By Matthew Hill
Early figures show Zambia in 2013 lost its standing as Africa’s biggest copper miner- held for the past 26 years, according to a metals analyst CRU Group. With the massive mining projects underway in the country, will the home of the continent’s biggest reserves of the red metal again top the Democratic Republic of Congo as the biggest producer?
That’s mainly government’s call, CRU’s Piotr Ortonowski said.
Both Zambia and the Congo have the potential to more-than double copper mining volumes over the next 10 years, but this should not be taken as a given, he said.
“With 898,000 t of potential new mine production capacity by 2024 in the DRC, compared with 844,000t for Zambia, it appears that the DRC will have the edge in the future,” according to Ortonowski. “However, I must stress that this is potential production from projects and it’s highly unlikely that it will all come on stream – realistically only 50-60% of it will.”
According to his estimates – with the disclaimer that they’re still preliminary as CRU is still waiting for production data from the last three months of 2013 from some mines – DRC produced 846,000 tons of contained copper last year, while mines in Zambia produced 829,000 tons. That puts the DRC at the top of the ranks of Africa’s copper producers, topping Zambia for the first time since 1988. Congo was the bigger producer of the two before the 1930s.
Looking at estimates from Gayle Berry, a metals analyst at Barclays Capital in London, it would seem DRC will at least have the advantage for this year too. The country will be the biggest contributor of new global copper supplies after Chile, which is already the world’s top producer. Berry says an additional 250,000 tons may be extracted from mines in the DRC in 2014. Companies lifting output north of the Zambian border include Freeport McMoRan Copper & Gold, Glencore Xstrata and Eurasia Natural Resources.
In Zambia, most of the new production is coming out of the so-called “new copperbelt” in North-western Province, where First Quantum Minerals is doubling production at its Kansanshi operation in Solwezi – already the biggest copper mine in Africa – and developing the $2 billion Sentinel mine in Kalumbila. Kansanshi has capacity to produce 340,000 tons of copper annually and First Quantum is expanding this to about 400,000 tons by 2015. Sentinel is due to begin production around the end of this year, eventually building up to 300,000 tons.
Barrick Gold Corp., the world’s biggest producer of the precious metal, seems to be finally getting a handle on the Lumwana copper mine west of Solwezi that it bought in a blockbuster $7-billion-plus deal in 2011. In a February presentation, the company detailed how a new management team and shift away from contractor mining has led to the mine turning a corner after billions of dollars in write downs. Lumwana could have produced as much as 250,000 tons in 2013, according to Barrick, though the company decided a potential project to double throughput didn’t meet its investment requirements.
Glencore Xstrata’s Mopani Copper Mines is busy with its Synchlinorium project and Konkola Copper Mines, owned by London-listed Vedanta Resources, is busy commissioning its KDMP expansion. Both of these projects will also add to Zambia’s copper output, as will the $100 million that Chinese-owned NFCA is sinking into at the South East Ore body.
Thus, it is clear that both Zambia and DRC have massive potential to grow their copper output if they get things right.
For Zambia, the projects outlined above are already underway. Key for the country to recapture and maintain its status as the continent’s biggest producer of copper will be how the government attracts future investment.
“I believe that it will be the nations’ ability to provide a favourable investment environment to mine project developers that will determine which will be the most successful in terms of output,” Ortonowski said. “Some of the key points of concern for investors in the African copperbelt pertain to mining law stability, power availability and security.”
There is a power shortage in the region that may push back expansions and new mines in Zambia as well as the DRC, which buys some of its power from its southerly neighbour. In fact, electricity supply is a key risk to Sentinel’s production that Nomura analyst Patrick Jones flagged in a research note on February 25.
“Power availability in Zambia will likely remain tight as a number of power projects are scheduled to only begin ramping up from late 2014 and mid-2015,” he said.
Capacity is already constrained, with relief in sight from the end of the year when Maamba Collieries is due to start producing power from the first unit at its 300 Megawatt coal-fired power plant in Southern Province. The 120 megawatt Itezhi-Tezhi hydro project west of Lusaka should start electricity generation in the middle of 2015.
Government is developing a number of other power projects – most of them hydro – as it seeks to turn an electricity shortage into a surplus that it can export to neighbouring countries, thereby earning foreign currency. Zambia has capacity to produce about 2,000 megawatts of power, though the country is believed to have the potential to generate three times that amount from its water resources alone. One of the bigger ones its building is the 750-megawatt Kafue Gorge Lower due for completion in 2019.
Mining law stability is another key point in attracting investment. Minister of Mines, Energy and Water Development Christopher Yaluma told an audience at Mining Indaba in Cape Town in February that Zambia will complete a review of its mining act by the end of this year. According to him, the new legislation will seek to increase the participation of locals in the mining sector that is largely dominated by big, foreign owned companies.
Government has also said its relooking mining taxation. The finance ministry has made no bones about the fact that it is not happy with the contribution that the sector makes to the national fiscus. Still, First Quantum Minerals president Clive Newall argues that Zambian copper producers are the highest taxed in the world, and that the country should seek to remain competitive while it seeks to attract a limited pool of global mining capital. Copper accounts for about 70 percent of Zambia’s export earnings.
Obviously, security is not nearly as much of an issue in Zambia as it is in the DRC, but copper theft has become a serious issue for mines in the country. So-called “jerabos” have made more than a nuisance of themselves, costing the industries millions of dollars to theft. Copper theft has been increasing in the new copperbelt around Solwezi, where Kansanshi and Lumwana also produce more lucrative gold.
The Zambian government has to walk a fine line when considering changes to its mining law and taxation. With copper prices having slumped from over $10,000/ton in 2011 to just over $7,000 tons and worries over growth in China, the biggest consumer of copper, investors are not as sweet on the metal as they were before.
On the other hand, Zambia is a country with urgent developmental needs, and higher tax contributions from the mining sector are a way to fund new roads, schools and hospitals. Key for government will be to constantly engage with the mine owners in the country to make sure that any changes do not scare away investment that would see Zambia lose even further ground to the DRC.