Where to now for ZCI?
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.