LUSAKA – The Bank of Zambia will begin buying gold from Canadian miner First Quantum Minerals and the state mining firm as it resumes holding the precious metal as part of its foreign reserves, the central bank governor said on Friday.

The southern African nation - a major copper producer - became Africa's first pandemic-era sovereign default last month after it failed to pay a coupon on one of its dollar-denominated bonds.

"During periods of market stress - when assets would be losing value - gold would be adding value, thereby shielding the whole portfolio from large losses," Bank of Zambia Governor Christopher Mvunga said.

Under an agreement signed between the central bank and First Quantum, a Toronto-listed copper miner, Zambia will buy gold produced as a by-product of the company's Kansanshi copper mine.

Kansanshi produced 145,386 ounces of gold in 2019, according to First Quantum's website.

First Quantum Director of Operations Rudi Badenhorst called the agreement an important step in building financial resilience in Zambia.

The Bank of Zambia also signed a deal to buy gold from state mining investment firm ZCCM-IH's Zambia Gold Company. The governor said he was "delighted" gold from ZCCM-IH will be sourced locally, in local currency.

The deal with ZCCM-IH gives Zambia the option to buy gold rather than foreign exchange, thereby boosting the overall availability of foreign exchange in the country, he added.

Zambia held gold reserves before 1995, but they were depleted due to severe foreign exchange liquidity challenges, Mvunga said.

Badenhorst, the First Quantum executive, said the company was also in talks with Zambia's government to incentivise large-scale mining.

"Challenges do remain for mining companies operating in Zambia but the ministry of finance is fully engaged with First Quantum and the Chamber of Mines of Zambia to seek out a competitive and stable mining tax code," he said.