Dr Guy SCOTT
Vice President of Republic of ZAMBIA
April, 6th 2013
Open letter to your Honour, the Vice President of Zambia, Dr Guy Scott,
Dear your Honour,
We are writing to you as long-term minority shareholders of Zambia Consolidated Copper Mines –
Investment Holding (ZCCM-IH), the investment holding company of the Zambian Government. Along
with a large number of shareholders of the company, we very much welcomed the victory of the
Patriotic Front after years of opacity and doubtful governance of the company with the hope and
expectation of more transparent and dynamic governance and management for the benefit of all
stakeholders : shareholders, the Government of the Republic of Zambia (GRZ) and the Zambian
people. We apologise for the length of this letter, but there is a great deal to be said.
Early last year our expectations were raised further when ZCCM-IH launched a call for nominations to
elect a representative of minority shareholders to the Board of ZCCM-IH (see Appendix 1). The GRZ
holds 7 seats on the board and the nomination of an eighth member to represent minority shareholders
was seen as a significant effort improve the corporate governance of the company by letting minority
shareholders have their say in company matters in proportion to their holding (12.3% of ZCCM-IH
shares traded on Paris Euronext, the London and the Lusaka Stock Exchanges).
The first part of this letter concerns the continued and persistent bad governance of
ZCCM-IH with respect to minority shareholders as demonstrated by the way this
election of the eighth board member has been handled.
The minority shareholders made a very strong and co-ordinated response to this call despite starting
from the considerable disadvantage of not being recognised as registered owners of ZCCM-IH shares.
Indeed, the Company Secretary, Mr Chabala uses an obsolete Register of Shareholders which does not
list the owners of any ZCCM-IH shares bought through the Paris Euronext Stock Exchange (the most
active of ZCCM-IH’s markets). Strangely, shares of the old ZCCM bought decades past in the UK and
whose owners died many years ago are listed as registered shareholders. To compound this failing, Mr Chabala refuses to recognise official bank or broker’s certificates attesting to the ownership of ZCCMIH
shares. We have repeatedly asked the Company Secretary to correct this failure and have explained
the procedure to be followed to update the register, without success. As a consequence of this
unacceptable attitude, most minority shareholders are denied their legal right to attend company
meetings or to vote directly on company matters.
In order to respond to this “Call for nominations” minority shareholders had no choice but to adopt a
very laborious and indirect voting procedure (via their stockbrokers, banks and Euroclear, the
International Share Depository that records all share ownership and transfers) to ensure that their votes
Unfortunately, but not surprisingly to us, the company has refused to make public the result of this
vote (even though we know very well that the minority shareholders gave a clear mandate to their
chosen representative by a very large majority of the votes submitted). Since than the Executive
Chairman Mr Wila Mung’Omba, in a totally unacceptable act of bad governance, has postponed
indefinitely the nomination of the eighth board member to represent the minority shareholders.
We do not know the reasons why the Executive Chairman wants to keep minority shareholders
excluded from exercising their democratic rights in matters of governance of the company of which
they, alongside the GRZ, are the owners and who have the same reasons to make sure that this
company is properly run for all the stakeholders. We fear that the Executive Chairman may be
planning a biased and unethical conversion of government debt into ZCCM-IH shares (see appendix 2)
leading to severe dilution of the minority shareholding thus making the nomination of the eighth board
member no longer an issue and giving him the freedom to run the company single-handedly. The
opacity of the companies intentions and the past years of poor (or corrupt) governance give credence
to even the worst scenarios.
Having exhausted all other avenues of intervention (letters to successive Chairmen, the Zambian
Securities and Exchange Commission (SEC), the Lusaka Stock Exchange etc.), we humbly ask for
your help to ensure that the legal rights of the Minority Shareholders of ZCCM-IH are upheld and that
the company finally applies the rules of good corporate governance. The credibility of foreign
investment in Zambian securities is surely weakened by the failure to ensure high standards of
governance of this most emblematic government-controlled Zambian company and can only bring
dishonour to the Zambian Government.
The second point of this letter concerns the ineffective management of the company
that has led to ZCCM-IH and through it the GRZ and the Zambian people being
cheated and short-changed by the foreign mining companies in which it is invested.
We would like bring to your attention just a few of these issues.
− According to the international auditors Grant Thornton, Mopani Copper Mines fraudulently
avoided $175 million in corporation tax to the ZRA in the 5 years from 2003 to 2008, by
various fraudulent procedures including transfer pricing to the Swiss parent company Glencore
and misrepresentation of production figures and production costs. In this same period ZCCMIH
also lost $50 million per year in profits from Mopani (see appendix 3). Why has ZCCM-IH
together with the Government and the Zambian Revenue Authority failed to take any action
whatsoever to recover these fraudulent losses? Why has no pressure been put on Mopani to
come clean or otherwise lose its mining licence? Recovering these fraudulent gains from
Glencore along with due penalties would make a big difference to the well-being of the
Zambian people as well as dissuading other companies from doing the same.
As Vice President you said “We don’t want to destroy the cow that produces the milk but we
want to make sure that you get your share of the milk” (see appendix 4). In this case why do
you let Glencore take your share of the milk?
Why has the new audit of mines initiated by the former Mines Minister Wilbur Simuusa not
been finalised and made public (see appendix 5)? And why has the current Minister of Mines
Yamfwa Mukanga failed to take action on this scandalous situation, whereas in 2011, he stated
“no government official must protect Mopani Copper Mines for violating the law” and
“Mopani should be punished” (see appendix 6).
− In 2007, the Zambian Task Force on Corruption investigated in a fraudulent loss of $ 100
million at the expense of ZCCM-IH. These investigations helped to identify those responsible
as well as the banks that received the stolen funds (see appendix 7), but as surprising as it
sounds, no action was taken! All the investigations that were started during the presidency of
the previous President Levy Mwanawasa have been stopped. Why were they not taken up since
the election of the new President 18 months ago?
− ZCCM-IH hold a 20% stake in Kansanshi Mining, the most profitable Mining Company in
Zambia. The ZCCM-IH stake in Kansanshi currently represents $550,4 million in undistributed
profits attributable to the Zambian holding (see appendix 8), a sum that increases by more than
$100 million per year. However the majority owner First Quantum Minerals (FQM) insists on conserving this money as a legal reserve and only distributes derisory dividends to ZCCM-IH
in spite of having made more than $2,5 billion in net profits in recent years and having totally
recovered its investment in the mine. Why does the ZCCM-IH management and the GRZ fail
to put pressure on FQM to distribute fair dividends to ZCCM-IH and so get its proper yield
from the most important investment held by ZCCM-IH on behalf of the GRZ? As this scandal
continues, FQM is using Zambia’s money to build the world’s largest mining corporation by
buying other mining companies outside Zambia. When will the GRZ take action to get its fair
share from its vast mineral wealth and put a stop to foreign companies plundering its
resources? What will the Zambian people have to live on once these resources are depleted?
Without all these management failures, ZCCM-IH would have been able to register income of more
than $1 billion and so refund the long-standing debt of $425 million to the GRZ as well as paying
dividends to shareholders (including the GRZ) and investing in the Zambian economy. Had ZCCM-IH
benefited from good governance, good management and strong support from its majority shareholder
the GRZ, to make sure that it got its fair share from its mining investments, it would now be a
flourishing company providing wealth, employment and pride for the Zambian People.
President Sata once said “Zambia was tired of moving with a “begging bowl” from one developed
country to another as the country had the capacity to become self-reliant and lift its millions of
unemployed youths out of poverty if its vast natural resources were exploited to the benefit of
Zambians”. He added “Time has come for us to develop ourselves and let others come to beg from us
because we have more resources than the people we are begging from” (see appendix 9).
It is a therefore extremely disappointing that the Executive Chairman Willa Mung’Omba has not put
all his efforts into ensuring that ZCCM-IH lives up to the expectations of President SATA.
This lack of action, hesitations, incomprehensible decisions and lack of transparency only serve to
create suspicion about the intentions of the company and the government-appointed officials that run
We acknowledge however, that since the nomination of the CEO Mukela Muyunda in June 2010, the
management has made unprecedented efforts to catch up on no less than 5 years arrears in the
publication of the company’s accounts. We encourage him to finally get the the accounts up to date in
2013 and to make sure, as promised, that the company’s assets are listed in the balance sheet at fair
value. Until now these have been incomprehensibly listed in the company balance sheet at minimal
cost valuations (approx. year 2000), which massively undervalues the company and disastrously
distorts its balance sheet.
Changes have also been promised since more than 40 shareholders sent emails in November 2012 to
the executive Chairman W. Mung’Omba expressing their dissatisfaction about the management of the
company. We now fear that these may be hollow promises to calm the reactions of the shareholders.
Only time will tell. In any case these hypothetical promises cannot to hide the woeful performance of
At a time when the GRZ is considering quoting other para-public companies (see appendix 10) and
inviting Zambian citizens to invest their hard-earned money in such companies, should it not first take
a close look at its most emblematic para-public company and ensure that ZCCM-IH sets an example
that others can follow? There is still so much to be done here.
The minority shareholders have exactly the same interests as the majority shareholder, the GRZ: that
ZCCM-IH becomes one of the leading companies in Africa. It has the means to achieve this, but so far,
as a result of weak direction, it has lacked the will to make significant progress.
Your honour Mr Vice President, on several occasions you have stated your intention to fight
corruption, underhand deals and bad practices. We therefore humbly ask you to consider taking an
active part to ensure that the corporate governance and management of ZCCM-IH are of the highest
order and above suspicion so that the Zambian people can once again be proud of this flagship
company and reap the benefits that should be theirs. You can be sure to count on the minority
shareholders and their future representative to do all they can to assist you in this endeavour.
We thank you for your consideration.
Minority Shareholders of ZCCM investments Holdings
Copy to : – French Minister of Foreign Affairs
– Deputy Finance Minister Miles SAMPA
ZCCM INVESTMENTS HOLDINGS PLC
CIRCULAR TO SHAREHOLDERS
16th March 2012
Article 72 of the Articles of Association of ZCCM Investments Holdings Plc (ZCCM-IH) provides that
Directors shall be not less than seven and no more than eight. Following consultations with the
majority shareholder, it has been agreed that the eighth director on the ZCCM-IH board should be a
representative of the minority shareholders who together hold 12.4% of the issued capital of ZCCMIH.
The mandate to allow the minority shareholders nominate a person to represent them on the ZCCM-IH
Board has been given in an effort to promote good corporate governance in the Company
2. Purpose of Circular
The purpose of this Circular is to provide an equal opportunity to all minority shareholders to make a
nomination for the person/institution they wish to represent them as director on the ZCCM-IH Board.
The appointment of such a director is anticipated to be made at the next Annual General Meeting of
the Company at a date to be advised or failing that the one that follows the next.
3. General criteria for nominees
Any person/institutions nominated as candidate to be appointed as director representing minority
shareholders on the ZCCM-IH Board shall be one that satisfies the following;
• Not be prohibited by Zambian Statute from acting as Director,
• Not have a receiving order made against him or her,
• Not have any order made by any court claiming jurisdiction in that behalf on the ground of mental
disorder for his/her detention or for appointment of a guardian or for appointment of a receiver or other
person to exercise powers with respect with his property of affairs,
• Not prohibited by the Articles of Association of the Company.
Shareholders are invited to send in nominations using the attached Nomination Form to the named
office at the address below on or before 18th May 2012. Any nominations received after 18th May
2012 will not be accepted. Nominations can be submitted by physical mail, fax or email;
The Company Secretary
ZCCM Investments Holdings plc
lst Floor Mukuba Pension House
5309 Dedan Kimathi Road PO Box 30048 Lusaka, 10101, Zambia
Email: email@example.com firstname.lastname@example.org
5. Contact for clarifications
For any clarification please contact the following on the contact details listed :
Chabby Chabala Company Secretary
Phone: +260 211 220540
+260 211 228833
C CHABALA COMPANY SECRETARY
Lusaka – Zambia
STOCKBROKERS ZAMBIA LIMITED
[MEMBER OF THE LuSE and REGULATED BY THE SECURITIES AND EXCHANGE
COMMISSION OF ZAMBIA]
The market and shareholders are advised of the following new developments relating to the
Restructuring of the ZCCM-IH Balance Sheet
ZCCM-IH currently has significant loans mainly arising from the restructuring programs
undertaken prior to and during the company’s privatisation in 2000. The majority of these
loans are owed to the Government of the Republic of Zambia (“GRZ”) and continue to be
carried on the books of the company. As at 31 March 2011, the ZCCM-IH Financial
Statements reflected loans amounting to K2, 139 billion (approximately US$425 million) owed
to the GRZ.
These loans have placed a significant burden on the company with the result that ZCCM-IH
has had a weak balance sheet from 2000.
The company has been in discussions with the GRZ over these loans and recently the GRZ
accepted proposals to convert all or part of the loans to equity through a rights issue
transaction. The main objective, amongst others, of the proposed debt-equity conversion is to
clean the ZCCM-IH balance sheet.
ZCCM-IH is currently liaising with the GRZ to agree the terms of the transaction.
ZCCM –IH shares are listed on the Lusaka Stock Exchange (LuSE) and also traded on the
Paris Bourse in France.
In compliance with the Securities Act, Cap 354 of the Laws of Zambia and the Listing Rules
of the LuSE, further announcements will be made to inform the shareholders and the
investing public as the transaction progresses.
Accordingly, shareholders are advised to exercise caution when dealing in the company’s
securities until a full announcement is made.
12 December 2012
Mopani Pilot Audit Report
Zambia, Africa’s largest copper producer lost an estimated income of USD 175 million
in tax revenue between 2003 and 2008 from tax avoidance practices’ by Glencore AG
International owned Mopani Copper Mines.
United Kingdom based Non Governmental Organisation, Action Aid said in its pilot audit by
Grant Thornton, Zambia and Econ Poyry, a Nordic based global consulting and engineering
company which revealed glaring irregularities in production and revenue figures that Mopani
Copper Mines submit to Zambia Revenue Authority for tax administration, most which hinge
on its links to Glencore AG international.
Zambia continues to lose on dividends from Mopani Copper Mines as the Glencore
owned mine never declare any dividends to Zambia Consolidated Copper Mines
Investment Holdings. During the period under review, Action Aid estimates that the
Zambians government lost an estimated USD 50 million per year in undeclared
dividends to ZCCM IH by Mopani. Mopani Copper Mines, according to Action Aid was
avoiding declaring any dividends by ZCCM IH through transfer pricing and over
statement of the costs.
Mopani is dodging taxes – CSOs
The irregularities at Mopani hinge on its relationship with its parent company, Glecore AG, of
Switzerland and cover practices such as alleged transfer pricing, inflated operation costs,
outright under-pricing of copper for exports and irregular hedging practices.
Commenting on the revelations which also observed that the government lacked capacity to
verify figures submitted by mining firms to ZRA, the civil society organisations called for
immediate recovery of all lost tax revenue, with interest, from Mopani and other mining
companies who might be found wanting by the ongoing audits.
The organisation which comprised Oxfam, Counter Balance, Eurodad, Tax Justice Network
and Centre for Trade Policy and Development (CTPD) stated that additional fines should be
imposed on mines not cooperating with government’s audit efforts.
“Mopani Copper Mines, a Swiss-owned mining company, funded with EU development
monies, is siphoning its profits out of Zambia without paying taxes. Instead, it is putting the
money into a tax haven, Switzerland. Mopani Copper Mines is dodging taxes in Zambia,” the organisations stated.
The organizations also questioned Dr Musokotwane’s inertia to act despite being given the
report last year in which auditors expressed frustrations in carrying out the exercise which
was within provisions of Zambia laws.
“The auditors found that MCM resisted the pilot audit at every stage. The company’s
book-keeping was incomplete, several legally required documents were lacking and
the general ledger analysis showed several loopholes and couldn’t be matched with
the trial balance,” the organisations stated. “The auditors also found an inexplicable
doubling in the costs of the company between 2005 to 2007, which shows that the
company has been artificially inflating its costs to minimise the profits shown in their
books so that they could pay less taxes. Despite the fact that the audit was finished in
the fall of 2009, it was kept secret.”
Mopani pilot audit reveals tax payment irregularities
“…we believe that the related party sales and pricing mechanisms are not in
accordance with the agreement disclosed, or arms length principle,” the audit report
stated. “This should have impact on the tax assessment for the period under review.”
The audit revealed that Glencore AG, the purchaser, determines prices and that some
copper from Mopani is sold under an “old” contract with copper in one instance being
sold at 25 per cent of official prices at LME.
“The agreement is entered into with Glencore UK Limited, but the actual sale transactions
disclosed are, as far as we have been able to verify with Glencore International AG,” the
audit revealed. “The agreement mentioned is in fact an agent agreement, stating that
Glencore is to operate as sole sales and marketing agent for Mopani. The sales are to be
made at official LME London Metal Exchange copper grade settlement quotation averaged
over the relevant quotation period plus premium or less a discount realisation charge for
The audit revealed that despite Mopani selling copper grade +1 in consistency with LME
prices, Glencore has consistently bought copper at prices below the market value
The costs and losses of the company are abnormally high
(…)The auditors concluded that “ the Mopani cost structure cannot be trusted to
represent the true nature of the costs of the Mopani mining operation.”
Transfer pricing : Mopani is selling its production to its mother company Glencore at a
low price allegedly to move taxable revenues out of Zambia.
The auditors conclude :« There is . . . reason to recognize the ‘hedging’ of Mopani (done
with an internal party or on volumes that is sold internally) as moving taxable revenue
out of Zambia, and thus there is reason to disallow the « hedging » / use of derivatives
as not being arm’s length under the OECD transfer pricing guidelines. »
NGOs report mining giants Glencore and Quantum alleging fiscal crime in Zambia
PF still has teething problems – Kabimba
And Dr Scott told the cadres that the government would treat Mopani management fairly
because they were not unfair or mad people.
“We don’t want to destroy the cow that produces the milk but we want to make sure
that you get your share of the milk,” said Dr Scott.
He said the PF wanted to run Zambia properly.
Zambia to audit miners, believes up to $1 bln owed
(Reuters) – Top African copper producer Zambia plans to audit all its mining houses in a bid
to dig for back taxes of up to $1 billion it estimates it is owed, its mines minister said on
Such a policy by the government of populist president Michael Sata would widen an initiative
launched by the previous administration and comes against the backdrop of a surge of
resource nationalism across Africa and Zambia’s own doubling of copper royalties to six
“We need to look at what the mining industry has been giving. What we have been told by the
World Bank and others is that we did not collect adequate tax,” Wylbur Simuusa told Reuters
on the sidelines of an industry conference in Cape Town.
Asked what he believed was owed, he said: “By our calculations it might be between $500
million and $1 billion.”
Simuusa said the government planned to start with the big mining houses and said one audit
was imminent but he declined to name the company.
“So we are now actively pursuing this. We intend to audit all the mining houses but we’ll audit
the big ones first,” Simuusa said.
According to UK charity Christian Aid, more than half of the copper Zambia exported in 2008
was destined for Switzerland, but according to Swiss import data almost none of this arrived
and Simuusa said this trend continued.
This raises a number of transparency issues and activists say copper exported to Switzerland
on paper often fetches a lower price than it would if it was exported elsewhere.
“Once it leaves, where does it go? We don’t have a clue,” he said.
Copper producers operating in the country include Canada’s First Quantum Minerals,
London-listed Vedanta Resources and Glencore International AG.
Miners in Zambia have themselves said they want independent international auditors to verify
they are paying all the taxes that they should.
Mopani should be punished for tax evasion – Mukanga
MOPANI Copper Mines must be punished for evading tax, says a member of
parliament in whose constituency the mining firm operates.
But finance minister Situmbeko Musokotwane says the government will wait for the complete
mining audit report for the mines before taking action.
And Musokotwane says former finance minister Ng’andu Magande should outgrow his
sadness and stop issuing statements against his ministry.
Yamfwa Mukanga, who is member of parliament for Kantanshi Constituency in
Mufulira district, was commenting on the pilot audit on Mopani Copper Mines, which
revealed glaring inconsistencies in production and revenue figures the mine submits
to the Zambia Revenue Authority for tax administration, figures which the report
indicated might not be trustworthy.
Mukanga said no government official must protect Mopani Copper Mines for violating
the law by evading tax.
“I want to see the law taking its course. Let the law visit Mopani and we see what is
going to happen. I believe they are not just evading tax, I believe that there are people
in government benefiting from this,” Mukanga said. “I am disappointed that the
government has been crying every day and yet it is letting Mopani go scot-free. I want
to go to Mopani and talk to management.”
Mukanga said the decision by the government, through ZRA, to protect Mopani and
underpaying the mining firm’s evasion of taxes raised suspicion.
“I know there is something fishy. I am sure they government officials are not underplaying it
for nothing. They are underplaying it at a cost and the cost is in their pockets. There is
someone getting money from this evasion of tax,” Mukanga said.
He said Mopani was not undertaking any corporate social responsibility.
“For Mopani to be evading tax, I am very disappointed because Mufulira, where the mine is,
is in a deplorable state; the roads are so bad,” he said. “If they Mopani were evading tax but
were ploughing into the community they operate from, maybe people could be saying it
channels money into the community but look at how bad Mufulira is. It’s terrible. Mopani is
not ploughing back into the community.”