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Zambia Mining Report Q4 2012
Business Monitor International, October 2012, Pages: 65
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.
Zambia's mining sector is set to continue the recovery seen over the last decade. The country had declining copper output throughout the 1990s, but a mixture of low taxes, privatisation and elevated copper prices has seen a substantial boost to investment and output. We expect the value of the mining sector to reach US$938mn by 2016, from US$770mn in 2011, marking an annual average growth rate of 4%.
Copper Output To Surpass 1mtpa In 2014
Copper mining will remain the mainstay of Zambia's mining sector, with output reaching 1.01mnt (mn tonnes) in 2016, from 784kt ('000 tonnes) in 2011. Much of this growth will be driven by First Quantum, which expects to start to produce 190ktpa ('000 tonnes per annum) by 2014 at the Sentinel deposit and is increasing output at the Kansanshi mine from 250ktpa to 400ktpa in 2015. The company appears to be focusing on Zambia as the centre of its African growth opportunities, after the legal wrangling with the Democratic Republic of the Congo (DRC) government over the Frontier mine. The other major contributor to growth will be Vedanta Resources, which is doubling output at the Konkola mine to 400ktpa in 2015.
Zambia's mining sector has been highly amenable to foreign investment since the privatisation of the state controlled Zambia Consolidated Copper Mines (ZCCM) at the end of the 1990s. Indeed, while one of the opposition parties, the Patriotic Front, has stated that it seeks greater control of the mining sector and will increase taxes on mining companies, our Country Risk team expects the ruling party to remain in power and sustain the country's investor-friendly outlook.
Aside from its substantial high-grade copper reserves, Zambia's mining sector is favourable to mining companies, as the government recently ruled out the reintroduction of the windfall tax on mining companies' profits. This gives Zambia a competitive advantage over other large copper producers, such as Australia, Chile and Peru, where levies on mining output have been proposed or already implemented.
We expect Zambia to remain a business-friendly environment, as foreign investment in the country's mining sector is a key part of the government's plans to maintain strong growth over the coming years.
Zambia's mining sector is dominated by a few foreign copper mining companies, most notably First Quantum and Vedanta Resources. We forecast the sector will remain dominated by foreign companies, as the government has privatised all the former state assets involved in mining and has given no indication of plans to re-enter the sector. We expect to see the sector remain consolidated as most of the growth plans have been announced by companies already present.
That said, Vale is set to enter the sector with the development of the 50ktpa Konkola North copper mine in 2012. This mine is part of Vale's plans to invest between US$15bn and US$20bn in Africa over the next five years, from US$2.5bn in 2010.
Executive Summary 5
SWOT Analysis 7
Zambia Mining Sector SWOT 7
Zambia Business Environment SWOT 8
Global Mining Outlook 9
Table: Recent Tax Increases 12
Table: Largest Coal Projects 14
Table: Major Frontier Mining Projects 15
Africa Mining Sector Outlook 16
Table: Recent Government Intervention 17
Market Overview 21
Zambia: Copper Boom To Drive Mining Sector 21
Table: Zambia – Main Mine Expansion Plans 22
Table: Zambia – Mining Industry Value & Production 23
Industry Forecasts 24
Copper: Zambia To Become Major Copper Producer 24
Table: Zambia – Largest Copper Expansion Plans 25
Table: Zambia – Copper Production 26
Coal: Booming Output To Support Copper Sector 26
Table: Zambia – Coal Projects 28
Table: Zambia – Coal Production 29
Cobalt: Rapid Growth In 2015 29
Table: Zambia – Main Cobalt Projects 30
Table: Zambia – Cobalt Production 30
Regulatory Structure 31
Africa Business Environment Ratings 32
Table: African Government Intervention 32
Table: Africa – Risk/Rewards Ratings 33
Competitive Landscape 38
Table: Comparative Valuation Metrics 39
Company Profiles 40
Vedanta Resources 40
Table: Vedanta – Financial Data 43
First Quantum 44
Table: First Quantum – Financial Data 46
Metals Commodity Price Forecasts 47
Commodity Strategy – Monthly Metals Update 47
Aluminium: Support At US$1,800/tonne Likely To Hold 49
Copper: Relative Outperformer But Still Weak 51
Zambia Mining Report Q4 2012
© Business Monitor International Ltd
Iron Ore: Don't Bet On A Sustainable Recovery 53
Lead: Potential For Short-Term Rally 55
Nickel: No Turnaround Coming 56
Steel: More Pain Ahead 57
Tin To Outperform 58
Zinc: Little Room For Optimism 60
Table: Select Commodities – Performance & BMI Forecasts 61
Business Environment Ratings Methodology 62
Table: Mining Business Environment Indicators 63
Table: Weighting Of Components 64