StanChart sees Zambia’s copper output stagnating

Further cutbacks and overall production stagnation are anticipated in Zambia’s mining industry in 2015 if global copper prices do not recover, says a latest Standard Chartered research report.

According to Standard Chartered’s On the Ground report following the 2015 mining indaba held in Cape Town last month, Zambia’s new royalty tax regime is likely to drive more cutbacks at copper mines in view of low prices on the international market, still trading below US$6,000 per tonne.

“Given expectations that copper supply will peak in the second half of this decade, the DRC and Zambia are among the few countries with the potential to increase production and market share during this period. In Zambia, however, recent amendments to the mining-tax regime have exacerbated high operating costs. If copper prices do not recover, we anticipate a year of cutbacks and overall production stagnation in the country,” the report stated.

The report, however, states that copper production, which slumped to 708,259 metric tonnes last year, might improve in 2015 provided prices increase.

“Zambia’s copper production may improve this year. If our copper price forecasts are correct (2015: US$6,350/tonne, 2016: US$7,250/tonne), the majority of producers will continue to operate even with the new royalty tax,” it stated. “In this price environment, our baseline projections anticipate a ramp-up of production at both Sentinel (c.150kt) and Kansanshi (c.330kt) to more than offset the loss of Lumwana’s output. This would support Zambian output to rise to close to 900kt in 2015. If prices do not recover as we expect over Q2-Q3 (second to third quarter) this year, we would anticipate further cutbacks to limit any growth in total copper output.”

The mining sector’s adjustment to a period of downward pressure on metal prices dominated the 2015 Mining Indaba, which also hosted Vedanta, who stated that “difficult decisions” would have to be made in view of the continued fiscal regime impasse.

Standard Chartered has also projected Vedanta’s Konkola Deep and Nchanga  copper mines to produce close to 150,000 tonnes of copper in 2015.

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