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Zambia sustains investment appeal, but requires fiscal stability and certainty

11th September 2015

By: Mia Breytenbach

Creamer Media Deputy Editor: Features

  

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Zambia remains an attractive mining investment destination, says mining consultancy The MSA Group, pointing out that in the ‘Fraser Institute Annual Survey of Mining Companies: 2014 Investment Attractiveness Index for Africa’ report, Zambia ranked third, behind Namibia and Botswana.

This ranking is maintained despite recent regulatory and taxation uncertainty, power cuts crippling mining production, infrastructure constraints, low commodity prices and little access to capital, as well as increasing social and environmental pressures, The MSA Group GM Ian Haddon tells Mining Weekly.

“Moreover, several new projects [in the country] are progressing well, such as Australia-based minerals exploration and development company Intrepid Mining’s Kitumba project,” he points out.

The Kitumba project, in west-central Zambia, is currently in the definitive feasibility stage (DFS).

Creamer Media’s Research Channel Africa reported in November 2014 that the project’s optimised prefeasibility study (OPFS) “has significantly optimised the Kitumba project’s economics and development potential”. The OPFS is based on a total measured and indicated mineral resource of 34.7-million tonnes at 2.29% copper for a total of 795 000 t of copper.

Further, the OPFS option for a three-million-tonne-a-year production rate at a stope design cutoff of 1% as the preferred mining production rate results in a production mine life of 11 years, producing an average of 58 000 t/y of contained copper in ore.

MSA Scope
The MSA Group principal consultant Mike Robertson highlights that The MSA Group has played an active role in Intrepid’s Kitumba project since 2006. The company was part of the team involved in the discovery and delineation of the Kitumba deposit – initially through a regional drilling programme and subsequently through several phases of resource definition drilling.

The MSA Group managed all aspects of the drilling, logging, sampling and assay programmes, including quality assurance and quality control, as well as generating and managing all project data used for geological modelling and mineral resource estimation.

Additional responsibilities included geotechnical logging and metallurgical sampling of the drill core, as well as establishing environmental management plans and continuous compliance monitoring.

Exploration of the Intrepid tenements surrounding the Kitumba project has also involved geological and structural mapping, executing ground geophysical programmes, such as gravity, magnetics, induced polarisation and resistivity, as well as soil geochemical surveys.

“However, the current focus is on drill testing the satellite and regional targets of the Kitumba deposit,” Robertson says, pointing out that a fourth mineral resource update on the deposit was released in August. The estimate is being used in the Phase 1 early work activities on the Kitumba DFS.

Meanwhile, Robertson highlights that the Mumbwa–Kasempa region has become a focus for iron oxide-copper-gold type deposits with a significant amount of exploration activity, including re-evaluating the numerous known copper deposits and occurrences being done in the region.

Balancing Act
Despite copper contributing about 70% of Zambia’s export earnings, Haddon points out that, with copper prices having reached six-year lows, Zambian copper producers are under pressure to decrease operating costs and improve efficiencies and productivity to remain competitive.

He warns that, as with many other countries, Zambia has to find a balance amidst the economic difficulties that many mining companies are facing. These include the decreased tax revenues generated by the mining industry, the socioeconomic knock-on effects of large-scale retrenchments, as well as increasing requirements from communities, government bodies and project funders for stronger environmental compliance.

“More importantly, potential investors into a country’s mining industry desire transparency, stability and regulatory and fiscal certainty,” Haddon says, noting that “the experiments with capital controls between 2012 and mid-2014 eroded investor confidence”. Other detrimental effects included the Zambian government’s proposed increasing royalty taxes for opencast mines to 20% and for underground mines to 8%, he adds.

“The ongoing arm wrestle between mining companies and government over tax refunds created additional strain on their relationship,” he adds.

Government has subsequently reduced the royalty taxes on opencast mining to 9% and on underground mining to 6%, while proposing corporate tax increases from 30% to 35%.

Nevertheless, mining companies, uncertain of what the future holds, have placed several planned projects and new investments on hold, Haddon acknowledges.

“Consequently, the Zambian government must work with mining companies and local communities to alleviate the impact in various ways, including developing stronger relationships between mining companies and local communities, and placing a greater emphasis on increasing local content supply to mines,” Haddon stresses.

He further emphasises the importance of Zambian authorities adhering to legislated timeframes for processing environmental and social authorisation applications.

“Consecutively, mining companies should make an effort to fully understand the risks associated with their environmental and social impacts and manage these accordingly to avoid repercussions from surrounding communities,” Haddon concludes.

Edited by Leandi Kolver
Creamer Media Deputy Editor

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