Saturday 19 January 2008

Angry ZCI shareholders consider legal options

Mining MX reports that speculators hoping to make money from the sale of ZCI's shares in Konkola Copper Mines (KCM) to majority shareholders Vedanta Resources under a 'call option' are very disappointed by the outcome of a valuation of the shares. Independent investment bank Rothschilds has issued its long-awaited valuation of the stake - it can be downloaded from the ZCI website. Rothschilds has valued the stake at $213.15m, shocking investors and dropping the value of ZCI shares by a massive 48%.

Because the valuation dates back to what the company was worth in 2005 it misses the effects of the current boom in world copper prices. However, the valuation is binding on ZCI, and while Vedanta has a "reasonable time" to decide whether to exercise its option, it seems likely they will chose to 'consolidate' their hold on KCM.

Shareholders who have contacted Minewatchzambia anonymously suggest that legal action to try and block any purchase is likely. Amongst other complaints, the shareholders argue that the basis on which Vedanta claims a right to a 'share call' is unclear - they say no documentation has been made available to shareholders in ZCI.

5 comments:

Anonymous said...

Hello. I am very impressed with your blog. I have been following it for quite some time now and I am writing about the ZCI-Vedanta call option announcement.

I am a French resident with shareholding in ZCI. As I think you can imagine our (shareholders) disappointed at the valuation of ZCI. There are so many arguments against this call price. Many here expected "at least" $400 million and not the meagre sum of $213m! You are right then: we are now looking deep into the the possibility of a law suit against this call.

Apparently many of us expected the valuation to include the Konkola Deep mines but apparently this was not included by Rothschild.

Many shareholders also believe there is an offence of initiate ... the president of the AMZCI (he is an administrator for the minority shareholders of ZCI), Mr. Michel Clerc, clearly suggested to his shareholders that they buy the shares days before the announce, pumping up the share prices the next day ... but they then dropped drastically days after. The day before the call option was announced, the share prices dropped quite drastically ... and hours before the announcement many started to worry ...

In any case, I am sure you too are perplexed. I don't know if you speak French but here is a link of a forum in France that talks about ZCI.
http://www.boursorama.com/forum/file_messages.phtml?symbole=1rPCV&page=1

Please ignore much of the vulgarities (!) in this forum ... many of the shareholders are NOT happy :o(

I would also like to show you a message from AMZCI site :
http://www.amzci.net/Site/Site/31B66635-F707-4EBD-9C4D-4428700E537D.html

I believe you don't speak french, but you can use Google translation ... not excellent, but it gives you an idea what Mr. Clerc is saying.

For the 2nd January message : The last paragraph tells the shareholders (in French) "My role is not as a financial adviser, but I invite you to hold on to your shares and to reinforce your positions (in other words, to buy more!) whilst there's still time" ... the share price shot up the next day (3rd Jan), and then dropped again, and again for the next week or so until the announcement of the call option. And another thing to notice is that on the 15th Jan, the share price was very volatile (if you look at the valuation made by Rothschild, it was actually concluded on the 15th January).

Now we get to the new message dated 17th January by Mr. Clerc. In paragraph 7, he wrote "We have succeeded, and it's only a small consolation, in postponing the suspension of the quotations in Johannesburg by a few hours, allowing the administrators of ZCI to warn you of the consequent results of the valuations."

My goodness!!! What is he playing at ... there are certainly not matches. Is he telling the truth in the 2nd January message ... to tell us to buy more ZCI shares because it's worth it (but can he do that?), or did he or his family members sold the shares for a high price the next day?
In the 17th January message ... he tells us that the suspension in Johannesburg was being DELAYED!!! If it's true, then this is what I would consider as an offence of initiate!! (which in fact goes for the 2nd jan. message to tell shareholders to buy more shares!).

So I have lots of questions.

1) Did certain "big" shareholders knew about this valuation before the rest of the public (which was the 17th january)?
2) There is still a missing document ... the call agreement! What does the agreement contain? How can Rothschild "ignore" the Konkola Deep?
3) Why was tradiong in shares not suspended before the announcement of the call option? Why was it allowed to go on for hours after the announcement? making the share price drop more than 70% on the first day (the 17th january) and continues to be quoted on the market the day after even before knowing if Vedanta accepts the call (which we assume that Vedanta will accept it ... for the price, who won't!?). In fact there are many many questions unanswered.
I hope you will find out more about this "secret" call agreement ... does it exists at all?

We (the shareholders) are doing our best here in France to show our discontent with the valuation of ZCI. We have contacted ADAM (Association de defense des actionnaires minorites by the famous Colette Neuville); DEMINOR, and many others. I have lost some money, nothing major ... but there are those who lost at least 20% - 30% of their heritage since the 3rd January after the announcement of Mr.Clerc to reinforce their position in shareholding.

Finally, before I forget, the last paragraph of your blog on ZCI/Vedanta :
"Potentially, the issue here is not whether ZCI should have done more to make the CDF operational, but whether Vedanta has any right to have paid so few dividends to shareholders, retaining 97% of earnings, supposedly for investment in the Konkola Deep project, when Vedanta's Development Agreement says that the majority of funding for KDMP should come from external sources. The promise of this massive investment was one reason Vedanta secured KCM so cheaply in the first place." is very important, and it has caught a lot attention with the shareholders here.

Thanks again.

Anonymous shareholder, ZCI

Anonymous said...

Some extra info. about the call option deed .. and why the valuation from Rothschild did not include the reserves of the KDMP when in the terms of the Deed we have :

6.6.1. Vedanta Call Option Deed.
Vedanta will have a call option over ZCI’s shares in KCM, exercisable on either a positive development decision on the Konkola Ore Body Extension Project or the achievement by Konkola mine, a division of KCM, of 3 million tpa of ore production for four consecutive quarters. The exercise price will be the prevailing fair market value of ZCI’s KCM shares as agreed to between ZCI and Vedanta or, failing agreement, as determined by an independent international investment bank.

6.6.2. ZCI / ZCCM-IH Call Option Deed

If the KCM board of directors decides not to proceed with the Konkola Ore Body Extension Project, then ZCI and ZCCM-IH will have a call option over Vedanta’s shares in KCM, exercisable on or after 31 December 2009 at the prevailing fair market value of such shares. However, if Vedanta can demonstrate, at any time before the exercise date of the call option, that an additional five years production for the period from 2013 to 2017, at 175,000 tpa of produced finished copper utilising the areas covered by the existing KCM mining licences (together with the adjacent areas) is achievable, then the exercise date of the call option will be deferred for a period of five years, such that it may not be exercised prior to 31 December 2014.

And the scandale continues. Rothschild had made a valuation of KCM in 1997 ... valuated at a much lower copper price and the non-existence of a KDMP mine ... at US$2bn !!

Alastair Fraser said...

Hi to the second commentator - could you just clarfiy what the 'call option deed' you are quoting from is? A contract between who and who, signed when? The Government and Vedanta? Separate from the Development Agreement? As part of the Development Agreement? I have never been able to get hold of their Development Agreement and in the original group of documents that I sourced and posted on this site, I was only given Anglo's DA. It has never been clear if this was simply passed on to Vedanta. Could you clarify? Thanks, Alastair

Anonymous said...

Hi Alastair, in response to your question above. The mentioned deed comes from a "circular to shareholders" dated 11 Oct. 2004 on Page 18 and 19 (sections 6.6.1 and 6.6.2). But whether there is another call option deed made between Vedanta and ZCI .. I do not know.
http://www.zci.lu/ZCI%20circular%20FINAL5.pdf

Anonymous said...

Vedanta completes exercise of KCM call option

10 April 2008

Vedanta Resources plc (“Vedanta”) is pleased to announce its completion of the acquisition of
the KCM call option shares for US$213.15 million, the amount determined by the independent
valuation as at 12 August 2005. This purchase represents 28.4% of KCM and takes Vedanta’s
holding in KCM to 79.4%, with the balance continuing to be held by the Government of the
Republic of Zambia. The transaction is funded out of existing cash resources. Vedanta has
received confirmation that the Zambian merger control regulation does not apply to the
transaction.


“Consolidation of the group structure is a key pillar of Vedanta’s strategy. The successful exercise of this
call option is a significant milestone towards achieving this objective.” said Mr. Anil Agarwal,
Chairman, Vedanta Resources plc. “This transaction is immediately earnings accretive and will also
substantially enhance longer term value for all our shareholders.”