NCHANGA CONSOLIDATED COPPER MINES

LIMITED

incorporated in Northern Rhodesia

RECORD PRODUCTION AND SALES Plans for Increased Output Mr. H. F. Oppenheimer's Review

Tim twenty-seventh annual general meeting of Nchanga Consolidated Copper Mines Limited will be held in Lusaka. Northern Rhodesia, on 10 Sep- tember, 1964.

The following is from the review by the chairman, Mr. H. F. Oppenheimer, which has been circulated to members with the annual report and accounts: During the year under review the Company achieved an output of 208,856 long tons of finished copper. This represented a production record and exceeded the previous highest figure, which was achieved in 1961/62, by some 14,000 long tons. Profit before taxation, at £20,361,000, was £2,852,000 higher than last year, equivalent to an increase of more than 16 per cent.

A number of factors contributed to these materially improved results. Although there were several unconstitutional strikes during the year, they were of short duration and in most cases limited to part of the operations, whereas in the previous year 55 production days were lost. The low grade oxide section of the leach plant was commissioned in December, 1962, and we therefore had the benefit of a full year's operations from this plant. On this account there has been a marked improvement in average percentage recoveries of oxide copper in concentrates. During the year the average percentage was 90.57 per cent compared with 86,45 per cent in 1962 and 83.89 per cent in the previous year.

The tonnage of copper sold during the year amounted to 199,882 long tons, which is the highest in the Company's history. Sales proceeds averaged £230.8 per ton compared with £232.1 per ton for the previous year. This decline was mainly due to an increase in the proportion of blister copper sold during the year. Profit per ton was £2.3 higher at £98.5 per ton.

An unexpected increase in taxation was howevet announced by the Minister of Finance, Mr. A. N. L. Wina, in his budget speech in July, 1964, and our net results for the year were therefore not up to ex- pectations. The Minister proposed to introduce differential rates of company tax for the year ended 31st March, 1964. The effective rate for Nchanga (and all companies with taxable income in excess of £916,666) is 9s. 6d. in the £. It was therefore necessary to provide the sum of £9,130,000 in respect of the year's profit as opposed to £7,720,000 had the previous rate of 8s. in the £ been maintained. The total net profit of £11,231,000 was nevertheless higher than last year's figure of £10,850,000. I am glad to say that the Minister stated that he regarded the increase in tax as a temporary measure and that he hoped next year to introduce more satisfactory permanent arrangements.

When I wrote my review last year the world supply of copper was greater than the demand for the metal, and the mines of the Anglo American Group were withholding 15 per cent of their planned pro- duction. However, towards the end of 1963 there was a considerable improvement in demand. In December, we took steps to increase sales to 90 per cent of the mines' productive capacity and by 16th January, 1964, the increased demand from customers had reached such proportions that all remaining restrictions on sales were lifted—indeed, it is relevant to mention here that it was only owing to the three year build-up of stocks of copper that we were able to meet most of our customers' increased requirements.

As you will readily appreciate, we have gained substantial benefits from our policy of stockpiling as opposed to cutting production. The full benefits resulting from the disposal of surplus stocks did not however arise during the financial year ended 31st March, 1964, as many of the sales took place after that date. However, by the year-end a satisfactory increase in liquid assets had been achieved, both as a result of the reduction of our own stockpile and the sale of copper purchased on the London Metal Exchange. At one stage during the year the total value of metal stocks exceeded £14,000,000, but by the end of March this had been reduced to £11,639,000. During the quarter immediately follow- ing the financial year-end, a further substantial reduction took place and at 30th June, 1964, the total value of metal stocks amounted to £8,256,000. In relation to the time taken by rail and sea for our finished copper to reach its markets and the considerable tonnages passing through the various processing stages, a value of metal stocks of between £8,000,000 and £9,000,000 may be regarded as nor- mal at present costs of production.

RISING DEMAND FOR COPPER Since December, 1963, the demand for copper has not abated, and, according to statistics pub- lished by The Copper Institute, the Free World deliveries to fabricators for the 'first six months of 1964 were 14 per cent higher than during the corre- sponding period last year.

The greatly increased demand for copper in December, 1963, was reflected in the London Metal Exchange price which rose above the £234 per ton level for the first time for nearly two years. The price has risen steadily ever since and at the time of writing stands at £342 per ton.

We feel, however, that stability of the price at a level which does not encourage substitution is im- portant for the long term future of the metal, and we therefore decided in January, 1964, together with the other copper mining companies of the Anglo American Group, to sell to our contractual customers at £236 per ton, irrespective of the London Metal Exchange settlement price. This fixed selling price was subsequently raised to £244 per ton in March this year and similar pricing alterations have been implemented by certain other world producers.

The total value of fixed assets increased during the year by £2,279,000, which figure includes an amount of £158,000 expended on the acquisition of the mining rights over three areas adjoining the existing mining property. The areas promise to be capable of profitable development in the future.

Last year there was an under-appropriation in respect of capital expenditure of £750,000. The Board had taken the view that this amount could be made up when the full benefit was derived from the substantial expenditure incurred on the installation of the low grade oxide section of the leach plant. The same view was applied this year to the sum of £980,000 spent on the plant to roast low grade sulphide concentrates, which was commissioned in June, 1964. The directors therefore decided to appro- priate £2,250,000 for capital expenditure, leaving an amount of £920,000 to be appropriated out of future profits. As a result of the increased taxation rate, to which I have referred above, it was not possible, taking into account the distributable profit and the net current assets/liabilities position, to maintain the total net dividend for the year at 7s. per stock unit. The Board has accordingly recommended a final net dividend of 5s. 3d. per stock unit, which. together with the interim dividend df Is. 6d., will result in a total net dividend of 6s. 9d. for the year.

Unappropriated profits to be carried forward amount to £115,000 and there is a carry forward of net current liabilities amounting to £276.000 corn- pared with £376,000 brought forward from the previous year. Full details of the offer to holders of Bancroft ordinary stock were given to members in the cir- cular and copy of the offer document sent to them on 30th June, 1964. The offer became unconditional on 10th July, 1964, after the extraordinary general meeting of members had approved the necessary increase in the authorised capital of the CompanY from £28,000,000 to £32,066,667 in shares of £1 each. At the date of this review acceptances have been received in respect of 94.9 per cent of Bancroft ordinary stock. In terms of the arrangements, we have lent Bancroft £7,792,500 to redeem its preference shares and to pay the outstanding arrear dividend.

PLANS FOR INCREASED OUTPUT

There has been no forward provision in respect of the expenditure being incurred by Nchanga In connection with the arrangements for the processing of ore by Bancroft. It is estimated that this will amount to approximately £3,500,000 for the year ending 31st March, 1965, mainly on earth-moving machinery, for increased production from the Chingola and Nchanga open pits, which will be the chief sources of the ore to be sent for processing• Including the normal programme it is estimated that the total to be spent on capital expenditure during the current financial year will amount to approximately £5,000,000. This expenditure is es" peeled to increase Nchanga's production of copper for the years 1965 and 1966 by a total of over 100,000 tons. Negotiations were opened with the Northern Rho' desia Mine Workers' Union in June, 1963, when the companies offered staff conditions of service to union members to replace their daily paid status. 0; believed that this was an important step forward not only because the change would provide greater security for a group of employees, mainly European' whose continued contribution to the industry wag vital to it, but also because the supervisory nature of their jobs warranted staff status. There followed a period of six months' discussion which resulted, I am pleased to say, in our proposals being accepted by the majority of union members in a secret ballot in January this year. The Mine Workers' Society was subsequently formed to replace the Union.

Negotiations with the Northern Rhodesia African Mineworker.' Trade Union, to effect a revision in the manning structure of the mines, were opened soon after agreement had been reached with the Mine Workers' Society. The intention was to eliminate the gang system which has been tradi- tional to mining in Northern Rhodesia and other Parts of Africa and simultaneously to extend the opportunities of promotion in accordance with the criteria of ability and experience.

SATISFACTORY WAGE AGREEMENTS The Union submitted a wage claim at the same time and negotiations over some months resulted in a satisfactory agreement which covered the desired revision of the manning structure, acceptance of the principle of a local wage scale and also a general increase in wages.

Nchanga, in common with the industry as a whole, has introduced training schemes to equip local em- ployees for the newly created jobs arising out of the revised manning structure. These schemes, which are likely to expand considerably over the next few Years, have added to already heavy training com- mitments. We are engaged in training at all levels and we arc laying special emphasis on equip- Ping our existing employees, both African and European, who have the necessary aptitude and ex- perience, to develop their abilities to the full.

The Northern Rhodesian General ' Election in January, when the United National Independence Party was returned to power, was followed by a spate of speculation to the effect that there would be a very heavy exodus of Europeans from the mines. While these rumours proved to be exaggerated, the level of turnover of Europeans on the mines has unfortunately risen and we are having to step up recruiting campaigns in order to replace those men whose jobs require skills not yet available in suf- ficient quantity among local employees. The wealth of experience which is being lost is, nevertheless, difficult to replace. However, I am pleased to say that the Govern- ment is fully aware or the problems with which we are faced, and we are hopeful that it will be possible, in co-operation with Government, to give further assurances to allay the fears that arc at the root of the unrest, and consequent emigration.

In his budget address the Minister of Financ9 re- ferred, to the need to intensify and diversify the eco- nomic development of the country. In turn he con- sidered that extractive industries should make a large contribution to capital development.

EXPANSION PROGRAMMES

It is, I think, pertinent to mention in this con- nection that at Nchanga we have in recent years spent many millions of pounds on expansion. The ,f3,800000 programme of extensions which started 'n 1961 with the installation of a plant to leach low rade oxide concentrates has been completed. As I have said earlier we are now engaged on major eaPital expenditure to enable the processing of large have of Nchanga ore at the Bancroft plant. We nave also, within the Group, an important process now under test at Nchanga for the treatment of-re- fractory copper ores. If this process proves successful "and the prospects of success are good—it will he Possible to treat many millions of tons' of oxide ,t3Fes, not only at Nchanga but elsewhere, which have filtherto been uneconomic to mine. This will mean a major addition to the resources of the country. These considerable expenditures are clear illustra- tions of our confidence in the future of Zambia. We shall continue to invest in expansion so long as the "seal policies of the country give encouragement to Major enterprises, as I believe they will.

Copies of the annual report and accounts are oh- hnnable from the London office, 40, Holborn Viaduct, E.C.I.