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ZCCM INVESTMENTS HOLDINGS PLC(Incorporated in the Republic of Zambia)

and its subsidiary companies

Report of the Directors And Financial Statements for the year ended 30 June 2005

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ZCCM INVESTMENTS HOLDINGS PLC(Incorporated in the Republic of Zambia)and its subsidiary companiesCertificate of Incorporation No. 771

2005 ANNUAL REPORT

Contents Page

Notice of Meeting 1

Directorate and Administration 1-2

Corporate Information 3

Chairman’s Statement 4-5

Report of the Directors 6-17

Directors’ Responsibilities 18

Report of the Auditors 19

Statement of Accounting Policies 20-26

Income Statement 27

Balance Sheet 28

Cash Flow Statement 29

Statement of Changes in Equity 30

Notes to the Financial Statements 31-49

Subsidiary Companies 50

Appendix I 51

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NOTICE OF MEETING DIRECTORATE AND ADMINISTRATIONNOTICE OF THE ANNUAL GENERALMEETING DIRECTORS Notice is hereby given that the 6th Annual Mr G K Chibuye (Non-General Meeting of members of ZCCM Executive)Investments Holdings Plc will be held at Chairman of the BoardMukuba Pension House, 5309 Dedan Kimathi Road on Friday 22 September 2006 at 13:00 hours or immediately following the conclusion of the Dr S MusokotwaneBoard Meeting to be convened on the same date.

(a) To receive and consider for the Dr W M Lewanika 12 month period ended 30 June 2005 the (up to 28.02.05) accounts and reports of the Directors and the Auditors for the period ended on Mr L Nkhata that date; and (from 28.02.05)

(b) To fix the remuneration of the Auditors Mr G P Mukala for the 12 month period ended 30 June 2005 and appoint Auditors for the ensuing year Dr D H Kalyalya A member eligible to attend and vote at the meeting Mrs L I Ng’andwe (fromis entitled to appoint one or more proxies to attend 30.08.04)and, on a poll, to vote in his/her stead. The proxy need not be a member of the Company. A suitable form Mr E Mutaleof proxy is enclosed.

By Order of the Board

W S Musama, Company Secretary Lusaka, Zambia 30 August 2006

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MANAGEMENT COMMITTEE Vacant General Manager

Mr W S MusamaCompany Secretary

Mr J M D PattersonTechnical Investments Manager

Mr Z ZekkoFinance and Investments Manager

Mr J K KaiteLegal Investments Manager

Mr W K KatotoTechnical Investments Officer Mr J MakumbaEnvironmental Manager

Mr K K MulaishoFinancial Analyst

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CORPORATE INFORMATION

Registered and Corporate Office Broker: Bourse de ParisMukuba Pension House (Marche’ Libre)5309 Dedan Kimathi Road CLC BourseP O Box 30048 3 Rue de GramontLusaka 10101, Zambia 75002 Paris, FranceUK Registrars CAPITA IRG PLC AuditorsBourne House KPMG34 Beckenham Road P O Box 31014Beckenham Lusaka, ZambiaKent BR3 4TUEngland

Depositary for American Shares Principal BankersJP Morgan Chase & Co. Barclays Bank of Zambia Limited60 Wall Street Standard Chartered Bank Zambia plcNew York, NY 10260-0060 Zambia National Commercial USA Bank plc

Brokers: London Stock ExchangeCazenove & Co.12 Tokenhouse YardLondon EC2R 7ANEngland

Joint Brokers: Lusaka Stock ExchangeCavmont Securities Limited2nd FloorMukuba Pension HouseP O Box 35476Lusaka, Zambia

Pangaea/EMI Securities (Zambia) Limited1st FloorLusaka Stock Exchange Building2A Cairo RoadP O Box 30163Lusaka, Zambia

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CHAIRMAN’S STATEMENT

I have the pleasure to present the Chairman’s Statement for the year ended 30th June 2005.

Whilst the composition of our Investment portfolio remained unchanged during the year, the benefits of holding our existing portfolio was evident from the achievement of yet another successive year of major capital expenditure across assets owned. With on going infrastructural investment by all associate companies to enhance output, cost efficiencies, and prepare for the eventuality of leaner times to come, it was expected that the declaration of dividends by these companies, would not be substantial during the year despite the attainment of greater profitability. It is in view of the above that I can report that, during the year the Company earned dividend income of K26 billion, cobalt/copper price participation income of K148 billion and to date has received K83 billion from Chambishi Metal plc, Konkola Copper Mines plc and Mopani Copper Mines plc.

Of our two non-copper and cobalt mining interests (Ndola Lime Company Limited, and AHC-Mining Municipal Services Limited (AHC-MMS)), Ndola Lime Company Limited continued to perform to satisfaction, and bolstered company income with a dividend declaration of K4.2 billion. During the year, Government announced the take over of AHC-MMS by Nkana Water and Sewerage, as an exit strategy of the Mine Township Services Project, which was completed on 26 January 2006.

As our present portfolio is mainly in mining, performance was driven by global commodity market demand and supply fundamentals leading to higher selling prices. Mining companies undertook operational improvements to lower operational costs and increase production capacities. Other exciting developments included the commencement of metal production at Kansanshi Copper Mines plc during the last quarter of the year, in which we hold a 20% equity. I am also pleased to note the launch of the high investment Konkola Deep Mining Project (KDMP), which is expected to infuse substantial economies of scale and extend the economic life of Konkola Copper Mines plc, in which we hold a 20.6% stake.

Looking ahead, it shall be incumbent upon the Company to identify and allocate part of the future resources to other attractive areas of investment within and outside the realms of mining, more so given our strategic placement at the forefront of public-private partnerships. This, coupled with our human and capital resources, is the basis upon which, we believe, the Company will continue to participate in the creation of value for all our stakeholders.

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Environmental management activities continued at a healthy pace during the year resulting in the implementation of various remedial and preventive measures in a number of identified areas. This activity is of fundamental importance to ourselves as a Company and citizens at large. Suffice to say that as we continue to progress with this important challenge, I should acknowledge with gratitude the support and patience of our cooperating partners and other stakeholders.

I would be remiss not to express profound sadness over fatal occurrences resulting in the large loss of life, disruption of output and value at BGRIMM Explosives Limited, owned by NFC Africa Mining plc where we have a 15% shareholding. We extend in addition, our condolences to the families of the employees whose lives were lost in other mining operations.

The safety of all workers within mining areas is of paramount importance to all of us as investors and members of society. To this end, the Company will continue to effectively contribute towards the safety of its own and associated company employees.

In conclusion, allow me to acknowledge the invaluable support of my fellow Directors and the Management and Staff of the Company, and other stakeholders, for their continued individual and collective contribution, wise counsel, and dedication.

George K ChibuyeChairman - ZCCM Investments Holdings PlcLusaka, Zambia30 August 2006

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REPORT OF THE DIRECTORS FOR THE YEAR ENDED 30 JUNE 2005 The Directors submit their fifth report of ZCCM Investments Holdings plc (ZCCM - IH), “the Company”, as an investments holding company.

This Report is structured as a Review of the Business and Events as follows:

a) ZCCM Investments Holdings Plc;b) Operations of Associated Companies c) Subsidiary companies.

a) ZCCM INVESTMENTS HOLDINGS PLC

The Company has the following retained interests in the undernoted companies:

1 Konkola Copper Mines plc* 20.6%2 Kansanshi Mining plc 20%3 Copperbelt Energy Corporation plc 20%4 Chibuluma Mines plc 15%5 NFC Africa Mining plc 15%6 Luanshya Copper Mines plc 15%7 Chambishi Metals plc 10%8 Mopani Copper Mines plc 10%9 AHC Mining Municipal Services Limited 100%10 Ndola Lime Company Limited 100%

*The shareholding reduced from 48% to 20.6% upon Vedanta Resources plc acquiring 51% of the KCM shareholding in November 2004. The Company has a conditional future shares election option to take up to15 – 20% shareholding in Konnoco Zambia Limited.

Share Capital

The authorised share capital of the Company remained unchanged at K900 000 000 divided as follows:

54 000 000 “A” Ordinary Shares of K10 each; and36 000 000 “B” Ordinary Shares of K10 each.

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The shares are held as follows:

“A” SharesMinistry of Finance and NationalPlanning on behalf of the Governmentof the Republic of Zambia 53 825 808 60.3%

“B” Shares Ministry of Finance and NationalPlanning on behalf of the Governmentof the Republic of Zambia 24 329 828 27.3%

78 155 636 87.6%Rest of “B” Shareholders 11 140 792 12.4% __________ ______ 89 296 428 100.0% __________ ______

The 11 140 792 “B” Ordinary Shares are thinly spread and held as at 31 December 2005 by 2,431 minority shareholders. The geographical spread of the minority shareholders, whose shares existed at the formation of ZCCM Limited, is as follows:

Europe - England, Belgium, France, Netherlands, Scotland, Switzerland, Greece, Channel Islands, Irish Republic, Portugal, Norway and the Principality of Monaco.

Africa - South Africa, Zambia, Zimbabwe, Botswana, Tunisia, Egypt, Nigeria, Algeria, Republique Du Congo and Morocco.

Australasia/Other - Australia, New Zealand, India, Oman, Pakistan, Sri Lanka, Jamaica, Bahamas and USA.

During stage 2 privatisation, GRZ will dispose of some or all of its 87.6 per cent shareholding in the Company. The timetable for stage 2 privatisation of the Company has yet to be set by GRZ.

Employees

The Company had 51 employees as at 30 June 2005.

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Corporate Governance

The Board of Directors of the Company at its meeting on 14 April 2003, by a Board Resolution of even date, adopted the Code of Corporate Governance for Boards of Directors in Zambia which is subject to further requirements and amendments as need arises.

This was done in order to reconfirm and safeguard continued distinct separation of powers between the Board of Directors and Executives in the management of the Company.

In its transformed form as an investments holding company, the main functions of the Company are as follows: - To monitor commercial and corporate agreements (excluding development

agreements) entered into by the privatized mining companies and to ensure compliance;

- To have and appoint representatives on the Boards of Directors of the companies in which the minority investments are held;

- To monitor the investments by attendance at the Board Meetings and tracking of financial and operational performance;

- To receive returns on the investments in form of dividends and other amounts arising from holding shares; and

- To liaise with prospective Greenfield investors in the mining industry who will enter into Agreements with the Government.

Directorate

The Company, during the year under review, had two working Committees of the Board, namely the Audit and Remuneration Committees and the membership of each one is three non executive directors as indicated below:

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Audit Committee Remuneration Committee Mrs L I Ng’andwe (Chairperson Dr D H Kalyalya (Chairperson)from 10.12.04) Dr M W Lewanika (up to 28.02.05) Dr S Musokotwane Mr L Nkhata (from 28.02.05) Mr E Mutale Mr G P Mukala

Both the Remuneration Committee and the Audit Committee had three meetings each during the year, all were attended by the members of the Committees. These Committees are serviced by the Company Secretary or his nominee.

Mrs L I Ng’andwe who was appointed to the Board with effect from 30 August 2004 became Chairperson of the Audit Committee on 10 December 2004. In addition, Dr M W Lewanika who resigned as Director with effect from 28 February 2005 was replaced by Mr L Nkhata, Permanent Secretary, Ministry of Mines and Minerals Development with effect from 28 February 2005.

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FINANCIAL REVIEW

FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED 30 JUNE 2005

The revenue earned during the year by the Company was K173,306 million compared to K31,947 million the previous year.

The Company recorded a net profit of K133,889 million during the year compared to K24,261 million reported in the previous year. The variance was due to a significant increase in cobalt price participation of K147,529 million the previous year. In addition, dividends receivable from CEC and Ndola Lime increased to K25,777 million during the current year from K17,588 million the previous year.

The Group earned a revenue of K291,890 milliom compared to K150,499 million the previous year. Revenue from continuing operations was K253,286 million compared to K112,821 million the previous year.

The Group earned a net profit of K130,871 million during the year compared to K43,710 million reported in the previous year. The variance, as indicated above, was due to a significant increase in Cobalt Price Participation earned and Dividends receivable. Net profit from continuing operations was K136,413 million compared to K29,221 million the previous year. The discontinuing operation, AHC Mining Municipal Services Limited, recorded a net loss of K5,542 million compared to a profit of K14,489 million the previous year.

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ENVIRONMENTAL REVIEW

The Copperbelt Environment Project

The Government of the Republic of Zambia (GRZ) obtained the support of the World Bank and the Nordic Development Fund for the Copperbelt Environment Project (CEP), to

address environmental liabilities and obligations remaining with GRZ/ZCCM-IH following the privatization of mining assets.

The Environmental Management Facility (EMF) which is composed of multiple stakeholders, working as the EMF Steering Committee, was established by the Minister of Finance and National Planning as provided for by the protocols, for the purpose of prioritizing and approving subprojects of the CEP for funding.

The project which became effective on 31st July 2003 ends in August 2008.

World Bank and Nordic Development Fund CEP Financing

During the year the EMF disbursed a total of US$1.64 million for financing various activities under the project.

The Nordic Development Fund (NDF) disbursed US$2.25 million directly to Swedish Geological AG for work on the Consolidated Environmental Management Plan (CEMP 2) which was the only contract funded from the NDF.

Project Implementation

A total of 21 Subprojects from the Interim Environmental Management Plan have been approved for implementation by the EMF Steering Committee at a total cost of US$15.3 million since the establishment of the EMF. Sixteen of these subprojects, have already received no objection from the World Bank and are under implementation at a total cost of US$4.5 million

The preparation of Phase 2 of the Consolidated Environmental Management Plan (CEMP Phase 2) was completed during the year.

Kabwe Scoping and Design Study

A draft report on the Kabwe Scoping and Design Study Phase I on the Determination of the Extent and Magnitude of Contamination in the vicinity of the Kabwe Mine was issued during the year. Studies to identify the main pathways of lead contamination to humans, and develop a site-specific Conceptual Site Model (CSM), and design follow-up measures for reducing lead in blood levels, particularly in children impacted by the Kabwe mine, including engineering, environmental, social and alternative livelihood proposals are still continuing. A total of US$622,000 has so far been spent on the study.

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Resettlement Action Plans (RAP)

The process of resettling 89 families at AMCO in Kitwe and 65 families at Zambia Railways compound in Mufulira, living in a mine subsidence area continued during the year under review. In the meantime, on going monitoring of houses for major cracks continued during the year and families whose houses had major cracks were being provided with temporary accommodation by ZCCM-IH until such time as the construction of the new settlement is complete. A total of US$205,000 has been spent on preparation. Subsequent to June 2005 year end, the expected completion date for AMCO is 31 November 2006 while Zambia Railways is at construction tendering stage 4.

Kabwe Awareness Programme

As part of public awareness program two Public Information Centers were opened in Kabwe at which information on mitigation measures of lead poisoning by the community can be accessed.

b) OPERATIONS OF ASSOCIATED COMPANIES

1. Kansanshi Mining plc (KMP)

Subsequent to the year end, the mine was officially opened by the Republican President on 10th August, 2005.

Commercial production had commenced earlier in March 2005 with delivery of some copper concentrate to the Mufulira smelter. Negotiations with KCM for use of their Nkana smelter are still going on. There is an option of using a smelter in Namibia, which, however, requires upgrading at KMP’s cost. By end of June, 1,034,014 tonnes of copper concentrate and 10,747 tonnes of copper cathode had been produced.

It is planned that the Kansanshi project will be developed in two phases. Phase One will be targeted at the exploiting proven and probable mining reserves of 142 million tonnes, grading 1.43% copper and 0.22 grams gold per tonne.

During the sixteen-year Phase One mine life, it is expected that Kansanshi will produce 1.6 million tonnes of copper. Peak production will be approximately 130,000 tonnes of copper and 35,000 ounces of gold per annum, with average costs of US$0.38 per pound of copper.

2. Copperbelt Energy Corporation plc

For the financial year ended 31 December 2004, the company’s annual turnover was US$120 million compared to US$118 million the previous financial year. The gross profit margin was US$35 million (2003: US$34 million). Profit after tax was US$12 million (2003: US10 million), the positive variance of US$2 million recorded was mainly due to the write back of the doubtful debt provision for RAMCOZ.

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The company continued to make significant progress in implementing the environmental obligations set out in the Development Agreement of 1997. The highlights of the year in this regard were:-

• An educational campaign was undertaken to sensitize the public on the dangers of vandalizing electrical transmission installations and also on other health and safety matters related to the industry.

• Completion of Phase III of the bund wall construction programme.

• Gas emission levels at the company’s gas turbine alternator sites were tested and found to be in compliance with the standards of the Environmental Council of Zambia.

Capital expenditure for the year was US$5.4 million compared to US$4 million the previous financial year. The variance was mainly attributed to additional expenditure on the Gas Turbines which supply emergency power to the mines.

The company declared a dividend of US$20.5 million for the year.

3. Konkola Copper Mines plc

The entry into Konkola Copper Mines by Vedanta Resources as the 51% controlling shareholder was completed in November 2004, whereupon Vedanta took over management control of the operations.

For the 15 month financial year ended 31 March 2005 a total of 228,311 tonnes and 258 tonnes of copper and cobalt respectively were produced.

KCM recorded an operating profit of US$82.6 million and a profit after tax of US$50.1 million for the period.

Construction of a new 500 tonnes per day acid plant commenced during the year and is scheduled for completion by end of calendar year 2005.Prior to the 2005 calendar year end, the company announced the launch of the Konkola Deep Mining Project which will exploit the vast copper ore resources at Konkola underground mine, and extend the economic life of KCM to 2035 and beyond.

4. Chibuluma Mines plc

The financial results for the year reported a turnover of US $9.2 million, which was below the budget of US $14.8 million and previous year turnover of US $12.03 million. A trading loss of US $3.1 million was reported for the year, compared to the budgeted profit of US $1.6 million, and previous year loss of US $1.9 million. Profitability during the year was adversely affected by a number of factors, the main being shortfall in sales and high unit costs - both arising from inadequate below budget production levels. Operational losses however, were significantly mitigated by the continued improvement in the LME copper price.

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All long-hole drilling and development operations at the west mine ceased during the last quarter of the year, and reclamation of equipment ahead of the planned closure of Shaft No. 7 commenced. During the year, the Chibuluma South concentrator milled 311,679 tonnes of ore at a grade 1.8% copper. Concentrate production totaled 16,823 dry tonnes at an average grade of 30.5% copper, containing 5,055 tonnes of copper.

Subsequent to the year end, plant trials to produce cobalt concentrate took place in October and November 2005. These were generally successful, and circuit modifications to allow the filtration of a cobalt concentrate on the sludge filter press were completed in November 2005. Cobalt concentrate assaying, typically 10% copper and 1.5% cobalt, was produced in December 2005, some of which was dispatched to Chambishi Metals plc.

The concentrate supply contract with Mopani Copper Mines plc was terminated in January 2005 and subsequent agreement reached with Konkola Copper Mines plc facilitated the dispatch of concentrates to KCM Nkana.

5. Luanshya Copper Mines plc

Following resolution of outstanding issues related to the Subscription Agreement, ZCCM-IH Plc in January 2005 finally paid a sum of US$1,500,000 for its 15% shareholding in Luanshya copper Mines Plc. Production of copper and cobalt at Luanshya Copper Mines commenced during the year and to date the production outlook is positive.

6. NFC Africa Mining plc

Copper production shortfalls continued during the year at Chambishi Mine mainly due to mining related problems. NFC exported most of its copper concentrate arisings during the year due to a tolling contract dispute with KCM Plc.

BGRIMM Explosives Limited, a 40% subsidiary of NFC, experienced a major accident involving explosives in which a number of employees lost their lives and the factory was completely destroyed.

7. Chambishi Metals plc

The cobalt market experienced very large swings over the period. The price was at about US$21/lb at the beginning of the year, but was down to about US$13/lb by the end of June 2005. Production at 3,835 tonnes was 86% of the budget, mainly on account of lower slag grade and feed input. Copper prices continued to be strong and averaged US$1.34/lb, which was 6% higher than budget. Production at 16,727 tonnes was 83% of the budget.

The net income for the year to June 2005 was US$14 million, comprising tolling income, Cobalt sales, own Copper sales, acid and other by-product sales. This was below the budget figure of US$35 million, following below budget production, sales volume and lower average prices, especially on the cobalt in the last two quarters.The company’s future outlook, however, is expected to improve as production

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efficiencies are anticipated following heavy capital expenditure. With medium term cobalt forecast around US$15/lb, and copper prices averaging around US$1.6/lb, the company is expected to be fairly profitable in the near future.

ZCCM - IH earned income from Cobalt Price Participation fees amounting to US$4.6 million over the period.

8. Mopani Copper Mines plc

During the period to June 2005, Mopani suffered serious shortfalls of both copper and cobalt production mainly due to mining related problems (such as bottom shaft flooding and poor pumping equipment performance) as well as operational problems at the Smelter in the case of copper. The company also experienced an unprecedented number of fatalities totaling 25 at its Nkana and Mufulira operations.

As at the end of June, construction works continued on the new Smelter/Acid/Oxygen plant project and earthworks were nearing completion. Leaching of malachite and In-situ leaching of underground workings commenced during the period, with the leach solutions being treated in a Solvent Extraction - Electrowon Plant that was commissioned during the same period. Initial commissioning and operational problems encountered were largely resolved by year-end.

9. Konnoco Zambia Limited

Discussions with potential development partners gained momentum during the year and the restructuring of African Rainbow Minerals Subsidiaries into a Canadian listed company (Teal Exploration & Mining Incorporation) was completed. Further work to establish the viability of various mining and processing options will continue in the next financial year. This will be accomplished through re-evaluation of the resources surrounding the existing mine infrastructure and re-categorizing the current resource base in the light of the current economic climate.

c) SUBSIDIARY COMPANIES

1 Ndola Lime Company Limited

A total of 975,912 metric tonnes of limestone was hauled from the quarry compared to the budget of 1,004,076 metric tonnes during the year under review. The year was characterized by frequent breakdown of haulage and loading equipment.

There was no conventional crushing for 19 days when the secondary crusher broke down and when there was low availability of mining equipment. Only a total of 564,852 metric tonnes was crushed against a budget of 648,832 metric tonnes.

Total quicklime produced at 149,817 metric tonnes was 3% above the budgeted 144,720 metric tonnes. Production was mainly carried out in the fuel-efficient vertical kiln, whose performance was satisfactory throughout the period under review

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without major problems except for the 4 days shutdown when there was industrial unrest by unionized workers.

Total hydrated lime produced at 22,843 tonnes was 1,862 metric tonnes above budget. Though above budget, the plant was down for 14 days to work on the grab crane and as a result of an industrial unrest situation.

During the same year the company achieved sales of K84,314 million compared to budgeted sales of K83,606 million and K83.285 million achieved last year. In quantity terms, the company achieved sales of quicklime of 132,870 tonnes (2004: 138,000), limestone of 227,817 tonnes (2004: 231,502) and hydrated lime of 19,889 tonnes (2004: 16,799). The increase in hydrated lime sales is attributed to aggressive marketing on both the local and export markets. Some reductions in sales were noted under Quicklime and limestone which was attributed to a reduction in the uptake by mining companies.

The company made a profit before tax of K14,502 million compared to the budgeted amount of K6,553 million and a profit before tax of K5,260 million achieved in the previous year.

2 AHC Mining Municipal Services Limited

The twelve months to June 2005, saw a partly intentional reduction in treated water as a demand control mechanism by increasing metering of customers and repairs to transmission and distribution piping. However, in Mufulira and Chingola, reductions were due to the deterioration of the quality of raw water from the mining operations. This resulted in a reduction in supply hours in all the mining townships and a reduction in tariffs by the regulator National Water and Sanitation Council (NWASCO).

The period under review also saw a successful employee agreement with the Zambia Water and Sanitation and Allied Workers’ Union.

During the year, installation of the pumps and motors under the Mufulira Pumping Project was completed but not yet commissioned.

The four towns Pumping Project is scheduled for commissioning by 31st October 2005 at a cost of US$3 million.

The Wusakile Water and Sewerage Upgrade Project in Kitwe was also commenced with completion expected in November 2005. The total value of these works is estimated at US$0.6 million.

The Filters and Clarifiers Project, which is expected to cost US$3.5 million, recorded appreciable progress with full commissioning expected in Chingola by June 2005, commissioning of the new filters is expected in early October 2005.

In May 2005, Government announced its decision to have AHC - MMS taken over by Nkana Water and Sewerage Company (NWSC) as the exit strategy of the Mine Township Services Project by December 2005. A joint AHC-MMS/NWASCO Board

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was set up to direct the transition period in preparation for the eventual takeover.

In this vein, all efforts are being made to ensure that the company continues to meet all of its existing obligations, including those relating to employee benefits.

During the year under review, the financial performance of the company was adversely affected by a number of factors which include:

(i) The NWASCO directive to reduce tariffs in Chingola, Chililabombwe and Mufulira resulted in reduction in monthly revenue billing of about K350 million.

(ii) In order to improve the quality of water, the company embarked on a project to build a second pipeline from the river in Mufulira. The project, which was in progress at the end of the year under review, is estimated to cost K4 billion.

(iii) The solid waste in-house operations scheduled to begin in October 2004 were only fully operational in March 2005.

By Order of the Board

W S Musama, Company SecretaryLusaka, Zambia30 August 2006

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DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE PREPARATION OF FINANCIAL STATEMENTS

Section 164 (6) of the Companies Act 1994 requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of

the Company and the profit or loss for that period.

In the opinion of the Directors:

a) the income statement is drawn up so as to give a true and fair view of the profit of the Company for the period;

b) the balance sheet is drawn up so as to give a true and fair view of the state of affairs of the Company as at end of the period;

c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due, other than the amounts owed to GRZ of which a letter of comfort has been provided.

Consequently, the financial statements on pages 20 to 51 were approved by the Board of Directors on ………………. and were signed on its behalf by ……………………………

………………………….. ………………………………G K Chibuye L NkhataDirector Director

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REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF ZCCM INVESTMENTS HOLDINGS PLC

We have audited the accompanying consolidated balance sheet of ZCCM Investments Holdings Plc (“the Company”) as of 30 June 2005, and the related statements of income,

changes in equity and cash flows for the year then ended. As described on page 18, these financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and the Group as of 30 June 2005 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the Companies Act 1994 of Zambia and the required accounting records have been properly kept.

Without qualifying our opinion, we draw attention to Note 1 to the financial statements. The Group’s liabilities exceeded its total assets by K578,498 million (2004:K710,550 million). These conditions, along with other matters as set forth in Note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern. Note 1 also indicates why the financial statements have been prepared on the going concern basis.

KPMGChartered Accountants of Zambia

30 August 2006Jason Kazilimani, Jr Lusaka, ZambiaPartner

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STATEMENT OF ACCOUNTING POLICES

Significant accounting policies

ZCCM Investments Holdings Plc (“the Company”) is a company domiciled in Zambia. The consolidated financial statements of the Company for the year ended 30 June 2005 comprise the Company and its subsidiaries (“the Group”). The Company is an investments holding company and is charged with the responsibility of environmental restoration arising out of the past operations of the Zambia Consolidated Copper Mines Limited.

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) and comply with the provisions of the Companies Act 1994 of Zambia.

Basis of preparation

These financial statements are presented in Zambian Kwacha, rounded to the nearest million. They are prepared on the historical cost basis of accounting, except that the following assets and liabilities are stated at their fair value: financial instruments held - for - trading and financial instruments classified as available - for - sale. The accounting policies applied by the entities in the Group are consistent with those of the previous year.

Non – current asset and disposal groups held for sale are stated at the lower of carrying amount and fair value less costs to sell.

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 36.

Functional and presentation currency

The financial statements are presented in Zambian Kwacha, which is the Company’s and the Group’s functional and presentation currency.

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Statement of accounting polices (continued)

Consolidation

The financial statements present the position of the Company and the consolidated position of the Group.

i) Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

ii) Associates

Associates are those enterprises in which the Group has significant influence, but not control over the financial and operating policies of the enterprise. Investments in associates are accounted for on an equity basis from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate.

iii) Transactions eliminated on consolidation

Inter-group balances and transactions are eliminated in preparing the consolidated financial statements.

iv) Accounting policies of subsidiaries

Where necessary, accounting policies of subsidiary companies have been changed to ensure consistency with the policies adopted by the Group.

Revenue recognition

Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established, which in the case of quoted securities is usually the ex-dividend date.

Copper and Cobalt participation income is recognised as and when it is due.

Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction at balance sheet date. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

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Repayable Carried Interest and Free Carried Interest

Repayable Carried Interest and Free Carried Interest on issuance of Ordinary Shares and/or Shareholders Instruments is recognised in the financial statements upon agreement with the affected privatised companies.

Property, plant and equipment

Items of property, plant and equipment are stated at cost or valuation (in respect of properties) less accumulated depreciation and impairment losses.

Expenditure on repairs and maintenance of fixed assets is charged to the income statement as incurred. The cost or valuation of fixed assets sold or retired, together with the related depreciation, is eliminated from the financial statements at the time of disposal, and the resulting profits or losses are reflected in the results for the year.

Depreciation

Depreciation is charged on straight line basis over the estimated useful lives of the fixed assets concerned. The principal annual rates used for this purpose are:-

Vehicles 25% Furniture & equipment 20% Leasehold land and buildings 5% Software 20%

Investments in equity and debt securities

Investments held-for-trading are classified as current assets and are stated at fair value, with any resultant gain or loss on restatement of fair values recognised in the income statement.

Where the Group has the positive intent and ability to hold government bonds to maturity they are stated at amortised cost less impairment losses. Other investments held by the Group are classified as being available-for-sale and are stated at fair value with any resultant gain or loss on restatement of fair values being recognised directly in equity, through the statement of changes in equity.

The fair value of investments held for trading and investments available for sale is their quoted bid price at the balance sheet date. Where the fair value of investments can not be reliably measured, such instruments are valued at cost less any impairment adjustments.

Investments held for trading and available for sale investments are recognised/derecognised by the Group on the date it commits to purchase/sell the investments. Investments held to maturity are recognised/derecognised on the day they are transferred to/by the Group.

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Inventories

Inventories are valued at the lower of cost and net realisable value. A provision is made for slow moving and obsolete items. The cost of inventories is based on the first in first out principle or weighted average basis and includes direct production costs and overheads or other expenditure incurred in acquiring the inventories and bringing them to their present location and condition.

Taxation

Current tax comprises tax payable calculated on the basis of the expected taxable income for the year, using the ruling tax rates, and any adjustment of tax payable for previous years.

Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are accrued only to the extent that it is probable that the related tax benefits will be realised.

Foreign currencies

Assets and liabilities denominated in foreign currencies are translated into Zambian Kwacha at the exchange rates ruling at the balance sheet date. Exchange gains or losses on the translation of assets and liabilities are recognised in the profit and loss account in the period in which they arise.

Income statements of subsidiaries with reporting currencies other than Kwacha are translated into the Group’s reporting currency at average exchange rates for the year and the balance sheets are translated at the year end exchange rates ruling on 30 June. Exchange differences arising from the translation of the net investments in such subsidiaries are taken to translation differences in shareholder’s equity. On disposal of such subsidiary such translation differences are recognised in the income statement as part of the gain or loss on sale.

Impairment

The carrying amounts of the Group’s assets other than inventories are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amounts. Impairment losses are recognised in the income statement.

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that should have been determined net of depreciation or amortisation, if no impairment loss had been recognised.

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Revaluation surplus

The surplus arising on the revaluation or restatement of properties is initially credited to a revaluation surplus, which is a non-distributable reserve. A transfer is made from this reserve to the general reserve each year, equivalent to the difference between the actual depreciation charge for the year and the depreciation charge based on historical values, in respect of the revalued assets.

Government grants

Government grants are recognised in the balance sheet initially as deferred income when there is reasonable assurance that such grants will be received and that the Group will comply with the conditions attaching to it. Grants that compensate the Group for expenses incurred are recognised as revenue in the income statement on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised in the income statement as revenue on a systematic basis over the useful life of the asset.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events for which it is probable that an out flow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

Cash and cash equivalents

Cash and cash equivalents, for purposes of the cash flow, comprise cash in hand, deposits held with banks, and investments in money market instruments net of bank overdrafts.

Employee benefits

Some of the Company’s employees are on fixed term contracts and are entitled to end of contract benefits. Provision is made for past service on the basis of contract terms. Some employees within the Group however, are either on defined benefits or contributory schemes. The costs relating to such schemes are charged to profit and loss account as incurred. For employees entitled to retirement benefits, provision is made on the basis of present conditions and earnings.

Restoration, rehabilitation and environmental costs

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mine. Costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the start of each project, as soon as the obligation to incur costs arises. These costs are charged against profits over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage which is created on an

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ongoing basis during production are provided for and charged against income as extraction progresses.

Financial instruments

Measurement

Financial instruments are initially measured at cost, which includes transaction costs. Subsequent to initial recognition, these instruments are measured as set out below:

Trade and other receivables

Trade and other receivables originated by the Group are stated at cost less provision for doubtful debts.

Financial liabilities

Financial liabilities are recognised at cost, comprising original debt less principal payments.

Cash and cash equivalents

Cash and cash equivalents are measured at fair value.

Gains and losses on subsequent measurement

Gains and losses arising from a change in the fair value of financial instruments are included in net profit or loss in the period in which the change arises.

Offset

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when the Group has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis or to realise and settle the liability simultaneously.

Non – current assets held for sale and discontinued operations

Immediately before classification as held for sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable IFRSs. Then, on initial classification as held for sale, non-current assets and disposal groups are recognized at the lower of carrying amount and fair value less costs to sell.

Impairment losses on initial classification as held for sale are included in profit or loss, even when there is a revaluation. The same applies to gains and losses on subsequent re-measurement.

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.

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Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. A disposal group that is to be abandoned may also qualify.

Borrowings

Borrowings are initially recognized at fair value net of transaction costs incurred. After initial recognition such borrowings are recognised at amortised cost using the effective interest rate method.

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INCO

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ZCCM-IH

BALANCE SHEETas at 30 June,2005All tabulated figures are stated in Zambian Kwacha Million

Note Company2005

Group2005

Company2004

As restated

Group2004

As restatedAssetsProperty, plant and equipment 12 5,513 113,807 3,689 80,620Investments 13 367,714 367,694 449,409 449,393Deferred tax asset 26 - - - 744Other long term receivables 14 21,611 21,611 22,328 22,328

Total non-current assets 394,838 503,112 475,426 553,085

Inventories 15 - 21,822 - 8,184Accounts receivable and prepayments 16 220,916 249,281 127,854 154,616Other investments 17 43,778 43,778 29,141 29,141Cash and bank 18 32,723 38,857 14,312 17,254

Total current assets 297,417 353,738 171,307 209,195

Total assets 692,255 856,850 646,733 762,280

Equity Issued capital 19 893 893 893 893Retained earnings 20 (1,463,331) (1,454,051) (1,597,220) (1,588,286)Revaluation reserve 20 1,395 9,215 870 11,398Subordinated loan 21 865,445 865,445 865,445 865,445

Total deficit on equity (595,598) (578,498) (730,012) (710,550)

LiabilitiesLong term loans 22 1,193,483 1,249,403 1,290,760 1,327,890Finance lease 23 - 1,783 - 3,795Other long term liabilities 24 - 2,491 - 2,451Grants 25 2,518 25,503 2,518 14,526Deferred tax liabilities 26 282 7,687 - 6,740

Total non-current liabilities 1,196,283 1,286,867 1,293,278 1,355,402

Bank overdraft 18 - 3,088 - 228Finance lease 23 - 1,707 - 1,898Accounts payable 27 89,566 138,594 81,548 112,968Taxation 2,004 5,092 1,919 2,334

Total current liabilities 91,570 148,481 83,467 117,428

Total equity and liabilities 692,255 856,850 646,733 762,280

These financial statements were approved by the board of directors on ………. and were signed on its behalf by:

……………………… ………………..……… G K Chibuye L Nkhata Director DirectorThe notes on pages 31 to 51 form part of these financial statements.

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CASH FLOW STATEMENTfor the year ended 30 June,2005

All tabulated figures are stated in Zambian Kwacha Million

Cash flows from operating activities Note Group2005

Group2004

Profit for yearAdjustments for non-cash items

Depreciation Profit on assets retired and sold

5, 12

139,981

10,138(1,388)

43,515

3,950(697)

Dividend income (21,577) (16,588)

Exchange differences on loans and investments - 215

Income tax expense/(credit) 9,110 (195)

Changes in operating assets and liabilities

Decrease in non-current receivables 82,416 45,884

(Increase)/decrease in inventories (13,638) (2,376)

(Increase)/decrease in receivables (94,665) (73,583)

Decrease in current payables 11,293 (16,763)

Increase/(decrease) in other long term payables 40 16

Income tax paid (4,782) (3,710)

Interest income (663) (6,771)

Interest expense 1,575 103

Net cash from operating activities 117,840 (27,000)

Cash flows from investing activities

Purchase of property, plant and equipment 12 (43,335) (43,422)Proceeds from sale of equipment and other assets 1,398 701

Investments, loans and advancesInterest received

(14,637)663

(10,259)6,771

Dividends received 20,237 14,929

Net cash from investing activities (35,674) (31,280)Cash flows from financing activities

Proceeds from non – current borrowings - 30,099

Movement in borrowings (73,140) (19,886)

Payment of finance lease liabilities (2,203) (66)

Finance lease received - 5,759

Movement in grants 25 13,495 7,330

Interest paid (1,575) (103)

Net cash from financing activities (63,423) 23,133

Net increase/(decrease) in cash 18,743 (34,952)

Cash and bank balances at beginning of the period 18 17,026 51,978Cash and bank balances end of the period 18 35,769 17,026

The notes on pages 31 to 51 form part of these financial statements.

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STATEMENT OF CHANGES IN EQUITYfor the year ended 30 June,2005


CompanyRetained earnings

Revaluationreserve Total

Balance at 1 July 2003 (1,621,481) 870 (1,620,611)Profit for the year 24,261 - 24,261

Balance at 30 June 2004 (1,597,220) 870 (1,596,350)

Balance at 1 July 2004 (1,597,220) 870 (1,596,350)Profit for the year 133,889 - 133,889Revaluation of property - 807 807Deferred tax on revaluation surplus - (282) (282)

Balance at 30 June 2005 (1,463,331) 1,395 (1,461,936)

GroupRetainedearnings


Balance at 1 July 2003 (1,633,985) 12,684 (1,621,301)Profit for the year 43,710 - 43,710Deferred tax adjustment on revaluation reserve - 703 703Transfer from revaluation reserve 1,989 (1,989) -

Balance at 30 June 2004 (1,588,286) 11,398 (1,576,888)

Balance at 1 July 2004 (1,588,286) 11,398 (1,576,888)Profit for the year 130,871 - 130,871Revaluation of property - 807 807Movement on deferred tax liability on revaluation surplus

- 374 374

Transfer from revaluation reserve 3,364 (3,364) -

Balance at 30 June 2005 (1,454,051) 9,215 (1,444,836)

The notes on pages 31 to 51 form part of these financial statements.

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NOTES TO THE FINANCIAL STATEMENTS

1 Going concern

At 30 June 2005, the net liability position of the group stood at K578, 498 million (30 June 2004: K710,550 million). The ability of the Company to continue as a going concern is dependent upon government’s support to enable the Company settle its liabilities arising out of the privatisation of the Zambia Consolidated Copper Mines Limited (ZCCM) and other liabilities as they fall due.

The Group’s projected cash requirements for the year to 30 June 2006 are to be financed, inter-alia, from government grants and loans.

The financial statements have been prepared on the going concern basis, which assumes that the Company and its subsidiaries will continue in operational existence for the foreseeable future.

The Directors have obtained an undertaking from the major shareholder, the Government of the Republic of Zambia (GRZ), that the necessary financial and operational support will be made available for the 12 months following the date of signing of the financial statements. Based on the foregoing, it is the Directors’ view that it is appropriate for the financial statements to be prepared on a going concern basis.

2 Segment reporting

Segment information is presented in respect of the Group’s business segments. The primary format business segments, is based on the Group’s management and internal reporting structure.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Segment capital expenditure is the total cost incurred to acquire segment assets that are expected to be used for more than one period.

Business segments

The Group comprises the following main business segments;

Investments Holding investments in privatised mining and energy companies. Placing funds not immediately required for operating needs in instruments that would maximise returns while ensuring safety of funds.

Lime The production and marketing of lime products.

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2005

2004

2005

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2005

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2005

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2004

2005

2004

2005

2004

2005

2004

2005

2004

Reve

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Sale

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84,2

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--

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--

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4,20

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--

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Notes to the financial statements (continued)


3 Discontinuing operations

On 4 May 2005, the Government of the Republic of Zambia announced that ownership and management of AHC Mining Municipal Services Limited (“AHC”), the Group’s entire Municipal Division, would be taken over by Nkana Water & Sewerage Company Limited (“NWSC”) with effect from 31 December 2005, under a deed of gift. In accordance with the provisions of the Water and Sanitation Act of 1997, the Municipal Councils in the areas where AHC operates will become shareholders in NWSC based on the value of the AHC’s assets located in each local authority.

As at 30 June 2005, AHC had net assets of K5,046 million, comprising of assets of K115,073 million less liabilities of K110,027 million.

During the year ended 30 June 2005, AHC had cash outflows from operating activities of K7,620 million (2004: K17,381 million), cash outflows from investing activities of K39,400 million (2004: K31,449 million) and cash inflow from financing activities of K48,307 million (2004: K21,044 million).

4 Revenue

Company2005

Group2005

Company2004

Group2004

Dividend income 25,777 21,577 17,588 16,588

Cobalt/copper participation fees 147,529 147,529 14,359 14,359

Subsidiary companies’ revenues - 122,784 - 119,552

173,306 291,890 31,947 150,499

Subsidiary companies’ revenues comprise mainly sales of limestone, quicklime and hydrated lime and services in respect of water and sewerage.

Cobalt/copper participation fees are computed by each individual privatised company using formulae specified in the Sale and Purchase Agreements. The income derived during the financial year was USD6,308,726 (2004: USD2,988,549) from Chambishi Metals plc and USD25 million (2004: nil) from Konkola Copper Mines Plc.

A waiver was applied by the Company against copper/cobalt participation fees receivable from Chibuluma Mines Plc in respect of the current financial year and 2004.

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5 Operating expenses/cost of sales

Company

2005

Group

2005

Company

2004

Group

2004

Depreciation 941 10,138 585 3,950Auditors’ remuneration- Current 150 413 150 388- under provided in prior year - 22 22Directors’ emoluments 238 462 119 219Provision for bad debts - - - 5,614Personnel expenses 11,258 27,082 7,995 19,900Other administration expenses 47,448 156,580 7,259 108,141

60,035 194,675 16,130 138,234

The average number of employees for the Group during the year ended 30 June 2005 was 667 (2004: 742).

6 Other operating incomeCompany

2005

Group

2005

Company

2004

Group

2004

Grants 13,703 29,725 - 13,714Gain on disposal of property, plant and equipment 1,388 1,388 697 697Interest on govt bonds & TBs 2,191 2,191 6,583 6,583Rent income 146 146 96 96Miscellaneous income 163 4,495 532 193

17,591 37,945 7,908 21,283

7 Environmental expensesCompany

2005

Group

2005

Company

2004

Group

2004

Tailing Dumps 1,574 1,574 146 146Resettlement Act 278 278 141 141Expenses on Kabwe 182 182 725 725Consultancy 16,293 16,293 1,876 1,876Hazardous Chemicals 28 28 6 6Defunct Facility - - 5 5

18,355 18,355 2,899 2,899

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Environmental expenses represent expenditures incurred in respect of meeting environmental remedial obligations arising from the operations of ZCCM Limited. The expenditure is financed through a loan from the World Bank and Nordic Development Fund.

8 Non operating (expenses)/incomeCompany

2005Group

2005Company

2004Group

2004

ZESCO debt swap - - - 14,721Ndola Lime Vertical Kiln overhaul - - - (6,708)Loss arising on dilution in KCM shareholding (8,178) (8,178) - -Income from reorganisation of Kansanshi Mine - - 3,156 3,156

(8,178) (8,178) 3,156 11,169

ZESCO debt swap

In 2004, a tripartite agreement, facilitated by the Government of the Republic of Zambia, was entered into by ZESCO Limited, Roan Antelope Mining Corporation Limited (“RAMCOZ” in liquidation) and AHC Mining Municipal Services Limited (“AHC”). Under this agreement, ZESCO Limited wrote off an amount of K17.6 billion due from AHC. AHC in turn wrote off an amount of K6.3 billion due from RAMCOZ of which K3.4 billion had been provided for.

Loss arising on dilution in KCM shareholding

A loss of K8,178 million arose when Vedanta Resources Plc, a London listed diversified mining and metals group, acquired a 51 per cent stake in Konkola Copper Mining Plc (KCM). To facilitate the deal, ZCCM Investments Holdings Plc reduced its shareholding from 42 per cent to 20.6 per cent effective 5 November 2004 while Zambia Copper Investments (ZCI) reduced its shareholding from 58 per cent to 28.4 per cent. ZCCM Investments Holdings Plc and ZCI, with the support of the Government of the Republic of Zambia, had been looking for a new strategic equity partner for KCM since the exit of Anglo American Plc in September 2002.

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Kansanshi Mine

The income of K3,156 million (US$666,667) in 2004 was the amount paid by First Quantum to satisfy the condition of the Kansanshi sale agreement which required upon satisfaction of the condition in clause 9.4(a) of the agreement, payment on the first business day in each of July 2003, October 2003, January 2004, April 2004 and July

2004.

9 Net financing incomeCompany

2005

Group

2005

Company

2004

Group

2004

Exchange gains 32,266 32,266 849 1,612

Interest expense (135) (1,575) - (103)

Interest income 603 663 143 188

32,734 31,354 992 1,697

10 Income tax expenseCompany

2005

Group

2005

Company

2004

Group

2004

Current tax expense 3,174 7,045 713 1,188Change in deferred tax liabil-ityChange in deferred tax asset -

1,321744

--

(639) (744)

3,174 9,110 713 (195)

During the year, the Company incurred a tax loss of K277,880,996, which is subject to agreement with Zambia Revenue Authority. The tax expense included in the Company’s financial statements relates to tax on interest income, rental income, dividend income and miscellaneous income.The Company has accumulated tax losses, which are subject to agreement with the Zambia Revenue Authority (ZRA). The following tax losses are available for carry forward for a maximum period of 5 years.

K’000

2000/2001 loss available until 31 March 2006 174,812,6832001/2002 loss available until 31 March 2007 183,996,0032002/2003 loss available until 31 March 2008 18,671,0002003/2004 loss available until 31 March 2009 3,516,034

380,995,720

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The tax on the profit before tax differs from the theoretical amount that would rise using the basis tax rate, as follows:

Company Group Company Group

2005 2005 2004 2004

Profit before tax 137,063 139,981 24,974 43,515

Income tax using the domestic corpo-ration tax rate (47,972) (48,993) (7,492) (14,332)Effect of temporary differences aris-ing from capital allowances - - 221 221Income taxed separately Non – taxable incomeTax rate difference on export sale

---

--

115

713 - -

719--

Non – deductible expenses - (689) (202) (828)

Effect of tax losses utilised 44,798 40,457 6,047 14,415

Under provided in prior years - - - -

Charge to profit and loss account (3,174) (9,110) (713) 195

11 Earnings per share

The calculation of earnings per share at 30 June 2005 is based on the profit attributable to ordinary shares of K130,871 million (2004: profit of K43,710 million) and of ordinary shares outstanding at 30 June 2005 of 89,296,428 (2004: 89,296,428).

12 Property, plant and equipment

Company

Leaseholdland &

properties

Plant, equipment,

furniture& software

Work in progress

Total

Cost or valuationAt 01.07.2004 883 3,476 522 4,881Additions 17 1,793 158 1,968Revaluation 807 - - 807Transfers 621 - (621) -Disposals - (13) - (13)

At 30.06.2005 2,328 5,256 59 7,643

DepreciationAt 01.07.2004 35 1,157 - 1,192Charge for the year 28 913 - 941Written back on disposal - (3) - (3)

At 30.06.2005 63 2,067 - 2,130

Net book value at 30.06.2005 2,265 3,189 59 5,513

Net book value at 30.06.2004 848 2,319 522 3,689

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Notes to the financial statements (continued) All tabulated figures are stated in Zambian Kwacha Million

In accordance with section 193 of the Companies Act 1994, the Register of Land and Buildings is available for inspection by members and their duly authorised agents at the registered records office of the Company.During the year, the Company’s leasehold property in Ndola (S/D G2 of Farm 748, Arusha Street) was revalued by the Government Valuation Department at current open market values on 14 September 2004 and was disclosed in the financial statements at valuation. The resulting revaluation surplus was credited to revaluation reserve. The was the first year of recognition for this property.

Group Leaseholdland &

properties

Plant,equip-ment,

furniture & software

Work inprogress

Total

Cost or valuationAt 01.07.2004 5,451 42,249 52,912 100,612Additions 17 6,344 36,167 42,528Revaluation 807 - - 807Transfers 621 4,933 (5,554) -Disposals - (13) - (13)

At 30.06.2005 6,896 53,513 83,525 143,934Depreciation

At 01.07.2004 930 19,062 - 19,992

Charge for the year 183 9,955 - 10,138

Written back on disposal - (3) - (3)

At 30.06.2005 1,113 29,014 - 30,127

Net book value at 30.06.2005 5,783 24,499 83,525 113,807

Net book value at 30.06.2004 4,521 23,187 52,912 80,620

13 Investments

Company

2005

Group

2005

Company

2004

Group

2004Investments in subsidiary companies 20 - 16 -Other investments 367,694 367,694 449,393 449,393

367,714 367,694 449,409 449,393

Investments in subsidiary companiesPrincipal subsidiary companies are shown at page 50. Investments in subsidiary companies relate to original cost of shares. The shares of the subsidiaries are not traded.

Other investmentsOther investments, include K348,138 million (2004: K436,999 million) and K8,007 million (2004: K8,007 million) for the shareholding in Konkola Copper Mining Plc (KCM) and Mopani Copper Mine (MCM)respectively.

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14 Other long term receivablesCompany

2005

Group

2005

Company

2004

Group

2004Deferred privatisation sales revenue receivable from Mopani Copper Mine 21,611 21,611 22,328 22,328

Deferred privatisation sales revenue

The proceeds of the Mopani Copper Mine sale were a cash payment at completion of US$20 million plus US$23.0 million in five equal annual instalments commencing 1 January 2004. There is also a provision for further deferred payments to the Company conditional, inter alia, on the future level of copper prices in the period from 1 January 2004 to 31 December 2006.

15 InventoriesCompany

2005Group

2005Company

2004Group

2004Raw materials and consumables - 4,488 - 4,552

Finished goods - 16,763 - 3,486

Goods-in-transit - 571 - 146

- 21,822 - 8,184

16 Accounts receivable and prepayments

Company2005

Group2005

Company2004

Group2004

Trade receivables - 14,984 - 15,821

Other receivables 220,916 234,297 127,854 138,795

220,916 249,281 127,854 154,616

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Notes to the financial statements (continued)All tabulated figures are stated in Zambian Kwacha Million

Lunsemfwa Hydro Power CompanyOther receivables include US$3.25 million due from Lunsemfwa Hydro Power Company. This relates to the balance of proceeds from the sale of the Kabwe Power Station amounting to US$8.25 million which was agreed to be paid as follows:-

Within 60 days from closeUS$ million

3.00Within 12 months from close 1.00Within 24 months from close 4.25

Gross proceeds 8.25

The amount of US$1 million was received during the financial year to 30 June 2004, the amount of US$3 million during the financial year ended 30 June 2003 and the amount of US$1 million during the financial year to 30 June 2002 while the outstanding balance of US$ 3.25 million is included in current receivables as it is falling due within less than 12 months.

17 Other investments

Company2005

Group2005

Company2004

Group2004

Debt securities held - to - maturity 32,033 32,033 29,141 29,141Other treasury investments 11,745 11,745 - -

43,778 43,778 29,141 29,141

Government debt securities held-to-maturity all mature within less than three months. The effective interest rate on government debt securities is 23% (2004: 24%).

18 Cash and bankCompany

2005Group

2005Company

2004Group

2004

Cash and bank balances 32,723 38,857 14,312 17,254Bank overdraft - (3,088) - (228)

32,723 35,769 14,312 17,026

The bank overdraft arose in Ndola Lime Company Limited and AHC Mining Municipal Services Limited.

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19 Share capitalCompany

2005Group

2005Company

2004Group

2004Authorised54,000,000 ‘A’ordinary shares of K10 each36,000,000 ‘B’ordinary shares of K10 each

540

360

540

360

540

360

540

360

900 900 900 900Issued and fully paid53,825,808 ‘A’ordinary shares of K10 each

35,470,620 ‘B’ordinary shares of K10 each

538

355

538

355

538

355

538

355

Called up share capital 893 893 893 893

The ordinary shareholders of the Company receive dividends as declared from time to time and are entitled to vote at meetings of the Company.

20 ReservesCompany

Retainedearnings


Balance at 1 July 2003 (1,621,481) 870 (1,620,611)Net profit for the year 24,261 - 24,261

Balance at 30 June 2004 (1,597,220) 870 (1,596,350)

Balance at 1 July 2004 (1,597,220) 870 (1,596,350)Profit for the year 133,889 - 133,889Revaluation of property - 807 807

Deferred tax on revaluation surplus - (282) (282)

Balance at 30 June 2005 (1,463,331) 1,395 (1,461,936)

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Group

Retainedearnings

Revaluationreserve

Total

Balance at 1 July 2003 (1,633,985) 12,684 (1,621,301)

Profit for the year43,710 - 43,710

Deferred tax adjustment on revaluation reserve

- 703 703

Transfer from revaluation reserve1,989 (1,989) -

Balance at 30 June 2004 (1,588,286) 11,398 (1,576,888)

Balance at 1 July 2004 (1,588,286) 11,398 (1,576,888)

Profit for the year 130,871 - 130,871

Revaluation of property- 807 807

Movement on deferred tax liability on revaluation surplus

- 374 374

Transfer from revaluation reserve3,364 (3,364) -

Balance at 30 June 2005 (1,454,051) 9,215 (1,444,836)

Retained earnings are the carried forward recognised income, net of expenses, of the Group plus current period profit attributable to shareholders.

The revaluation reserve relates to property, plant and equipment.

21 Subordinated loanSince 1983 amounts dues to certain of the Company’s lenders became payable to GRZ following arrangements between GRZ and the Governments of the countries in which those lenders are situated. These amounts, described as the “Paris Club” loans were reported in the financial statements of ZCCM Limited up to 31 March 1998 as long-term borrowings and as deferred liabilities.

In February 1999, the Company and GRZ entered into an agreement whereby the Paris Club loans totalling US$311.3 million were consolidated into one loan denominated in Kwacha due to GRZ. Previously the loans were denominated in US Dollars, French Francs and Pounds Sterling. The agreement with GRZ provided for the subordination of the new loan to all other creditors of the Company.

Accordingly at 30 June 2005 an amount of K865,445 million (30 June 2004: K865,445 million) was separately reported as a subordinated loan.

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The loan is interest free and carries no specific repayment term. It is repayable on demand.

22 Long term borrowings

Company2005

Group2005

Company2004

Group2004

ZESCO loanZESCO/RAMCOZ debtGRZ LoanGRZ/World bank loansEripta loan

85,192 -

842,091253,879

12,321

85,192 -

842,091309,799

12,321

82,2675,748

869,995320,429

12,321

82,2675,748

869,995357,559

12,321

1,193,483 1,249,403 1,290,760 1,327,890

All the loans are unsecured and are interest free except as described below. Further, there are no agreed repayment terms in respect of all the loans except as outlined below in respect of subsidiary companies.

ZESCO loan

The loan with ZESCO carries interest at LIBOR plus 5%. The loan arises from the assumption by ZCCM-IH (under an agreement dated 28 February 2002 between ZCCM-IH, ZESCO and CEC) of debts due from Ramcoz to CEC of US$19,291,994 of which US$13,141,701 was owed by CEC to ZESCO at 28 February 2002. The liability carries no definite repayment terms.

GRZ loan

The GRZ loan represents amounts received from the Government to enable ZCCM-IH discharge pre-privatisation liabilities. All such receipts from the Government are credited to the loan account pending a decision by the Government regarding the final disposal of these balances. No interest is accrued in respect of these balances. It is repayable on demand.

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GRZ/World Bank loansUnder the protocol signed on 14 January 1999, between GRZ and the Company, an amount of up to US$68.5 million became available to the Company for the purpose of retrenching surplus employees and meeting environmental remedial obligations. This amount was initially received by GRZ from IDA and on lent to the Company. By 30 June 2005 the Company had drawn US$70.3 million (30 June 2004: US$63.6 million). Loans to subsidiary companies from GRZ include a loan to AHC Mining Municipal Services Limited of K37 billion (30 June 2004: K12 billion) carrying interest at 4.5% per annum and repayable in equal half yearly instalments from October 2001 and ending April 2021.

ERIPTA loanThe Economic Recovery and Investment Promotion Technical Assistance (ERIPTA) loan was taken over by the Government in 2001 and arises from the period prior to the disposal of ZCCM’s mining assets. This loan was intended to assist the Government in carrying out its economic reform under its Privatisation and Industrial Reform Programme and Economic Programme. The loan has not been removed from ZCCM-IH books due to the absence of an agreement between GRZ, ZCCM-IH and the financing partner regarding the takeover of the loan by GRZ. No interest has been accrued since 2001.

23 Finance lease

Company

2005

Group

2005

Company

2004

Group

2004

Due after more than one year - 1,783 - 3,795

Due within less than one year - 1,707 - 1,898

- 3,490 - 5,693

The finance lease during the year relates to Ndola Lime Company Limited

24 Restoration, rehabilitation and environmental provision

Restoration, rehabilitation and environmental provisions represent the net present value of the best estimate of the expenditure required to settle the obligations to rehabilitate environmental disturbances caused by mining operations in a subsidiary company Ndola Line Company Limited. These costs are expected to be incurred over a period in excess of 20 years from the balance sheet date.

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25 GrantsCompany

2005

Group

2005

Company

2004

Group

2004

At 1 July Grant received

2,51813,703

14,52640,702

-2,518

4,67823,562

Amortisation (13,703) (29,725) - (13,714)

At 30 June 2,518 25,503 2,518 14,526

The grant represents a total grant facility of US$23 million available to AHC-MMS, a discontinuing operation, from the Government of the Republic of Zambia to be applied for capital expenditure requirements. The grant for the Company represents an amount previously recognised under World Bank loans.

26 Deferred tax Company

2005Group

2005Company

2004Group2004

Assets

Balance at 1 July - 744 - -

(charge)/credit for the year - (744) - 744

Balance at 30 June - - - 744

The deferred tax asset at 30 June 2004 relates to Ndola Lime Company Limited. The directors consider that the deferred taxation asset is recoverable as the company is likely to return to profitability in the next financial year due to the overhaul of the production facilities.

Company2005

Group2005

Company2004

Group2004

Liabilities

Balance at 1 July - 6,740 - 8,082

Realised on revaluation reserve - (656) - (703)

6,084 7,379

Charged to revaluation reserve 282 282 - -

Charge/(credit) for the year(note 10) - 1,321 - (639)

Balance at 30 June 282 7,687 - 6,740

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27 Accounts payableCompany

2005

Group

2005

Company

2004

Group

2004Trade payables - goods and services - 17,516 - 17,758

Other payables 89,566 121,078 81,548 95,210

89,566 138,594 81,548 112,968

Other payables relate to accrued expenses and various non trade payables.

28 Former employee pension and retirement benefits

With the assistance of a loan from the Government of the Republic of Zambia funded by IDA the Company successfully completed the process of retrenching those employees transferred to the new companies. These costs were fully recognised in the financial statements. In addition the Government of the Republic of Zambia and the Company continue to make available funds towards the payment of benefits held in Trust for former ZCCM employees who transferred to new mine owners at 31 March 2000 but left employment thereafter in accordance with the agreement signed with the Mineworkers Union of Zambia.

29 Contingent liabilities

The Company is defending a number of cases involving ZCCM’s former employees and suppliers. Due to the large number of cases there is a likelihood that some could involve a material liability. However the quantum of this can not be determined at this stage in the litigation processes.

The Company is yet to make a full assessment of the total expenditure on environmental remedial obligations which may have to be incurred in respect of the Company’s past operations. However, in the conditions precedent to the privatisation sale agreements, the Government has given an undertaking to fund the residual environmental liabilities relating to the Company’s past operations.

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30 Financial instruments

Exposure to currency, interest rate and credit risk arises in the normal course of the Group’s business.

Currency risk

The Group incurs currency risk as a result of purchases, sales and borrowings in US Dollar. No hedge is taken out for this risk.

Interest rate risk

The Group is exposed to interest rate risk to the extent of the balance of any loans taken and outstanding.

Credit riskNo collateral is required in respect of financial assets. Management has a policy in place and the exposure to credit risk is monitored on an ongoing basis. Reputable financial institutions are used for investing and cash handling purposes.

At balance sheet date, there were no significant concentrations of credit risk.

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Fair valuesThe fair values of all financial instruments are substantially identical to carrying amounts reflected in the balance sheet.

31 Capital commitmentsThere were no capital commitments authorised or contracted for at 30 June 2005. (30 June 2004: Nil).

32 ShareholdingThe Minister of Finance and National Planning holds all the ‘A’ ordinary shares and 24,329,828 ‘B’ ordinary shares representing 87.6% of the issued shares in that class of the Company on behalf of the Government of the Republic of Zambia.

33 Related party transactionsThe holding company and its subsidiaries, the directors and senior management are related parties. Transactions with the related parties are entered into in the normal course of business. Balances outstanding with related companies are disclosed as group balances in the Company’s financial statements.

34 Comparative figuresComparative figures have been reclassified wherever necessary to facilitate meaningful comparison.

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Notes to the financial statements (continued)All tabulated figures are stated in Zambian Kwacha Million 35 Post balance sheet events

Subsequent to year end, the company’s 100% shareholding in AHC Mining Municipal Services Limited (“AHC”) was voluntarily assigned to certain municipal councils in the Copperbelt Province of Zambia in varying proportions with effect from 26 January 2006, under a deed of gift. The assignment was made without valuable consideration.

36 Accounting estimates and judgementsCritical accounting estimates – income taxes

The tax charged to the accounts is subject to agreement with the Zambia Revenue Authority. When the final tax outcome upon agreement of assessments differs from the amounts initially recorded, such differences are adjusted in subsequent periods.

Critical accounting judgements – investment property

The Group has sub let a part of an office building but has decided not to treat this property as an investment property because it is not the Group’s intention to hold this for the long-term or for capital appreciation or rental. Accordingly, this is still treated as a lease of property, plant and equipment.

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Subsidiary companiesIncorporated in the Republic of Zambia

The following companies, which largely operate independently to provide supplies and services to the mining industry and Copperbelt municipalities are the principal subsidiaries of the Company:

Shareholding % Note 2005 2004

Ndola Lime Company 100 100 1 AHC – Mining Municipal Services Limited 100 100 2

Incorporated and operating in England

ZAL Holdings Limited (In Liquidation) 100 100 3 ZCCM (UK) Limited (In Liquidation) 100 100 3

Notes

1 Negotiations are continuing for the sale of Ndola Lime Company.

2 AHC – Mining Municipal Services Limited was set up in 2000 to own the Company’s Mining Municipal assets (water treatment, sewerage and solid waste disposal) during a transitional period of up to five years until GRZ has put in place a permanent arrangement regarding the operation and ownership of these assets.

3 Zal Holdings Limited went into a members voluntary liquidation on 15 January 2001 and the process was concluded on 26 May 2004 whilst ZCCM (UK) Limited went into a members voluntary liquidation on 21 June 2000 and the process was concluded on 13 July 2005.

Zal Holdings and ZCCM (UK) Limited have not been consolidated in these financial statements on account of the fact that no financial statements are being prepared in respect of these companies which are in liquidation.

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Appendix IThree year financial recordAll tabulated figures are stated in Zambian Kwacha Million

2005 2004 2003

Profit and loss account

Revenue 291,890 150,499 137,266

Profit/(loss) before tax 139,981 43,515 569,782

Taxation 9,110 195 (6,725)

Profit/(loss) for the year 130,871 43,710 563,057

Balance sheet

Non-current assets 503,112 553,085 558,757

Current assets 353,738 209,195 157,701

Non-current liabilities (1,286,585) (1,355,402) (2,200,620)

Current liabilities (134,148) (117,428) (136,246)

Net liabilities (563,883) (710,550) (1,620,408)

Shareholders’ funds (563,883) (710,550) (1,620,408)

ZCCM-IH came into being as a successor company to ZCCM Limited in 2000.A

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