Long wait in store for ZCI

[miningmx.com] — LONG-suffering shareholders in ZCI must be getting desperate for a resolution of the situation whereby Indian resources group Vedanta is considering whether to exercise its option on ZCI’s remaining stake in Zambia’s Konkola Copper Mines.

The latest news is that the arbitration hearing over the valuation will start in the middle of this year. When this is completed, the independent bank’s terms of engagement will be finalised and it will be able to proceed with its valuation.

This sounds like a lengthy process, though one has to hope it won’t take as long as the RandGold & Exploration/JCI arbitration. But on past form, it could well take the best part of this year.

Still, the good news is that the longer the arbitration is drawn out, the better it could be for ZCI, as Konkola seems to be doing well and should be getting progressively more valuable.

ZCI hampers analysis by changes in its reporting dates, but in the six months to September its net profit was $44.6m, against only $38.5m for the full 15 months to last March.

And in November it received its first cash income for many years, in the shape of $1.6m dividends from Konkola.

Good thing in the long run

ZCI says this is less than it had hoped for, but Konkola is no doubt retaining most of its profits to fund capital spending – also a good thing, in the long run.

The latest six-month profit reduces to EPS of 35.6c. It doesn’t give a Rand equivalent, but it could be between 210c-250c (SA). Double that and you come to not far short of 500 – and that’s before allowing for any further build-up in profitability.

ZCI’s 12-month trading range on the JSE is 2,500c-1,053c, and the current 1,400c is well into the lower half of this.

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Investors may be losing patience at the time the Konkola situation is taking, and, as the latest figures show, whatever earnings Konkola may report, ZCI is a hostage to Vedanta in terms of how much it actually receives in dividends.

Whether the copper market will hold up is another imponderable.

So ZCI is not a stock for widows and orphans. But, on a forward p:e of no more than three, it could be an interesting spec for investors who’re willing to accept the risks.