[miningmx.com] — CONTRARY to the earlier undertaking that Vedanta would pay over the $213m due to ZCI for taking out its 28,4% minority stake in Konkola Copper Mines by February 20, ZCI has now announced that the cash has not been received because the Zambian competition authorities have thrown a spanner into the works.
ZCI says that though the Zambian Competition Commission (ZCC) initially granted Vedanta interim authorisation for the deal, it has withdrawn this, claiming that Vedanta failed to comply with an understanding on notification.
However, ZCI has been assured by both Konkola and Vedanta that the ZCC’s concerns are purely procedural and should soon be resolved, and that prospects of not getting final approval are remote.
Well, that’s as may be, though experience has shown that expectations of prompt and favourable actions by regulatory authorities often prove to be over-optimistic, not least in Africa.
In any event, it’s not clear that approval is what shareholders should be hoping for: as I pointed out in January, the current value of Konkola must be a multiple of what it was worth on the contractual valuation date of August 2005.
Though it can be uncomfortable to be a minority shareholder, with minimal influence, in a unit of a major multinational – in this case, amounting to little more than the ability to block any proposals requiring 75% shareholder approval — if the ZCC in its wisdom decides to throw out the deal, ZCI will be able to negotiate much better terms, more closely related to its investment’s current value.
ZCI also seems disappointed that its share price is trading at a discount to the post-disposal NAV, and has spent shareholders’ money on advertisements spelling that NAV out in detail. I won’t bore you with the tedious minutiae: suffice to say that as at 29 February, this is put at a pro forma 186c.
On 14 February I put this figure at 170c, but we now learn that since the last published results, on which I based my calculation, ZCI has received a further deferred payment from Vedanta of US$5.2m and a dividend from Konkola of $1.6m. These, less costs, account for most of the difference.
Well, at the current R8.06=US$1, that’s equivalent to almost exactly 1,500c. The current price is 1,125c, against 1,050c on 14 February, when I suggested it could be worth looking at. The subsequent appreciation only slightly exceeds the impact of the weaker rand, and the 25% discount to current NAV is by no means unusual for a cash shell such as this.
It’s two-and-a-half years since the share price first went above 1,000c, and I suspect there are quite a few stale bulls waiting to cash in their chips as soon as they’re breaking even. So whatever the directors think, it may be a while before that discount narrows appreciably.
