CEC roadshow presentation - 22 January 2014

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CEC roadshow presentation - 22 January 2014

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  • Here is a list of all previous CEC Annual reports - this company has a great history and a great future....

    Zambia Copperbelt Energy Corporation Plc 2012 http://bit.ly/1guFaD4
    Zambia Copperbelt Energy Corporation Plc 2011 http://bit.ly/1kFLpBm
    Zambia Copperbelt Energy Corporation Plc 2010 http://bit.ly/1j2E2Z5
    Zambia Copperbelt Energy Corporation Plc 2009 http://bit.ly/18ItV54
    Zambia Copperbelt Energy Corporation Plc 2008 http://bit.ly/1b20cRp
    Zambia Copperbelt Energy Corporation Plc 2007 http://bit.ly/1kFMw43
    Zambia Copperbelt Energy Corporation Plc 2006 http://bit.ly/19GGjzE
    Zambia Copperbelt Energy Corporation Plc 2005 http://bit.ly/19GGuuL
    Zambia Copperbelt Energy Corporation Plc 2004 http://bit.ly/18pEXOJ
    Zambia Copperbelt Energy Corporation Plc 2003 http://bit.ly/1fbyEx3
    Zambia Copperbelt Energy Corporation Plc 2002 http://bit.ly/IJlPzw
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CEC roadshow presentation - 22 January 2014

  1. 1. Copperbelt Energy Corporation Plc January 2014
  2. 2. Disclaimer IMPORTANT: You must read the following before continuing. The following applies to this document, the oral presentation of the information in this document by Copperbelt Energy Corporation PLC (“CEC”) or any person on behalf of CEC, and any question-and-answer session that follows the oral presentation (collectively, the “Information”). In accessing the Information, you agree to be bound by the following terms and conditions. The Information is confidential and may not be reproduced, redistributed, published or passed on to any other person, directly or indirectly, in whole or in part, for any purpose. This document may not be removed from the premises. If this document has been received in error it must be returned immediately to CEC. The Information is not intended for potential investors and does not constitute or form part of, and should not be construed as an offer or the solicitation of an offer to subscribe for or purchase securities of CEC, and nothing contained therein shall form the basis of or be relied on in connection with any contract or commitment whatsoever. This document and its contents may not be viewed by persons within the United States or “U.S. Persons” (as defined in Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). By accessing the Information you represent that you are a non-U.S. person that is outside the United States. The Information has been prepared by CEC, and no other party accepts any responsibility whatsoever, or makes any representation or warranty, express or implied, for the contents of the Information, including its accuracy, completeness or verification or for any other statement made or purported to be made in connection with CEC and nothing in this document or at this presentation shall be relied upon as a promise or representation in this respect, whether as to the past or the future. The Information contains forward-looking statements. All statements other than statements of historical fact included in the Information are forward-looking statements. Forward-looking statements give CEC’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business. These statements may include, without limitation, any statements preceded by, followed by or including words such as “target,” “believe,” “expect,” “aim,” “intend,” “may,” “anticipate,” “estimate,” “plan,” “project,” “will,” “can have,” “likely,” “should,” “would,” “could” and other words and terms of similar meaning or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond CEC’s control that could cause CEC’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding CEC’s present and future business strategies and the environment in which it will operate in the future. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the Information or the opinions contained therein. The Information has not been independently verified and will not be updated. The Information, including but not limited to forward-looking statements, applies only as of the date of this document and is not intended to give any assurances as to future results. CEC expressly disclaims any obligation or undertaking to disseminate any updates or revisions to the Information, including any financial data or forward-looking statements, and will not publicly release any revisions it may make to the Information that may result from any change in CEC’s expectations, any change in events, conditions or circumstances on which these forward-looking statements are based, or other events or circumstances arising after the date of this document. Market data used in the Information not attributed to a specific source are estimates of CEC and have not been independently verified. 1
  3. 3. Contents Sections 1. Copperbelt Energy Corporation Plc Profile 2 Page 3 2. Rights Issue 13 3. Overview of the Republic of Zambia 17 4. The Zambian energy sector 20 5. The Zambian mining sector 23
  4. 4. Section 1: Copperbelt Energy Corporation Plc Profile
  5. 5. Copperbelt Energy Corporation Plc – History and overview CEC overview Second largest power utility in Zambia – Power distribution to the majority of the mines operating in the Copperbelt province – Power transmission for national utilities ZESCO Limited (ZESCO) and SNEL of the Democratic Republic of Congo CEC accounts for 50% of the total electricity consumed in Zambia Member of the Southern African Power Pool Wholesale broadband and internet service provider in Zambia through two JVs, Realtime Zambia (RTAA) and CEC Liquid Listed on the Lusaka Stock Exchange with Mkt Cap equivalent to c.US$141m CEC’s history 2013 Acquired a stake in the Abuja Electrical Distribution Company through KANN Utility Acquired a stake in the Shiroro Hydro Power Station 2012 CEC begins early work construction for Kabompo Gorge project 2011 Joint venture agreement with Liquid Telecommunications Holding Limited to form CEC Liquid Telecommunications Limited 2010 Awarded infrastructure investment award – 2010 “Developer of the Year" presented by Africa Investor 2009 Signed a joint venture agreement with RTAA (Pty) Limited as well as acquired 50% interests in Realtime Technology Alliance Africa Ltd 2008 CEC was listed on the Lusaka Stock Exchange following the flotation of 25% of its shares to the public and employees 2006 77% of the company was acquired by Zambian Energy Corporation 1997 ZCCM Power Division was privatized in 1997 and CEC was formed 1982 Became the power division of ZCCM, following the formation of ZCCM in 1982. 1966 Company was renamed the Copperbelt Power Company 1953 Founded in 1953 as the Rhodesia-Congo Border Power Company Sources: Copperbelt Energy Corporation Plc. CEC’s infrastructure base The principal assets of CEC are c.1,000km of primary transmission, emergency generation and bulk distribution equipment CEC has title to the transmission system and bulk distribution network on the Copperbelt The total distribution network spans c.6,000 km and includes: 41 high voltage substations; a system control centre; and the Zambia-Congo interconnector CEC is able to generate up to 80MW using gas turbine generators (operating during peak demand/emergencies) CEC also owns and operates over 520km of fibre optics on the Copperbelt on power lines, and a further 250km underground throughout the country 4
  6. 6. CEC’s Group Structure 5 Current Group Structure UK Aldwych International SA Development Bank of Southern Africa 2% Legend Ireland Mauritius Namibia Netherlands Nigeria South Africa United Kingdom Zambia Batoka Energy Holdings Ltd 20% ZCCM Investments Holdings Ltd IRE MAU NAM NL NG SA UK ZAM 60% Lusaka Stock Exchange Listed Shares ZAM Financierings-Maatschapp voor Ontwikkelingslanden N.V. (FMO) ZAM 20% NL 18% IRE Zambian Energy Corp Ltd 28% 52% MAU ZAM Copperbelt Energy Corp PLC 100% CEC Africa Investments Limited 60% Currency ZMW Listing Market Cap (mn,ZMW) Shares Out. (mn) Float % Dividend Yield % (LUSE:CEC) 780 1,000 10% 5.10% US$/ZMW 5.359 61% 40% 50% 50% ZAM CEC Liquid ZAM RTAA 100% CEC Kabompo Hydro Power Limited MAU CEC Lenux 20% Sources: Copperbelt Energy Corporation Plc. North South Power NG KANN Utility NG CEC shareholder structure CEC telecom interest CEC vehicle set up for African expansion 75% 60% Nishati Investments Limited MAU 98.5% NG Abuja Electricity Distribution Company Limited Arandis Power of Namibia NAM
  7. 7. CEC’s agreements and licences 6 Power supply agreements Mining company xx Expiration Current load (MW) Potential expansion (MW)* Chambishi Metals Plc 11 November 2012 22.5 11 Mopani Copper Mines Plc 31 March 2015 180 35 Konkola Copper Mines Plc (KCM) 20 March 2020 260 33 Chibuluma Mines Plc 7 October 2022 3.6 0.4 CNMC Luanshya Copper Mines Plc 11 January 2025 47 27 CNMC NFC Africa Mining Plc 19 November 2027 28 18 Lubambe Copper Mines Plc** 9 August 2035 17 48 Other projects 60 Total 558MW CEC’s core customer base comprises a number of mining and mining-related companies which account for almost all of the Company’s off-take Additionally, the company provides transmission services to ZESCO (domestic wheeling) as well as SNEL and other utilities in the SAPP CEC has entered into a number of long-term power supply agreements, which set out tariffs and their indexation in an agreed manner Capacity and energy demand forecasts for CEC are dependent on the level of mining activity and quality of the deposits being mined at the different mines, which is linked to the demand for copper internationally However, even when mines are placed under care and maintenance, power supplies are maintained at a fairly high level given the need to pump water and to provide adequate ventilation 230MW *Additional demand projected for the year 2018 **Demand is expected to grow in excess of 100MW beyond 2018 Further growth in demand is expected beyond the year 2018 Regulatory Environment Zambia’s regulatory authority was set up in 1997 and has since been responsible for setting and approving non-mine customer tariffs Mine customer tariffs agreed through bilateral negotiations. Agreed tariffs subject to regulatory approval GRZ and sector players looking to put in place a more robust tariff regime that should enable uptake of more costly power from IPP projects. Government Committee set up to devise tariff strategy going forward aimed at setting cost reflective tariffs based on a cost of service study for the power sector Sources: Copperbelt Energy Corporation Plc. CEC’s licences CEC has a good relationship with the Government of Zambia and the Energy Regulation Board (ERB). The Government has an indirect interest in CEC via ZCCM-IH, in which the Government has an 87.6% shareholding Electricity licences: CEC has generation, transmission, distribution and supply licences issued by the ERB. The transmission and generation licences are valid up to 31 August 2029. CEC’s current supply and distribution licences were renewed in September 2009 for periods of five and fifteen years respectively Telecommunications licences: CEC, through its joint venture with CEC Liquid Telecommunications Limited holds a Network Service Licence (Carrier of Carriers) issued by the Zambia Information and Communications Technology Authority (ZICTA), which is valid until 2025 CEC holds an Investment Licence issued by ZDA
  8. 8. CEC’s offerings Power solutions for grid connections System specification and design Tendering Contract negotiation Owner’s engineer PPA design / Tariff design / Least-Cost Power Sourcing Valuation 7 Telecommunications interests CEC fibre networks span over 770km – presence in Lusaka, Copperbelt, Lumwana, Kabwe, Livingstone, Solwezi, Chirundu Focus so far on investment in metropolitan areas Realtime JV in 2009 to provide retail telecoms services JV Agreement with Liquid Telecom in February 2011 for fibre investment Regulatory applications Power supply agreements Renewable energy Power pooling: multiple sources of supply, strong negotiating position – CEC can arrange power from multiple sources within SAPP – Able to supply any mine with a connection to the Southern African grid – This would mitigate the risk of prolonged loss of supply to any one customer – Power Packages based on SAPP Power Trading Platforms Biomass Biofuels Solar • Collaboration with CFC on use of Copperbelt wood processing waste use of wood to be harvested at Kabompo Hydro site • Establishment of a 1 million litre per annum biodiesel refinery • Provision of power to workers’ compound and offices at Kabompo hydro site – Reinforced by bilateral sourcing and wheeling agreements – Power Packages designed to meet reliability and economic requirements of mines Source: Copperbelt Energy Corporation Plc. Vision: To be the leading and natural partner for the development of renewable energy infrastructure in Zambia through establishing strategic partnerships
  9. 9. Zambian projects The following projects are current work in progress and are at various stages of development in Zambia: – USD 214mn 40MW Kabombo Gorge Hydro-electric project in North Western Province of Zambia; – 800MW Luapula Hydro Electric Scheme in the Luapula Province of Zambia, a cascade of five run-of-river hydro schemes; – Renewable Energy Projects – the CEC Board has approved the following projects: ► Small solar projects in rural parts of Zambia - a response to a tender issued by the Ministry of Energy and Water Development for the development of 12MW of solar power in rural areas; ► Construction of a 5MW to 10MW grid connected to a solar PV plant on the Copperbelt and/or Kabombo Gorge; ► CEC Renewables (Bio-Mass and Bio-Fuels): CEC commissioned a bio-diesel refinery in Kitwe in 2011, which blended with commercial diesel, and provides fuel for CEC vehicles in the Copperbelt; ► A 1MW bio-gasification generating plant at a cost of USD 3.8 mn in Kitwe. The project will utilise wood waste from the Copperbelt Forestry Company. A feasibility study commissioned by CEC indicates that there is enough feedstock for the sustainable operation of the power plant which requires 11, 000 tonnes of biomass per annum to reach the required 1MW base load capacity 8
  10. 10. Focus on Kabompo Gorge 9 Kabompo Gorge hydroelectric project The project is currently wholly owned by the CEC Group. It is intended that CEC retains a 60% interest in the project, with the remaining 40% to be held by CEC Africa To develop a Hydroelectric power plant along the Kabompo River in the North Western Province of Zambia – August 2007: Tender TB/W/020/07, by Zambia National Tender Board – October 2008: Results - GRZ awarded project to CEC led Consortium to carry out the Feasibility Study and later negotiate a BOO concession to develop the project – June 2009: Amanzi, a consortium of Gibb Engineering, Knight Piesold & SSI engaged to start Feasibility study – June 2010: Power station feasibility study completed. 40 MW underground power station recommended – November 2012: limited scope of construction commenced Regional future energy sources Hydropower: clean but longer implementation – Angola, DRC, Mozambique, Zambia Coal: faster but environmentally more challenging – Botswana, Mozambique, RSA, Zimbabwe, Zambia Renewables: being scaled up in the Region, esp. RSA with feed-in tariffs, too small to support mining Gas: unexplored resource, additional sources likely to be found in long term Funding requirements Investments to maintain and expand transmission network to meet new mining customers’ demands; Equity commitment for the 40MW Kabompo Gorge Hydro project in the North–Western Province of Zambia; Investment in the Luapula Hydro project (700MW); Funding of CEC Africa that is looking at a portfolio of power projects with attractive returns; Completion of the 2nd interconnector between Zambia and DRC; Additional capitalisation of CEC’s telecommunications interests; and Re-financing of existing facilities, which are mainly repayable within the next 30 months Source: Copperbelt Energy Corporation Plc.
  11. 11. Developing New Business Projects: CEC Africa CEC Africa has approved four projects to date: Acquisition of a 75% interest in KANN Utility Company Limited, which has acquired a 60% interest in Abuja Electricity Distribution Acquisition of a 75% interest in KANN Utility Company Limited, which has acquired a 60% interest in Abuja Electricity Distribution Company (‘AEDC’) through a process of international competitive tender. competitive tender.power in Kogi, power inNiger and Nasarawa Company (‘AEDC’) through a process of international AEDC supplies AEDC supplies Abuja, Kogi, Abuja, Niger and KANN Utility - AEDC letters of which the name ‘KANN’ derives from) in which more than 10 million people live. The electrification rate is States (the first Nasarawa States (the first letters of which the name ‘KANN’ derives from) in which more than 10 million people live. The electrification rate is around 27%, and around 27%, and AEDC has around 600,000 customers AEDC has around 600,000 customers Acquisition of a 20% interest in North South Power, which has a long term concession to operate the 600MW Shiroro Hydro Plant in Niger State. This project was also secured throughin North South Power, which has a long administered by the Bureau of Public Enterprises, international competitive tender term concession to operate the 600MW Shiroro Hydro Plant Acquisition of a 20% interest as was the case with AEDC. TheState. This largely was also secured through international competitive tender administered by thegrid connected plant is project in good working order, and currently provides around 20% of the Bureau of Public in Niger power capacity available in Nigeria. The plant has a long term Power is largely in good working with the Nigerian provides around 20% of the Enterprises, as was the case with AEDC. The plant Purchase Agreement order, and currently Bulk Electricity Trader, Shiroro Hydro Plant grid connected company that procures power on behalf of the distribution companies including AEDC. CEC which is a Nigerian Government ownedpower capacity available in Nigeria. The plant has a long term Power Purchase Agreement with the Nigerian Bulk Electricity Trader, which is a Nigerian Government owned company that procures power on behalf of the distribution companies Africa is providing operational services to the project including AEDC. CEC Africa is providing operational services to the project An acquisition of a 55% interest in Nishati Investments Limited, which owns Arandis Power, the developer of a 120MW HFO Generation plant in Arandis, Namibia. The issuance of shares is based on CEC Africa providing funding for a bankable feasibility study / project development in accordance with agreedinterest inmilestones An acquisition of a 55% project Nishati Investments Limited, which owns Arandis Power, the developer of a 120MW HFO Arandis Power Generation plant in Arandis, Namibia. The issuance of shares is based on CEC Africa providing funding for a bankable feasibility study / with development in accordance with agreed project to acquire A Joint Development Agreementproject TCQ, a company registered in Lebanonmilestones a controlling interest in a grid development and generation concession in Sierra Leone. The grid will be developed through a Public-Private-Partnership structure with the Government of Sierra Leone, whereas the generation plant will be developed as an Independent Power Producer selling to the A Power Authority’ with appropriate credit and political risk in Lebanon to acquire a Government owned ‘NationalJoint Development Agreement with TCQ, a company registered support arrangements controlling interest in a grid Sierra Leone grid development and generation development and generation concession in Sierra Leone. The grid will be developed through a Public-Private-Partnership structure with the Government of Sierra Leone, whereas the generation plant will be developed as an Independent Power Producer selling to the Government owned ‘National Power Authority’ with appropriate credit and political risk support arrangements 10
  12. 12. Historical financial summary Description/Year 2005 11 2006 2007 2008 2009 2010 2011 2012 Sales volume(MW) 505 514 Sales ($`000) 122,164 127,280 Cost of Sales ($`000) 85,797 89,897 Gross Profit ($`000) 36,367 37,383 Operating Costs ($`000) 23,802 27,179 PBIT ($`000) 15,240 12,745 521 131,746 93,000 38,746 28,085 13,306 533 177,486 127,961 49,525 34,526 17,222 436 154,169 111,798 42,371 29,377 19,126 470 167,294 121,438 45,856 33,894 19,602 481 197,539 144,738 52,801 37,777 35,205 527 259,172 188,014 71,158 50,347 30,710 EBITDA ($`000) Debtors 24,202 14,882 21,293 14,633 22,152 16,372 26,419 33,822 28,682 30,695 30,293 24,060 48,877 49,327 43,851 56,773 current Assets ($,000) 19,746 17,395 40,887 53,579 36,500 36,316 68,218 63,924 Inventory ($`000) 1,028 Current Liabilities ($`000)25,206 Acid Test Ratio 0.74 Net profit ($`000) 8,241 1,136 24,332 0.67 7,915 1,307 31,891 1.24 7,251 3,443 39,786 1.26 10,143 3,506 34,847 0.95 11,920 3,462 43,466 0.76 12,720 3,932 65,746 0.98 20,613 3,243 63,776 0.95 21,239 Equity ($`000) ROE 65,680 12% 45,630 16% 39,325 26% 158,272 8% 160,992 8% 169,316 12% 172,806 12% 274,711 277,585 307,995 308,380 Total Assets ($`000) Return on Assets 68,021 12% 136,505 6.0% 131,453 6.0% 156,481 4.6% 178,977 5.7% 4.3% 4.6% 6.7% 6.9% 2012: Note that in March 2013, CEC entered into a US$40M loan agreement with Standard Bank of South Africa, the proceeds of which were applied to equity funding of KANN Utility Company Limited.
  13. 13. Trend of key financial data 12 Revenue & growth Y-o-Y growth: +35% EBITDA & margin % Revenue & +10% growth -13% 300 Margin: +18% +31% 15% 60 CAGR (’08-’12): 10% 200 24% 17% 2011 2012 CAGR (’08-’12): 14% 50 40 US$ m 250 US$ m 19% 18% EBITDA & Margin % 150 100 50 30 20 10 0 0 2008 2009 2010 2011 2012 2008 2009 Year Cash conversion (EBITDA – capex) % on revenue: 4% 5% 8% Total debt / EBITDA 7% 10% Cash US$: 40 9m 15m 4m 2009 2010 2011 2012 1.00x 10 2m 1.50x 20 16m 2.00x 30 US$ m 2010 Year 0.50x 0.00x 0 2008 2009 2010 Year 2011 2012 2008 Year
  14. 14. Section 2: Rights Issue
  15. 15. Rights Offer Termsheet Issuer Copperbelt Energy Corporation PLC Exchange / BB Ticker / ISIN LuSE / CEC ZL / ZM0000000136 Nationality Zambia Industry Power & Infrastructure Offer structure Rights Offer to existing shareholders Rights Offer shares 625,000,000 Rights ratio 5 new shares for every 8 shares held on Record Date Base offer size ZMW 387.5m / USD70m Subscription price ZMW0.62 Listing location Lusaka Stock Exchange (LuSE) Discount to TERP 9.5% Discount to spot (16 Jan) 19.5% Primary/secondary 100% primary shares Lock-up No lock-up Currency ZMW Bookrunner Standard Bank Timing January / February 2014 14
  16. 16. Use of proceeds CEC strives to build a pan-African energy infrastructure platform In this regard, the Company seeks to expand its operations within Zambia and the rest of Africa. The Company has identified a number of growth opportunities within select countries in sub-Saharan Africa and has undertaken critical feasibility work to develop robust business plans with respect to each opportunity The proceeds of the Rights Offer will be applied: – to undertake a number of capital projects and investments – to re-finance part of a bridge facility taken out in August 2013 to acquire interests in the Nigerian power sector – The main focus of investment for CEC going forward will be the development of transmission, hydro generation and renewable energy in Zambia – CEC will also support the development of its joint ventures in telecommunications, CEC Liquid and Realtime, to further the network roll-out and provision of services based on fibre optic technology – Further detail will be provided in the Rights Offer documentation 15
  17. 17. Rights Offer Timetable 16 Date Day Event 27 January 2014 Monday CEC shares trade ex-rights 27 January 2014 Monday Letters of Allocation (LAs) listed on the LuSE 31 January 2014 Friday Last day to register for rights offer – the Record Date 03 February 2014 Monday Rights Offer opens (10:00) 21 February 2014 Friday Last day for dealing in LAs on the LuSE 26 February 2014 Wednesday Last day for postal acceptances of the Rights Offer 28 February 2014 Friday Offer closes (14:00) – earliest date 03 March 2014 Monday Results announcement – results of the Rights Offer 03 March 2014 Monday New Rights Offer Shares listed on the LuSE
  18. 18. Section 3: Overview of the Republic of Zambia
  19. 19. Overview of the Republic of Zambia Zambian overview Economic and demographic indicators (2013e) Indicators 18 Zambia Credit Rating (S&P, Fitch) B+ / B Nominal GDP (US$’bn) 22.2 GDP Per Capita (US$) 1,529.6 Gross national savings (% of GDP) 25.7 CPI (%) 7.1 Current account balance (US$’bn) -0.8 Population (m) 14.5 Source: International Monetary Fund, World Economic Outlook Database, 2013 Zambian outlook GDP outlook: Real GDP growth is forecast to accelerate further in 2014, to 7.2% from 7.0% in 2013. Estimated medium term growth of 6.7% 2014-2018 is supported by large investments in infrastructure and mines, a surge in copper production and robust growth in services and manufacturing. Economic activity will receive considerable support from public and private investment Current account outlook: The current-account position is expected to improve in the forecast period as production of copper, Zambia's main export, rises sharply. The balance will turn positive in 2015 as the trade surplus continues to widen Political outlook: Zambia possesses a competitive political environment that has been characterised by closely contested and increasingly free and fair elections. Michael Sata’s Patriotic Front (PF) should retain power until the next elections in 2016 Investment outlook: Public investment is set to rise over the medium term, as the government embarks on a quest to close the infrastructure deficit in Zambia, with particular emphasis on transport and power China’s African outlook: The abundance of natural resources coupled with the low levels of installed generating capacity has made Southern Africa a prime target of China's Africa strategy, whereby cheap credit for power projects is provided in return for favorable access to natural resources 2014 budget: The budget sees expenditure growing by 32.5% as investment in infrastructure and agriculture accelerates and debt-servicing costs rise, despite plans to freeze public-sector salary costs. The pace of expenditure growth will moderate in 2015-18 to avoid an unsustainable increase in the debt stock and servicing costs Source: Economist Intelligence Unit, Business Monitor Country Report
  20. 20. Overview of the Republic of Zambia 19 Weaknesses Strengths Large metals reserves and strong potential for growth in the mining industry. Copper, cobalt and coal being the primary commodities Heavily dependent on its mining sector for foreign income Economic policy environment has been improving over time Trade is relatively costly and time consuming due to the country being landlocked with poor transport infrastructure to regional ports Macroeconomic indicators such as inflation, real GDP growth, fiscal balance and current account balance have strengthened substantially since 2003 International observers declared the 2011 legislative and presidential elections free and fair Global competitiveness rankings 107 100 80 39 39 46 Transparency of government policymaking 11 37 Quality of educational system 6 36 Gross national savings (%GDP) Prevalence of foreign ownership 20 Legal rights index 40 Business impact of rules on FDI 21 25 Burden of government regulation 60 General government debt (%GDP) 80 Total tax rate (% profits) Source: World Bank, EIU Country Report, WEF. Quality of electricity supply 0 Quality of railroad Infrastructure WEF ranking out of 144 countries 120
  21. 21. Section 4: The Zambian energy sector
  22. 22. The Zambian energy sector 21 Electricity consumption by sector (%), 2011 4.0% Zambia's power demand vs. installed capacity 2.0% 1.0 2,000 0.6 1,500 0.4 1,000 0.2 Mt 2,500 0.8 7.0% 3,000 500 19.0% 68.0% 0.0 0 2006 Mining Households Government Industry Agriculture Sector overview MW 1.2 2007 2008 Copper Production in Zambia 2009 2010 Installed Power Capacity 2011E 2012E Power Demand Key considerations Mining sector accounts for 68% of Zambia’s electricity consumption Only 23% of the Zambian population have access to electricity Zambia is self-sufficient in all its energy sources with the exception of oil, which is imported mainly from the Middle East via Tanzania and South Africa Zambia is part of the Southern African Power Pool which allows Zambia to export and import electricity Hydropower accounts for around 95% of Zambia’s electricity production The lack of adequate power generation could disrupt operations and delay projects The demand for electricity in Zambia is estimated at approximately 1,700MW (peak) Government’s plans to increase power production are only expected to be felt towards the end of 2013 Installed generation capacity stands at 1,850MW. However, this is inadequate to meet the national peak demand Mining sector is reliant on hydropower which is at the height of electricity generation during the rainy season Mining production is sometimes limited during the rainy season due to the inability of certain opencast mines to operate at full capacity Sources: African Energy Journal, CEC, Copal Research.
  23. 23. The Zambian energy sector 22 Zambia's electricity supply system LHPC Generation CEC: transmits electricity to the mining industry (mainly power purchased from ZESCO) ZESCO: a vertically integrated company which provides over 90% of the electricity generated in the country Transmission Lunsemfwa Hydro Power Company (LHPC): produces 48MW of power which it sells to ZESCO ZESCO Distribution CEC Supply Supply Export market Installed Capacity MW 1,850 MW Mines Other consumers 1,850 MW Required Reserve Domestic market Available Capacity 185 MW (10%) Additional Capacity Required 430 MW Sources: Business Monitor Report, Regional Electricity Regulators Association, CEC
  24. 24. Section 5: The Zambian mining sector
  25. 25. The Zambian mining sector 24 Zambia: mining industry value and production Copperbelt’s mining contribution and electrical consumption 1,200 1200 1,000 1000 600 400 200 200 0 USD'mn 600 Electrical consumption of mining sector 800 400 Kt 800 Copper resources of 2.8bn tonnes 20.0 % 28.6 % 71.4 % 80.0 % 0 2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f Production Copper (LHS) Mining Industry (RHS) Local considerations Large mining sector expanding with mining and power emerging as key drivers for economic growth Mining sector historically most productive in the second half of the year when hydropower tends to be relatively low (dry season) Copperbelt Copperbelt Mines Rest of Zambia Production Coal (LHS) Rest of Zambia Mines Global considerations Attractive foreign investment for China as they seek to plug the supply deficit in copper Large copper producing countries such as Australia, Chile and Peru have had levies on mining output proposed and/or already implemented Zambia to exhibit the highest rate of growth in mined copper output out of the top six copper producers in the world Copper deposits considered of a grade averaging around 2-3% compared with a global average of approximately 0.8% Government of Zambia announced in December 2012 that they have ruled out the reintroduction of the windfall tax on mining companies' profits Sources: Business Monitor Country Report, Creamer Media’s African Mining Roundup – December 2012/January 2013, EIU Country Report.
  26. 26. Contact information Michael J. Tarney Managing Director–Corporate Development Telephone: +260 212 244901 E-mail: tarneym@cec.com.zm Website: www.cecinvestor.com Company E-mail: info@cec.com.zm Telephone: +260 211 261647 Chama S. N. Kalima Investor Relations Telephone: +260 212 244914 E-mail: nsabika@cec.com.zm Address: 37B Cheetah Road Post.Net 145, P/Bag E835 Kabulonga, Lusaka Zambia

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