This week, the mining outlook in Africa’s second-largest copper producer was boosted with the announcement of the restoration of operations at Konkola Copper Mines. Minister Paul Kabuswe, at a joint press session with Vedanta and ZCCM-IH plc officials, announced the landmark resolution of the 2-year-long mining impasse that halted operations at the Konkola Deep Mine. This followed an illegally executed liquidation of the mining asset for purported license breaches.
The unfortunate move has cost Zambia’s mining production over the last two years. At the liquidation stage, Konkola Copper Mines owed counterparties like ZESCO and Copperbelt Energy Corporation colossal sums for power supply contracts. The local bourse has just recorded the highest market capitalization in history as the CEC stock rallied 23% to K6.2 a share following the announcement of the impasse resolution.
The energy stock was however on an upward trajectory as markets continued to price in an interim dividend pronouncement made last week. Year to date CEC shares are 64% firmer and still remain exposed to political, mining and environmental risks. The power distribution entity has a current market capitalization of K10.075 billion (circa $474.1 million), the biggest publicly traded entity of the Lusaka Securities Exchange and the first publicly traded company to pass the K10 Billion market capitalisation milestone.
With a price–earnings ratio of 2.65 signalling potential underpricing from an earnings perspective, CEC has a price-to-book value of x1.15 from a balance sheet perspective indicating a fair price though leaning more towards underpricing. These metrics indicate the stock has the fundamental latitude to grow.
Copperbelt Energy Corporation has been through a seesaw path with political risk factors in energy legislation. Such one development was the statutory instrument prescribing the ‘common carrier’ status of the power utility which saw the company raise impairments provision of up to $98 million in FY20. This position was reversed following the change of government post-August 2021 that saw the reversal of the statutory instrument triggering a provision release. The $160 million owed by KCM to CEC Plc was a strain of cash flows which if liquidated will give the energy transmitter and distributor a boost.
The Southern African nation is currently in the process of reorganizing its mining asset portfolio of which Konkola Copper Mines was one of the two in contention. With the action to withdraw litigation, it is likely that fears around the execution of shareholder agreements will be allayed with the Mopani Copper Mines equity partnership expected to be announced soon. The red metal producer is expected to slide 10% this year to just over 682,657 metric tons a 14-year low that is projected to weigh growth to 2.7% for 2023 as prescribed by the MinFin medium-term expenditure framework.
Resumption of operations does spell increased energy demand providing a better cash flow outlook for the company for future earnings. Konkola Deep has ore reserves north of 250 million metric tons and an annual production capacity of circa 350,000 metric tons.
The Kwacha Arbitrageur