Market research house Business Monitor International (BMI) has over the past quarter made an upwards revision to its forecast for Zambian copper output for this year, increasing it to 913 000 t, up from 877 000 t.

In its latest report, the ‘Zambia Mining Report Q3 2011’, the company states that this change in outlook is based on the Central Bank of Zambia’s announce- ment, in April, that the country’s copper production for the first quarter of the year was 205 000 t, marking year-on-year growth of 4.1%.

Driven by several expansion plans, BMI forecast growth in copper output to average 9.4% over its forecast period, reaching 1.4-million tons in 2015, up from 853 000 t in 2010.

Copper production in Zambia is relatively well consolidated with four miners, Glencore International, NFC Africa, Konkola Copper Mines (KCM), a subsidiary of Vedanta Resources, and First Quantum, accounting for 78.9% of the country’s copper output.

The Bank of Zambia forecasts 2011 copper output at 900 000 t, compared with around 820 000 t in 2010.

Cobalt is expected to exhibit similar levels of growth to copper, as the two metals are generally mined together. In the short term, copper miner Equinox Minerals, which is currently being taken over by industry giant Barrick Gold, plans to double output at its Lumwana mine to 4000 t/y this year.

Further, First Quantum’s Kansanshi mine is expected to increase cobalt produc- tion from 3 500 t/y to 5 000 t/y in 2015. Overall, BMI expects Zambia’s cobalt production to reach 13 400 t in 2015, marking an average growth rate of 8.9%, up from 8 800 t in 2010.

Underlining the company’s bullish stance are the figures released in June by the Central Bank of Zambia, which showed that January to April cobalt production figures were up by 19.5% year-on-year at 3 186 t, while exports rose to 3 864 t, up from 3 387 t.

Continued Success Expected
BMI believes the country’s mining sector will continue the recovery that has been seen over the last decade. The country experienced declining copper output throughout the 1990s; however, a mixture of low taxes, privatisation and elevated copper prices substantially boosted investment and output.

“We expect the value of the mining sector to reach $1.35-billion by 2015, up from $590-million in 2010, marking an average growth rate of 7.5% a year,” BMI states.

Copper and cobalt are expected to remain the mainstay of mining production, with both sectors set to reap the benefits of investment of more than $8-billion over the past five years.

Zambia also scores well in terms of country risk, with the country scoring 47.9 on this measure in BMI’s Business Environment Ratings table, in part due to the government’s commitment to an investor-friendly economy.

To this end, the government recently announced that it would not reimpose a windfall tax on mining companies’ profits.

In 2009, Zambia’s Parliament agreed to abolish the controversial 25% windfall tax imposed on foreign mining companies.

BMI believes that 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 have already been 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 Zambian government’s plans to maintain strong growth over the coming years,” the company states.

Zambia’s mining sector has also been highly amenable to foreign investment since the privatisation of the State-controlled Zambia Consolidated Copper Mines in 2000.

While one of the opposition parties in the country, the Patriotic Front, has stated that it seeks greater control of the mining sector and will increase taxes on mining companies, BMI’s country risk team expects the ruling party, the Movement for Multiparty Democracy, to remain in power and sustain the country’s investor-friendly outlook.

However, in July, the Central Bank of Zambia reported that lower-than-expected output at the country’s opencast mines had led to a decrease of 5.5% in Zambian copper production in the first five months of the year.

Central Bank data shows copper output in the period dropped to 308 777 t3, down from 326 877 t3 in the corresponding period last year. Industry officials attribute the drop to flooding at openpit mines following heavier-than-normal rainfall that disrupted output.

Meanwhile, the bank said copper exports in the period rose 2%, to 334 727 t, after producers released more stocks to the market, induced by higher copper prices on the international market.

Key Players

Further, BMI forecasts that Zambia’s mining sector will remain dominated by foreign mining companies such as First Quantum and Vedanta Resources, following privatisation of all the former State assets involved in mining.

“We expect the sector to remain consoli- dated, as most of the growth plans have been announced by companies already present in the country,” the company adds.

Looking forward, Brazilian iron-ore miner Vale is set to enter the copper sector with the development of the 50 000 t/y Konkola North copper mine in 2012.

The mine is part of Vale’s plans to invest between $15-billion and $20-billion in Africa over the next five years, up significantly from $2.5-billion in 2010.

Electricity Tariff Hike

Role-players within the Zambian mining industry have expressed concern over the impact government’s suggested 30% hike in electricity tariffs will have on miners operating in Zambia’s Copperbelt province.

The Zambian government plans to raise tariffs to fund improved infrastructure and end rolling blackouts that have also shut copper smelting operations at times.

Zambia’s Energy Minister, Kenneth Konga, said cost-reflective tariffs would enable its State-owned power utility, Zambia Electricity Supply Corporation (Zesco), to invest in more generation projects to accommodate the rising power demand from the mining sector.

Zambia’s Energy Regulation Board approved the hike in tariffs set by Zesco for bulk power supplied to the Copperbelt Energy Corporation.

The regulator wants Zesco to continu- ously raise tariffs for its customers to ensure that, by 2015, tariffs reflect costs.

The tariff rise is retroactive to January this year.