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Zambia Mining Report Q1 2011
Business Monitor International, Feb 2011, Pages: 54
The 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.
BMI forecasts Zambian copper output to reach 896k in 2011, marking a 7.5% increase from 2010. Due to numerous expansion projects, we expect Zambian copper production will increase by an annual average rate of 8.4% from 2011 to 1.26mt in 2015.
According to the Zambian Central Bank, copper output rose for the first nine months of 2010 to 626kt, a 16% rise y-o-y. On the back of this we estimate copper production to have expanded by 48% to 833kt in 2010. These latest figures support the view that copper output will increase by an annual average rate of 8.4% to 1.26mt in 2015. The Zambian copper sector, which is the largest in Africa, is reaping the rewards from over US$5bn-worth of investment over the previous eight years and growth is expected to be driven by the plethora of mining projects coming online.
Increases in production have been encouraged by rising copper prices and greater efficiency. Vedanta Resources is one such miner who has made use of specialist services and outsourcing some production lines to reduce costs. Furthermore, 2010 saw the resumption of production at Equinox Minerals' Lumwana mine with annual production of 40ktpa. Going forward, Vedanta has invested US$1.5bn in new projects and expansion plans in Zambia which are due to double the company's production to 500ktpa by 2012.
Over the longer term, African Rainbow Minerals and Vale have announced the construction of the Konkola North copper mine with full production of 45ktpa due to commence by 2015. Lastly, First Quantum's Sentinel deposit, which is in early-stage development, is expected to produce 190ktpa by 2014, thus adding significantly to Zambia's overall copper output.
Zambia is an attractive place for mining companies as the government has ruled out the reintroduction of a mining tax, which looks set to be implemented in other countries including Chile and Australia. In addition, Zambia possesses some of the highest grade copper ore deposits in the world, at a time when some of major mines are experiencing falling grades.
BMI sees risks to this positive outlook as the government has recently announced its intention to increase electricity tariffs which Copperbelt Energy Corporation has warned may force some mining operations to cease production. However, the hike would only be implemented progressively to 2013 and most foreign investments have already been confirmed, thus this measure is unlikely to affect production at the major mines. Also worth noting is the evidence of growing tension between Zambian workers and Chinese mining authorities following a recent protest at the Collum coal mine in which 11 workers were shot and injured.
A more salient risk is the uncertainty concerning output growth as Zambian copper is heavily reliant on sustained demand from China and thus a potential downturn in China could affect mining in the longer term by depressing prices. At present, however, there are no clear indications that China's demand will wane in the near term.
ARM anticipates a mine line of 28 years, with annual output of 45,000 tonnes of contained copper in concentrate (from 2.5mn tonnes per annum - tpa - of ore). The two companies are also carrying out a three-year exploration programme in the area surrounding the mine site, which could potentially double mine ouput to around 100,000tpa, according to ARM. Zambia's state-run ZCCM Investment Holdings also has a buy-in right to Konnoco Zambia, of either 15% or 20%. BMI has also commenced coverage of ARM in the Company Monitor section of this report.
At present, BMI holds a bullish view towards the Zambian copper sector. The forecasts call for copper output to increase steadily over the forecast period, surpassing the 1mn mark by 2013. Looking at trends in 2010, copper production over the first half rose by 10.2% year-on-year (y-o-y), to reach 363,682 tonnes. The government is now targeting 740,000 tonnes for the full year, an assessment BMI shares.
Zambia has a vast amount of metals, gemstones, industrial minerals and potential energy resources, including coal, hydrocarbons and uranium. For several years, Zambia's economy has been based on mining, primarily copper and cobalt. Globally, the country is the seventh largest producer of copper and second largest of cobalt. Major foreign investors in Zambia include Canadian miner First Quantum Minerals, UK-based Vedanta Resources, Australia's Equinox Minerals and South Africa's Metorex. Overall, Zambia is widely regarded as a low-risk investment destination and has attracted high levels of foreign investment in recent years.
BMI is optimistic on the outlook for the Zambian mining sector over the forecast period to 2015. BMI believes that production levels for the key commodities of copper and cobalt should continue to increase steadily, especially as smelters and mines recommence production after a period of closure in the wake of the global financial crisis. Zambia has also long been considered a stable investment destination, with good mining sector regulations. The forecasts estimate an average annual growth rate of 8.4% for the Zambian mining sector over the forecast period to 2015.
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