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Zambia Mining Report Q2 2009
Business Monitor International, May 2009, Pages: 55
Zambia Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Zambia's mining industry
Zambia enjoys a vast endowment of metals, gemstones, industrial minerals and potential energy resources including coal, hydrocarbons, and more recently, uranium. For several years now, Zambia’s economy has been greatly dependent on mining, particularly on copper, cobalt and zinc. Globally, the country ranks seventh in the production of copper and second in cobalt.
Copper and cobalt remain the lifeblood of the Zambian mining sector. Speaking in January 2009, Finance Minister Situmbeko Musokotwane said that preliminary copper production estimates indicated that copper output rose 3.7% in 2008, to 569,891 metric tonnes. Cobalt production rose 19.5%, to 5,275 tonnes. Further, exploration of the Zambian Copperbelt area since the 1930s has led to the discovery of many other metalliferous and non-metalliferous resources. The Zambian state has adopted a mineral policy designed to augment investments in the mining sector and ensure its transition to a self-sustaining mineral-based industry. As part of this, state-owned mining companies have been actively privatised since the year 2000 – particularly in the copper segment. As a result of these efforts, Zambia is widely rated a low-risk investment destination and has attracted high levels of foreign investment in recent times. The government recently concluded drafting a revised mineral empowerment policy that aims to stimulate greater participation of Zambian nationals in their vast mining industry. The government also plans to develop large mining assets in all major provinces to create greater employment opportunities. This would address growing concerns about the uneven distribution of mining wealth.
Investments in Zambia’s mining industry for 2007 were estimated at US$1bn – the highest in many years. However, rising costs pose a serious threat to the performance of the sector. Low ore grades, high fuel and electricity costs as well as inadequate transport facilities have been major bottlenecks for the domestic mining industry. In addition, falling commodity prices are also a major threat. The price of copper nosedived, driven by the ongoing global economic crisis, from a high of US$9,000 a tonne in 2006 to below US$4,000 a tonne by October 2008. The Financial Times reported in November 2008 that at least five exploration projects have been mothballed and unions are braced for job losses given the bleak prospects for future orders.
Windfall Tax Dropped
At the end of January 2009, Zambia scrapped the windfall tax on minerals that was instituted in early 2008, following complaints from foreign miners operating within the country, and threats to delay projects and cut jobs amid difficulties in raising investment capital. The pressure from mining companies fighting the greater tax burden increased as commodity prices tumbled, and talks shifted in their favour. Indeed, the ongoing global economic crisis left Musokotwane with little choice but to drop the controversial 25% levy, as the country sought to protect its copper industry. At the same time, the minister also cut duty on heavy fuel oil from 30% to 15%, and removed customs duty on various copper products. However, a 15% profit variable tax remains in place.
New Uranium Law To Boost Investment
In October 2008, Zambia enacted a new law on the mining, storage and export of uranium, which will prevent the use of the material in making nuclear weapons or devices.
The law covers the prospecting, mining and milling of uranium and other radioactive mineral ores, and grants all powers to the mines minister to issue licences for the mining and export of uranium. The law also makes it mandatory for mining companies and exporters of uranium to provide documentation on the source of any uranium concentrate or radioactive materials, and prove the authenticity of importers under International Atomic Energy Agency (IAEA) guidelines.
This new law is clearly a boon for the fledgling uranium sector in Zambia, setting the legal framework for uranium mining in the country. As a consequence, we would expect to see inward investment into this sub-sector of the mining industry increase over the coming years, the current global credit crunch notwithstanding.
Global overview
On page 7 of this report, BMI examines the phenomenon of increased Chinese activity in the global mining sector and what this means for the industry moving forward.
Industry Forecast
Zambia’s mining sector is being severely impacted by the fall in the price of copper, down more than 60% from its July peak. Indeed, anecdotal evidence has begun to accumulate of mines halting projects, with Luanshya Copper Mine suspending the construction of a US$354mn mine while it re-examines the project’s viability. The fact that the government is expected to drop a planned windfall tax on the mining sector suggests the difficult situation facing producers.
According to BMI forecasts, the mining industry in Zambia is forecast to grow at an average rate of 10% during 2008-2013. The industry is expected to reach a value of ZMK2.094bn (US$0.5bn) in 2013. However, although the longer-term prospects are good, in 2009 the sector is expected to contract significantly in real terms.
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