| Thu 24 Jan 2002, 0:00 | | Anglo American Plc - News Release |
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Anglo American plc
JSE Code: AGL
ISIN Code: GB0004901517
News Release
24 January 2001
Zambia Copper Investments Limited ("ZCI") concludes strategic review of its
investment in the Konkola Copper Mine ("KCM") operations in Zambia
In March 2000, ZCI announced that it had acquired an interest in KCM and
that KCM had executed a number of agreements with the Government of the
Republic of Zambia and Zambia Consolidated Copper Mines Limited ("ZCCM")
which provided for the investment in and development of the assets acquired
by KCM.
KCM is owned 65% by ZCI (which is 50.9% owned by Anglo American); 7.5% by
the International Finance Corporation ("IFC"); 7.5% by the CDC Group plc
("CDC"); and 20% by ZCCM Investments Holdings ("ZCCMIH"), which is 87.6%
owned by the Zambian Government.
At the time of acquiring the interest in the KCM operations, ZCI stated that
the development of the Konkola Deep Mining Project (KDMP) was the main
rationale for the acquisition.
ZCI announced the deferral of KDMP in October 2001, following the completion
of a feasibility study in mid 2001. The deferral decision was based on the
difficult market conditions for copper and cobalt and the non availability
of the required project financing.
Under the Development Agreement between KCM and the Zambian Government,
there were a number of conditions precedent to proceeding with KDMP
including:
- that substantial third party limited recourse project finance had to be
available on reasonable commercial terms. (Cash flow from existing
operations was forecast by ZCI to contribute in excess of 50% of the peak
funding requirements of KCM during the construction period of KDMP); and
- that the price of copper had to have exceeded an average of US$1700/t in
real terms (77c/lb, equivalent to 79.8c/lb in 2001 money terms) over the 12
month period prior to any decision to proceed with KDMP.
Since late 2000, copper and cobalt prices have been significantly weaker
than had been originally forecast. As a result, and notwithstanding the
significant US$174 million refurbishment capital that has already been
invested and the commendable performance of KCM's employees in improving
productivity, lowering unit operating costs and improving safety health and
environment performance, KCM has continued to incur substantial losses. The
accumulated losses since March 2000, based on the current unaudited estimate
of KCM's results for the year to 31 December 2001, amount to US$108 million.
In the last 12 months the price of copper has averaged 71c/lb and in
addition, current estimates of world economic growth suggest that near term
copper prices will continue to be materially weaker than originally
envisaged.
Primarily as a result of weaker actual and projected copper prices and
notwithstanding the fact that such prices are projected to recover from
their current cyclical lows, the external financing requirement for KCM (to
fund existing operations and construct KDMP) has increased materially from
US$300 million to approximately US$1 billion.
KCM has been advised, and ZCI believes, that there is no reasonable prospect
of being able to raise the required project finance for KDMP on normal
commercial terms.
As a result of the level of ongoing losses and the fact that the
aforementioned conditions precedent to proceeding with KDMP had not been
satisfied, KCM was requested to produce a strategic review of the options
open to the company. All of the investment models run by the company
indicated that, whether or not KDMP went ahead, significant incremental
shareholder funding would be required over and above the US$370 million in
commitments that have already been given by shareholders. It is ZCI's
assessment that none of the funding shareholders will be prepared to carry
on investing in KCM over and above the amounts committed at the time of the
initial acquisition of the KCM assets in March 2000.
Without the prospect of being able to develop KDMP, Anglo American and ZCI
have concluded that further investment in the existing KCM operations, which
are high cost and have a relatively short life, is not justified and would
not be value enhancing for their shareholders.
The shareholders of KCM are currently considering all available options,
including sale, transfer of the assets on a going concern basis, or closure
in a socially and environmentally responsible manner.
ZCI is committed to working with the other shareholders of KCM, the
Government of Zambia, the donor community, civil society and other private
sector parties to seek to minimise the impact of the decision not to invest
further in KCM over and above existing commitments. In the absence of
substantial additional financing becoming available to KCM or the sale or
transfer of the assets on a going concern basis, it is anticipated that
operations will cease in approximately 12 months.
Anglo American has informed ZCI that it will honour its existing funding
commitments to provide ZCI with up to US$310 million in funding for on-
lending to KCM. Of that amount Anglo American had, at 31 December 2001, lent
ZCI US$190 million (US$214 million including accrued interest) which the
latter has on-lent to KCM. (The undrawn amount will be used by ZCI and KCM
to meet their respective obligations as they fall due including, in the case
of KCM, repayment of existing debt). Anglo American has, however, also
advised ZCI that, as ZCI sees no reasonable prospect of the project
financing condition precedent with regard to KDMP being satisfied, it is not
prepared to provide additional financial support to ZCI over and above
existing commitments.
It is Anglo American's intention to take an exceptional charge of some
US$350 million against its 2001 income as a provision in respect of the
carrying value of Anglo American's investment in and its loans to ZCI
together with a current estimate of any additional liabilities related
thereto.
Tony Trahar, chief executive of Anglo American plc commented that "this has
been a difficult and deeply regrettable decision for all involved. Anglo
American will play its part energetically in working with all parties
including the Zambian Government to find a way forward. It is important to
recognise the major strides made in rehabilitating the KCM assets and the
efforts and commitment of the KCM employees. However, against the
background of losses of over US$100 million, low real copper prices and the
non availability of the required project finance it is not realistic to
proceed with the development of the Konkola Deep Mining Project."
For further information:
Anglo American - London
Investor Relations Media Relations
Nick von Schirnding Kate Aindow
Tel: +44 20 7698 8540 Tel: +44 20 7698 8619
External Affairs
Edward Bickham
Tel: +44 20 7698 8547
Anglo American - Johannesburg
Investor Relations Media Relations
Anne Dunn Marion Dixon
Tel: +27 11 638 4730 Tel: +27 11 638 3001
Mobile: +27 82 448 2684 Mobile: +27 82 775 5520
External Affairs
Mike Spicer
Tel: +27 11 638 3870
Mobile: +27 83 227 1319
Sponsor:
Cazenove
Notes to Editors:
Anglo American plc is one of the world's largest mining and natural resource
groups. With its subsidiaries, joint ventures and associates, it is a global
leader in gold, platinum group metals and diamonds, with significant
interests in coal, base and ferrous metals, industrial minerals and forest
products. The group is geographically diverse, with operations in Africa,
Europe, South and North America and Australia. (www.angloamerican.co.uk)
