Shareholders Call for Probe into Professional Misconduct at ZCCM-IH - Archive of Correspondence 21/08/2013 From : Independent Shareholders of ZCCM

-IH To : Ms Mutomboi Mundia, Securities and Exchange Commission of Zambia Subject : Investigation into professional misconduct by directors of ZCCM-Investment Holdings To : Ms Mutomboi Mundia, Director of market supervision and development Securities and Exchange Commission of Zambia Dear Madam, Thank you for your prompt reply to our letter dated 13 August concerning our request for an investigation into the activities of the direction of ZCCM-IH for professional misconduct with respect to the independent shareholders of the company. In your reply you mention three issues : 1) the ongoing process in which the SEC has engaged ZCCM-IH on a number of issues, 2) your opinion that you consider it reasonable to await the outcome of the ongoing process before addressing the issues raised and, 3) the idea of a meeting between both parties to coincide with the upcoming AGM. You omit however to mention the seriousness of the request made by the independent shareholders to the SEC, which is a formal demand for an investigation into professional misconduct by the direction of ZCCM-IH. I will address all these issues in turn. 1) The ongoing process You mention the ongoing process in which the SEC has engaged ZCCM-IH on a number of issues, no doubt following previous complaints from the independent shareholders about discrimination against those shareholders who bought ZCCM-IH shares via the Paris Euronext stock exchange. In spite of several requests to be kept informed, the SEC has so far failed to provide the independent shareholders with any detail about the specific issues raised by the SEC with ZCCM-IH nor on any progress made so far. We would be grateful if you would be kind enough to provide us with details of the specific issues raised with ZCCM-IH, the progress made so far and your objectives for a solution to these issues. We had however been informed that the initial demand put to ZCCM-IH was for a reply by the end of June 2013. Would you please be kind enough to inform us of the reasons for this delay. Given the reputation of ZCCM-IH for missing deadlines and failing to give satisfactory answers, we remain sceptical that the upcoming report will entirely satisfy our expectations. 2) Is it reasonable to wait ? You also make a case that you find it “reasonable to wait” until after the submission of the said report by ZCCM-IH before addressing the issues raised in our previous letter. In reply, we would like you to consider the following :


As minority shareholders we have learned that being “reasonable and patient” has, in the past, opened the doors to those holding positions of power to take advantage of this attitude, which they seem to regard as weakness, by making an already bad situation worse. This has been demonstrated in the following cases, all of which are familiar to you : The independent shareholders have been reasonable and patient for years while ZCCM-IH abused its position by maintaining a register of shareholders that discriminated against 96% of them concerning participation and voting at Company Meetings. By failing to get this situation resolved quickly, the Company Secretary of ZCCM-IH was then able to use this register and compound his misconduct by distorting the process of nomination of the only independent member to represent the minority shareholders on the Board of ZCCM-IH and subsequently by failing to publish the result of the election. While the independent shareholders continued to be reasonable and patient, the seven members of the Board of ZCCM-IH then went on to issue an order that the appointment of the only independent board member be postponed indefinitely, at least until after this same self-interested Board had deliberated on the terms of a major financial deal in which all the shareholders (the independent shareholders and the Republic of Zambia) would suffer serious financial losses. The independent shareholders have also been reasonable and patient for years waiting for ZCCMIH to put an end to the publication of misleading accounts in which the company's main assets are massively undervalued, a situation that grossly devalues the company and results in a falselynegative balance sheet. Now the Executive Chairman of ZCCM-IH has taken advantage of this situation by putting the blame for this falsely-negative balance sheet on the debt owed by ZCCM-IH to the GRZ and then by using this claim to justify a rigged financial deal at a time when the company's share price is at a ridiculously low value. Finally, by being reasonable and patient, ZCCM-IH has suffered in the same way through its status as the minority shareholder of the foreign-owned mines in which it is invested. Thus Kansanshi mining/FQM continues to withhold more than 500 m$ in undistributed profits and Mopany/Glencore avoids paying ZCCM-IH several hundred million dollars through fraudulent accounting practices. As you can easily see, we have therefore learned the hard way that being reasonable and patient doesn't pay. It only leads to matters getting worse. Your suggestion that it would be reasonable to wait is therefore quite incompatible with the current situation. In consequence we ask you to pursue our request without delay. 3) The proposed meeting between both parties We appreciate your desire to try to resolve the present stalemate through a meeting between both parties organised by the SEC. This proposal however raises the question of the status of the parties concerned. As things stand, ZCCM-IH continues to refuse to recognise 96% of the minority shareholders by failing to register them in its register of shareholders and as such they cannot attend and cannot vote at company meetings In consequence they have no legitimacy to hold discussions with the direction of ZCCM-IH. Furthermore, it therefore makes absolutely no sense to organise a meeting to coincide with the forthcoming AGM for shareholders who are barred by ZCCM-IH from participating in the AGM. Similarly, it is inconceivable to organise a meeting between the elected representative of the minority shareholders and the Executive Chairman of ZCCM-IH, since the latter has unilaterally 2

refused to recognise the result of the vote for this nomination and has even threatened the elected representative of the independent shareholders with legal proceedings if he continued to pursue his action to represent the minority shareholders. At the last EGM in Lusaka, the elected representative of the independent shareholders formerly requested to meet the Executive Chairman of ZCCM-IH in private to discuss the situation. The Executive Chairman of ZCCM-IH refused to take up this offer. There have been no improvements in the relations between ZCCM-IH and the independent shareholders to warrant repeating this offer. Finally, what would be the aim of such a meeting ? Such a meeting could be envisaged for debating and resolving a difference of opinion between ZCCM-IH and the independent shareholders with the SEC acting as mediator, but since independent shareholders have been reasonable and patient for years and the situation has gone from bad to worse, the time for that is long past. Such a meeting could be envisaged in the future, once the injustice is resolved, the discrimination is brought to a close and the misconduct of the direction is recognised and sanctioned. This means that the share register must be updated, and all the shareholders treated equally and with respect. Finally the direction must recognise and correct its errors and take all the necessary steps to revalue the company according to its true worth (re-evaluating its assets at their true value, taking firm action to recover outstanding undistributed profits from the mines in which it is invested, trading its shares on a more suitable market etc.). 4) The request for investigations into professional misconduct by the direction of ZCCM-IH We would like to point out to the SEC that the firm decision by 70 independent shareholders to make this extremely serious request was taken after considerable discussion and deliberation by the shareholders. It was taken only after all other requests to both ZCCM-IH and the SEC had produced no tangible results and further discussion with ZCCM-IH had been blocked by threats of legal proceedings by the Executive Chairman. The independent shareholders see no other way forward The Independent Shareholders of ZCCM-IH are unique in being totally independent of any political affiliation. They are convinced that the current actions by the Direction of ZCCM-IH are financially unsound for the company and motivated by political as well as personal financial interests. This why it is vital that the elected representative of the independent shareholders is nominated to the Board without delay to protect this vital Zambian company in the interests of the Zambian People. This is a formal request for investigation into professional misconduct by the Board and Direction of ZCCM-IH concerning injustice and discrimination against a major section of the shareholders as well as interference in corporate voting procedures by the Company Secretary and the Board of Directors. These are matters that the SEC is empowered to deal with and must take very seriously if it is to retain any credibility as the guardian of equality and fair treatment for Zambian financial matters in the eyes of international investors. The independent shareholders are very willing to work with the SEC to ensure that ZCCM-IH is properly run and the credibility of the SEC is maintained. We therefore ask you to focus on the core issue of our letter dated 13 August 2013. We look forward to your reply. Yours sincerely Dr Albert Wright On behalf of the independent shareholders of ZCCM-IH 21 August 2013 3

15/08/2013 From : Mutumboi Mundia, Director - Market Supervision & Development, Securities & Exchange Commission To : Independent Shareholders of ZCCM-IH
Subject : RE: Shareholders call for probe in corporate misconduct at ZCCM-IH Cc: Dr E D Wala Chabala ; ; Phillip k. Chitalu ; Constantine Hara Sent: Thursday, August 15, 2013 2:19 PM

Dear Dr Albert Wright, We acknowledge receipt of your letter dated 13 August 2013. Please be advised that there is already an ongoing process where the SEC has engaged with ZCCMIH on a number of issues, including those raised by the Minority Shareholders. Suffice to mention that at the time of receiving your letter, SEC had already requested ZCCM-IH to submit a report on the status of the progress made on the various issues raised, which report should be submitted by the end of August 2013. Given the foregoing, we find it reasonable that we consider the said report before deciding on the best way forward in addressing the issues you have raised. Moreover, our initial view is that meeting both parties together would be helpful and as such we trust such a meeting can be facilitated to coincide with the company’s upcoming Annual General Meeting. We envisage contacting you and your colleagues on or before the 13th September 2013. Kind regards

Mundia | Director - Market Supervision & Development |Securities & Exchange Commission

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