Where to now for ZCI?

Finweek English Edition - - Companies & Markets -

NOW THAT SHARE­HOLD­ERS in Zam­bia Cop­per In­vest­ments (ZCI) have in ef­fect voted for the com­pany to stay in ex­is­tence and listed, two ques­tions re­main: How will it jus­tify its con­tin­u­ance and is the share worth buy­ing?

ZCI has to present the JSE with a vi­able busi­ness plan by 9 Jan­uary 2009. It has pre­vi­ously said it plans to be­come a min­ing and min­er­als group fo­cus­ing on south­ern and cen­tral Africa, en­ter­ing projects at early stages. It has specif­i­cally men­tioned a ura­nium ven­ture in Zam­bia and pos­si­bil­i­ties in elec­tric­ity gen­er­at­ing.

It’s just as well it has some con­crete op­por­tu­ni­ties, as three months isn’t a long hori­zon. But cur­rent weak com­mod­ity mar­kets and fi­nan­cial strin­gency could em­bar­rass some sound but un­der­funded prospects, so as long as ZCI can do enough to sat­isfy the JSE it could be pre­sented with some in­ter­est­ing propo­si­tions over the medium term.

How­ever, its fire­power will be lim­ited. The buy­out of­fer was at 186,48c (US), close to the 31 March NAV and was ac­cepted by hold­ers of 70,5m shares, or 55,9% of is­sued eq­uity. The re­main­ing 44,1% equates to 55,6m shares, backed by as­sets of around US$103m or 184,5c (US). Any­thing above $100m is a handy sum, but in an era where big mines can cost bil­lions, ZCI will re­main a small player. How­ever, as I said, it’s a promis­ing mar­ket sec­tor.

But is the share value for money? NAV in US dol­lars should be much the same as in March, equiv­a­lent at the cur­rent ex­change rate to around 1700c (rand). While the of­fer was open the share never went within 100c of the 1697c (rand) bid price, and then fell back to 1200c.

How­ever, as I write, a sin­gle trans­ac­tion of just one share pushed the price up to 1800c. That’s clearly an anom­aly: 20 000 shares are on of­fer at 1700c, with the best (op­por­tunis­tic) bid at 1002c.

A cash shell should trade at a 15% to 20% dis­count to NAV, so if ZCI falls back to around 1400c it could be worth pick­ing up. But as the lat­est move shows just how illiq­uid it’s be­come, it may not be pos­si­ble to deal in vol­ume.

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