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Zambia Mining Report Q2 2009


Description: 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.


Contents: Executive Summary

SWOT Analysis
Zambia Political SWOT
Zambia Economic SWOT
Zambia Business Environment SWOT

Special Focus: Outlook For Global Mining
Table: Biggest Chinese Acquisitions In Australia Since 2005
Table: Global Mining – Top Five Companies By Market Capitalisation (US$mn)
Table: Global Mining – Key Players’ Future Investment Plans (selected projects)

Industry Trends And Developments
Overview
Table: Mines In Zambia
Latest Developments
Regulatory Structure And Developments
Latest Developments

Key Projects
Metals
Copper and cobalt
Gold
Manganese
Lead, Zinc And Silver
Nickel
Uranium
Minerals
Coal
Precious Stones

Business Environment
Regional Overview – Africa
Table: Africa Mining Business Environment Ranking
Limits Of Potential Returns
Risks To Realisation Of Returns

Political Outlook

Industry Forecast Scenario
Metals Price Outlook
Table: Stock Levels At London Metals Exchange Warehouses (tonnes)
Global Industry Overview
Regional Analysis
Zambia – Mining Industry Forecast
Table: Zambia Mining Industry Forecast, 2006 – 2013

Competitive Landscape
Table: Zambia Mining – Key Players

Company Monitor
First Quantum Minerals
Lithic Metals and Energy
Metorex

Appendices
Appendix A: Global Assumptions
Global
Table: Global Assumptions, 2007-2013
Economic Activity
Table: Global And Regional Real GDP Growth, 2006-2012 (% change y-o-y)
Table: Developed States’ Real GDP Growth, 2008-2010
Table: Emerging Markets’ Real GDP Growth, 2008-2010
Monetary Policy
Table: Developed Market Exchange Rates, 2006-2010 (average)
Table: Emerging Market Exchange Rates, 2006-2010 (average)
Commodities
Appendix B: Business Environment Methodology
Ratings Overview
Table: Mining Business Environment Indicators
Table: Weighting Of Components


Companies Mentioned - First Quantum Minerals - Lithic Metals and Energy - Metorex


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