting the exploration and exploitation of gemstones and other base metals. We have already seen emeralds doing well on the international market through the various auctions undertaken by Gemfields. Most importantly, government – through the Ministry of Mines and Minerals Development under the European Union-funded Mineral Production Monitoring Support Project (MPMSP) – has a specific component that focuses on enhancing gemstone production and monitoring.
For the other metals, we have seen, for instance, cobalt (now about $60,000 per metric ton) and tin (about $20,000) performing more favourably on the international market compared to copper ($6,500). Both commodities are present in Zambia and so far we have seen new entrants in tin mining in Zimba District in the Southern Province of Zambia. In addition, a number of investments have been registered in manganese mining, which is abundant and one of the most sought-after minerals on the international markets. We believe diversification in the mining sector has taken off, but it is still early days.
Seeing that there is increased interest in metals other than copper, ZCCM-IH sees a trend towards value addition in the mining sector to complement the drive by government to industrialise. For example, small-scale miners would be funded by large mining companies in order to supply them with their resource. Further, the mining companies could set up a gemstone/precious metal exchange that would facilitate efficient trading of gemstones and precious metals. This would encourage small-scale miners as there would be a market ready at a competitive price.
What are your thoughts on the importance of integrating business operations and community development?
ZCCM Investments Holdings (ZCCM-IH) owes its continued existence to the mining industry, where, at the moment, virtually all of its investments are held. At the moment, our respective investee companies undertake various community development initiatives. As an investment company that is majority-owned by government on behalf of the Zambian people, we believe that our corporate social responsibility activities are expected to spur the entire country. ZCCM-IH embarked on the “Clean Water for Zambia” project in 2016, focused on sinking a number of boreholes as its core sustainable social corporate investment. The boreholes were earmarked for remote areas of the country with little or no access to clean and safe water.
What is your overall vision for ZCCM-IH in the medium and long term?
For the moment, diversification is key, and our long-term vision is to be the leading investment company in Zambia. We want to continue to seek and invest in sustainable value-adding projects, both short and long term, so that we create new revenue income streams and reduce reliance on dividend payouts from our assets in the mining sector. Given the current investment climate in the country and the commitment of the company to the values of integrity, professionalism, accountability and innovation, we strongly believe that international investors can only stand to leverage and benefit from partnering with ZCCM-IH.
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