PRIVATE AND CONFIDENTIAL ZCCM INVESTMENTS HOLDINGS PLC MATTERS ARISING – 71ST BOARD MEETING HELD ON 8 DECEMBER 2015 Page No. Minute MATTER ACTION/STATUS 2 5.2.1 Obtaining licences for Tailings Dumps (TDs) 25, 26 and 27 and status of transfer of reprocessing licences to Copper Tree Minerals Limited (Copper Tree) The Board was informed that the issuance of the reprocessing licences for the TDs awaited the approval of the Environmental Impact Assessment. Misenge was in the process of submitting the final report to ZEMA for final approval. The licences were transferred to Copper Tree (the Special Purpose Vehicle that ZCCM-IH and Horison will use to exploit the TDs) and endorsed on 20 March 2015. The licences were subsequently collected by Copper Tree. 3 5.2.2 Refund of expenses spent on Nkandabwe The Board was informed that the letter requesting GRZ to acknowledge the debt was sent to the PS Mines in the week beginning 30 November 2015. The PS-Mines informed the RC on 16 March 2016 that a letter acknowledging the debt had been sent to ZCCM-IH. Management will follow up to receive a copy of the letter. 3 5.3.3 Tax refunds on dividends for shareholders based in France The Board was informed that the second and third batches of 58 and 31 applications, respectively awaited approval by the Zambia Revenue Authority (ZRA). The batch of 31 applications were approved for refunds by ZRA and received in the week ending 11 December 2015. These have since been paid. A further 11 approved applications received in January 2016 have been paid. A third batch of 27 approved applications was received in early Match 2016 and is under processing for payment. The final list of 21 applications is expected to be received before 31 March 2016. 3 5.2.4.2 Sell Down of the GRZ B Shares; compensation of work done With respect to the settlement of K1,577,277 invoiced by Lewis Nathan Associates (LNA), the firm earlier engaged as the Legal Advisor, the Board was informed that Management would send a letter within December 2015 to LNA indicating that there was no work done warranting payment. The letter was sent to LNA. 4 5.2.5.4 Resolution of dispute on Kansanshi deposits Upon Management recommendation, the Board Resolved that Legal proceedings be commenced against FQM for having removed monies from Kansanshi without the Board’s authority and for not having accounted for the said monies. The appointment of M Sullivan (the UK based lawyer) was approved by the Procurement Committee at the beginning of March 2016 to obtain a ‘No Objection’ from ZPPA to direct bid. A letter has since been sent to ZPPA and a response is awaited. Mr Sullivan will be engaged to commence legal proceeding against Kansanshi. 5 5.2.6.4 Progress on the Purchase of Building for Office Space The Board was further informed that a letter was sent to ZPPA to inform them that the price was negotiated down to US$7,700,000 exclusive VAT. Guidance was being awaited. ZPPA responded that ZCCM-IH could proceed with the purchase of Trinity Park. The Procurement Committee gave the final approval in February 2016. The purchase has since been completed and monies paid accordingly. It is intended that ZCCM-IH will move to Trinity Park in July 2016. With regard to revaluation of the pay back period, the Board observed that the model used in the revised computation was wrong as it did not take into account the residual value. Further that the assumption on rentals was not stated. The Board directed Management to re-do the computation and use other models such as the Net Present Value, discount factor, rate of opportunity or investments appraisal. The revised paper will be submitted to the Directors within the month of April 2016. 5 5.2.7.1 Tranter Resources On the Board directive to Management to resolve the governance problem with respect to the positions that Dr S Mulenga held, the Board was informed that Dr Mulenga had agreed to relinquish the Chairmanship of the Steering Committee and remain as Project Manager. The matter would be formalised at the next Steering Committee meeting. This has been done and Mr S. Mubano has since been appointed as the Chairperson of the Steering Committee. The Board observed that the results appeared too good and reiterated its directive to Management to independently verify the results. An independent consultant to confirm the diamond drilling results is yet to be engaged. In the meantime, Dr Mulenga will present a paper to the Directors on 29 March 2016 on the status of the Tranter Project. 6 5.2.9.1 and 5.2.9.1.2 Konkola Copper Mines (KCM) Plc’s outstanding payments under the Settlement Agreement (SA) and the declared but unpaid dividend The Board was informed that the procurement process to engage Clifford Chance (CC) was initiated. CC would be engaged to under take legal action on ZCCM-IH’s behalf against KCM to recover the amounts due under the SA. Following clearance by the Attorney General, Clifford Chance has been engaged. GC to provide information on what next With regard to conversion of US$50 million of the total amount due under the SA into equity, the Board was informed that CC would provide advice as to whether this was tenable under Zambian law and if so, the type of shares to be applied. CC is studying the matter. Management awaits guidance. 6 5.2.10. Cement Project The Board was informed that following a due diligence visit to SinoConst (the potential strategic partner) in China, a paper would be submitted to the Investments Committee of the Board (ICB) by 31 December 2015. A status report on the Cement Project was submitted to the ICB. This ICB will present a summary on the matter. 6 5.2.11 Redesigning of the ZCCM-IH website The consultant targeted to have the redesigned website running by 31 January 2016 The redesigning is yet to be completed. CEO asked Director Taussac to join the liaising with the consultant. 7 5.2.12 Proposed Organisational and salary structure for Technical Directorate The Board was informed that Employees of Mawe would be given three months’ notice to terminate employment in December 2015. These employees would be engaged by ZCCM-IH at the end of the notice period. All Mawe employees had their contracts of employment terminated with necessary notice. These have now been engaged in ZCCM-IH from 15 March 2016. 7 5.2.13 Recruitment of additional staff in RIA The Board was informed that this matter would be considered in the 2017 budget. The process of recruiting two employees in RIA Directorate has been initiated. The work plan in the RIA Report for the quarter ended 31 December 2015 has included an assessment of the optimum number of staff required in RIA. The AC will report on this matter. 7 5.2.14 Mr A J Lungu benefits claim The Board agreed that the matter be deferred for consideration at a Special Board Meeting envisaged to be held in January 2016. The matter awaits guidance from Director Mwananshiku. 8 6.2 Include computation of ratios in quarterly financial statements in dollars In the review that ensued, the Board directed that Management should include a computation of ratios in dollars in the Quarterly Financial Results in order to provide a realistic and more meaningful indicator of the company performance. Management will incorporate this the Management Accounts for the quarter ending 31 March 2016. 8 7.2.5.1 to 7.2.5.5 Set up of ESOP The Board approved the following: The setting up of the ESOP for the purposes of buying shares under the GRZ Sell Down. 65% of ZCCM-IH employees subscribed for shares. With regard to comparing practice in other listed companies, two companies, CEC & and Lafarge Zambia Plc have been contacted and information on their practices obtained. Necessary procedures and forms to be signed by all employees will be developed by 30 April 2016. 11 8.2.3 Directors’ Half Yearly Summary for the period ended 30 September 2015 Management was directed to probe the figures and the accounting treatment which resulted in Kansanshi’s huge loss attributed to VAT refunds written-back. The probe should also apply to the huge deferred tax. The matter is yet to be dealt with. 11 8.2.4 The Board Resolved That the Directors’ Half Yearly Summary for the period ended 30 September 2015 be and is hereby approved for issuance to the public subject to clearance by SEC and LuSE. LuSE did not approve the Summary stating that ZCCM-IH should clearly tabulate when the March 2015 Accounts would be ready for approval and issuance. The Summary will be sent back to LuSE for clearance and issuance shortly after the Notice for the AGM is published. 12 8.3.5 Supplementary Budget for forensic audit of Kansanshi Mining Plc Further to discussion and upon recommendation of the AC, the Board Resolved that a supplementary budget of US$2.5 million for the forensic audit of KMP be and is hereby approved. The Board further Resolved that the following be and are hereby approved: In principal, Mr Michael Sullivan, the UK lawyer, be engaged to provide legal services to pursue ZCCM-IH’s claims from KMP. The appointment of M Sullivan (the UK based lawyer) was approved by the Procurement Committee at the beginning of March 2016 to obtain a ‘No Objection’ from ZPPA to direct bid. A letter has since been sent to ZPPA and a response is awaited. 13 8.5.4 Position of CEO to be made part of the Board composition The Board Resolved that, subject to approval of the majority shareholder: The CEO position in ZCCM-IH be made to be a member of the Board. A letter was sent to the IDC on 4 January 2016. A response was received on 19 February 2016 consenting to the request. The Administrative processes have been initiated and will end with ratification at the AGM in April 2016. 15 & 16 9.3.2.1, 9.3.2.3.1 to 9.3.2.3.4 and 9.3.4 Additional funding for the NLC The Board Resolved that: 1. Approval be and is hereby given that ZCCM-IH should finance US$3.6 million to Ndola Lime Company Limited (NLC) NLC as additional equity to be used for completion activities of the Recapitalisation Project. 2. The following cost-cutting measures should be undertaken by NLC as a condition to the said financing; ? Disband the soccer team. ? Reduce the canteen expense by 50% through eliminating the subsidy provided to senior management. ? Eliminate overtime by introducing shifts. ? Avoid the hiring of meeting rooms by using the facilities at NLC and ZCCM-IH. 3. In principal, a labour restructuring cost of US$2 million be and is hereby approved for NLC to be financed by ZCCM-IH. 4. The necessary actions to downsize the number of employees at NLC be initiated immediately. The US$ 3.6Million was provided. In light of the continued and prolonged economic difficulties at NLC, the Board approved the ICB’s directive to Management to expeditiously identify the optimum skills and number of employees needed to run NLC, and initiate procedures to lay-off the excess staff. The restructuring committee has completed its report and this will be submitted to the Board before 31 March 2016. 17 9.4.2.1 to 9.4.2.3 PROPOSED RESTRUCTURING OF THE SHAREHOLDER LOANS ADVANCED TO LUBAMBE COPPER MINE LIMITED The Board Resolved that: 1. The proposed restructuring of the shareholder loan in Lubambe, into a long term loan repayable after a given moratorium, be and is hereby approved. The computed outstanding balance as at 31 March 2015 being USD93,006,418.26 or equivalent amount that would be verified and confirmed. The moratorium period and the payment plan would be discussed and agreed with other shareholders in Lubambe. 2. The restructuring be subject to ARM and Vale (the other shareholders in Lubambe) consenting to restructure their loans proportionately. The Lubambe shareholder loan due ZCCM-IH was impaired in the 2015 Financial Statements. ARM and VALE are unable to restructure their shareholder loans as they have consult the third party lenders. 18 10.3 Retained earnings in KMP 1. The Board directed that the operations budget for KMP should be ascertained by an expert to establish the optimal level of retained earnings and the appropriate capital structure. 2. With regard to the excess retained earnings, the Board directed Management to engage KMP and demand that dividends be declared. This engagement should be pursued separately from the legal claims against KMP. The Board further directed Management to compute the break-even point for KMP. This has not been done. Information on the quarter ending December 2015 was received late from Kansanshi. Management will commence the review immediately after the Board meeting. 21 12.10.1,12.10.2 and 12.12 Underwriting of Investrust Bank Plc’s Rights Issue The Board Resolved that the following be and are hereby approved: 1. ZCCM-IH should underwrite the rights offer issue for Investrust for raising K40,000,000 (forty million Zambian Kwacha) to be applied towards attaining the minimum regulatory capital requirement for a locally owned Zambian commercial bank. 2. ZCCM-IH should follow its rights under the Investrust Rights Offer and subscribe for its proportionate shareholding. The Underwriting Agreement was executed on and the K40,035,000.70 was disbursed on 2nd March 2016. ZCCM-IH also followed its rights under the rights issue. Investrust subsequently paid the Underwriting Fee of K800,700.01 on 17th March 2016. The Rights Offer closes on 1st April 2016 and ZCCM-IH should receive any claw back refunds available by 8th April 2016. The Board directed that other mechanisms of underwriting should also be considered such as the use of preference shares. Further that the share price for rights offer of K11.44 should be negotiated for an additional discount given the dismal performance of the bank and to increase uptake from existing shareholders The offer price for the rights issue was arrived at after Investrust had contracted SBZ to undertake a valuation of the bank and arrived at an average share price of K14.59 The offer price therefore translated in to a 15% discount to the market price of K13.50. ZCCM-IH Management’s desktop valuation computed the intrinsic value of Investrust Bank Plc stock of K10.23 given a rights issue price of K11.44. When Underwriting fee of 2% was taken into account the resultant premium that ZCCM-IH will effectively be paying reduced to K0.98 per share. 22 13.1 Impact of the impending increase in electricity tariffs and fuel prices on mining companies The Board directed Management to undertake an exercise to ascertain the potential impact of the impending increase in electricity tariffs and fuel prices (i.e. following the removal of subsidies) on the mining companies. Electricity charges for mines were increased to 10.35 cents/kilowatt hour (kWh) in January 2016. With the imported cost of electricity at 19 cents/kWh, tariffs may be raised again. Cost-reflective tariffs are a prerequisite for attracting independent producers to Zambia’s power sector. With hydroelectricity production well below capacity because of the drought, Zambia’s power-sector deficit is likely to persist. This is likely to constrain mine production even if copper prices recover further from current levels. Increased power supply from the 300MW coal-fired MCL project is expected by August 2016, but most mine operators expect power-sector shortfalls (estimated at between 600-1,000MW) to constrain supply until next year. Potential changes to the mining tax regime, with plans for a sliding-scale royalty regime that varies with the price of copper, are unlikely to make much of a difference to mine output levels near-term. There are no immediate indications of fuel price increases but any increase in the pump price of fuel will result in an increase in costs to the mines and thus impact the profits negatively as will the increase in electricity tariffs.