Mining companies getting increasingly involved in the Central African Copper Belt

MAJOR mining companies are getting increasingly involved in the Central African Copper Belt, expanding existing operations and exploring new discoveries as the positive fundamentals for copper in terms of soaring demand and limited new supply remain in place.

Those groups include Barrick Gold, Anglo American, Ivanhoe Mines and First Quantum, which are stepping up their investments in copper mining in Zambia, the Democratic Republic of Congo (DRC) and even Angola.

The driving forces behind the copper boom are that demand for the metal from EVs (electrical vehicles) and renewable energy generation is expected to more than double over the next five years because EVs use up to four times more copper than internal combustion engines, and renewable power generation uses five times more than conventional generation.

At the same time, copper supply forecasts are for a looming deficit because of a lack of new mines and currently stand at reaching around six million tons annually within a decade.

That doesn’t mean the copper price won’t fluctuate as it did in June. Bloomberg News said the metal suffered a “dramatic reversal”, dropping to a 16-month low of $8,122.5/t on June 24 and registering “one of the biggest monthly losses of the past 30 years”.

That was from a high of just over $10,500/t a few months earlier. The metal continued to lose ground into July, falling through $8,000/t – its lowest level in almost two years. Set against these fluctuations is the fact the mining groups commit huge capital investments for new mines over periods of up to five years. They are consequently focused on the longer-term trend, which remains overwhelmingly positive.

The possibility of such a price pull-back was flagged by Barrick Gold CEO Mark Bristow in early May during a press conference at the Mining Indaba in Cape Town when he commented that “copper will still cycle but we can manage the cycle. You are going to see a big reduction in copper prices in the next six months if China continues wrestling with Covid as it is now, with a focus on zero Covid.”

According to Bristow: “If you just use an average growth rate – projected by analysts – for copper, you need seven Escondidas before 2040 to meet demand. We have not got one. Reko Diq will be half an Escondida and it’s the biggest copper project out there.”

Reko Diq – situated in the Baluchistan province of Pakistan – is Barrick’s latest copper-gold project. According to Bristow, it meets the group’s tier-one asset investment filters on long-term price assumptions of $2.75/lb for copper and $1,200/oz for gold. A feasibility study should be completed by 2024, with the potential first production possible from 2027.

But Barrick also owns the Lumwana copper mine in Zambia. According to Bristow: “Lumwana works at $2.75/lb copper and that’s our filter. We have some upside, with a potential super-pit, which will take it to 60 years’ life.

“Zambia is a place to grow. The Central African copper belt is of very great interest to us at the moment because there is still the ability to make discoveries.”

Bristow is not alone in his enthusiasm for Zambia. However, the increasing focus on that country and the DRC is at the expense of the great copper-producing nations of South America – in particular, Peru and Chile, which account for around 45% of global copper output – but where grades are falling and political risk is rising.

The ‘prophet’ here has been Robert Friedland, founder and co-chairman of Ivanhoe Mines, which is developing the Kamoa-Kakula copper-cobalt project in the DRC – which country Friedland describes as the “Saudi Arabia of copper, cobalt and hydro-electric generation potential”.

Friedland has been singing the DRC’s praises at international mining conferences for years and once famously likened the great copper mines of South America – such as Escondida – to “little old ladies lying in bed waiting to die”  – because of their low and declining grades.

Attacking Chile’s dominant position in the copper mining sector, he told the 2020 Mining Indaba in Cape Town that “it’s absolutely silly to think that Chile is a safe place to mine and should have a 3%-4% discount rate and, somehow, the DRC should have a 12% discount rate”.

Kamoa-Kakula started commercial production in July 2021. The planned expansion will make it the second-largest copper complex globally, with an annual production of more than 800,000 tons,   according to Friedland.

He reckons there’s a lot more to come from the region because exploration drilling on the 2,407km2 Western Foreland project – which sits north and west of Kamoa-Kakula – has so far found the Makoko Copper Discovery, which “shows similar geological characteristics to Ivanhoe’s tier-one Kamoa and Kakula discoveries”.

The DRC copper deposits are geologically linked to the Zambian Copperbelt – once the largest copper-producing region in the world – but where mining companies’ fortunes have swung like a pendulum because of the cycle of political upheavals in that country.

The industry collapsed following its nationalisation in the 1960s under the government of Kenneth Kaunda. It was revived in the 1990s after Kaunda left office and the new government swung back towards privatisation.

Conditions started deteriorating again over the last decade as the Zambian government pushed for a greater share of the revenues from the country’s copper mines and got involved in a number of ugly confrontations with the mining groups.

The pendulum is now swinging back the other way under new president Hakainde Hichilema, who, according to UK broking and investment firm SP Angel “is focused on encouraging investment into Zambia, targeting a tripling of copper output over the next ten years”.

Peter Leon, a partner at law firm Herbert Smith Freehills, says: “The copper price has until very recently gone through the roof and everyone wants copper. Zambia is also a much safer mining destination than the DRC – and they’ve got cobalt. I think Zambia is very well placed to take advantage of the green energy transition, but it hinges on it dealing with the legacy issues and embarking on law reform going forward.”

Reaction from the mining industry was swift, with First Quantum Minerals approving a $1.25bn expansion of its Kansanshi copper mine in Zambia. Similarly, Anglo American has returned to Zambia to explore for copper after what SP Angel described as an “extraordinary” deal with exploration junior Arc Minerals, which the firm also said “highlights interest by the majors in exploration and new discovery”.

Anglo has also gone exploring for copper and nickel in neighbouring Angola, where it has just carried out two of its largest-ever geophysical exploration programmes on the 20,000km2 Moxico project and the 30,000km2 Cunene project.  Anglo’s return to Angola – and that of diamond subsidiary De Beers – follows sweeping positive changes to the country’s mining investment regulations.

Anglo has formed a joint venture with Arc over Arc’s copper-cobalt project in northwest Zambia and will hold a 70% stake for an aggregate investment of up to $88.5m, including cash consideration of up to $14.5m.

This is Anglo’s second look at the project because it previously explored the areas through a joint venture with Equinox Minerals in the late 1990s.

First Quantum’s expansion at the Kansanshi mine will extend its life to 2044, over which period it is expected to produce about 250,000t/year of copper.

First Quantum CEO Tristan Pascall says the decision to make the investment followed the re-introduction of mineral royalties being deductible for corporate income tax assessment purposes, which became effective in January 2022.

“This measure realigned Zambia with international best practices. The government’s commitment to improving the predictability of the mining fiscal regime also provides the certainty needed to support large capital investments in Zambia.

“Furthermore, First Quantum and the government have successfully resolved all points of contention that have been stumbling blocks to progress on the S3 expansion and Enterprise nickel project. This includes reaching an agreement in respect to the outstanding value-added tax receivable sum and an approach for repayment based on offsets against future mining taxes and royalties,” says Pascall.

Also impressed with the new Zambian government approach is Bristow, who comments: “It’s been an absolute pleasure dealing with this new government and there’s no doubt that Zambia is underinvested.

“Copper has always been part of Barrick. We need to grow more and copper helps you. We will keep investing in Zambia but our other focus is the Nubian-Arabian shield, which is western Saudi Arabia and Egypt, where we have our toe in the water.”

Bristow reckons there is going to be an inevitable convergence of gold and copper mining. Not long after Randgold had merged with Barrick – and Bristow took management control of the new group – he was involved in talks over a possible merger with huge copper producer Freeport-McMoRan during a “window of opportunity” in 2020, when the copper price was depressed at levels below $3/lb.

Nothing eventually came of it and, asked about this during a press conference at the Mining Indaba, Bristow replied: “I tried. Everybody bitches at me, but I tried. It was a damn good idea but the guys who stopped us were the big funds.”

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