Wednesday, May 7, 2014

Zambia: Update on Mining Operations


Zambia: Update on Mining Operations

Earthstone Holdings is in the process of rapid development of its mining business in Zambia. In our earlier posts we discussed the opportunities for doing business, investment climate and the extent of exploration of natural resources (Zambia: Another Look on Mining Investments); we also talked about Earthstone’s activities (Earthstone Holdings — African Spotlight: Manganese Dioxide); as well as issued a number of press releases (Earthstone Metals Group: Lusaka Copper Smelters,  Earthstone Metals Group: More Initiatives in Zambia – Manganese Project, Earthstone Metals Group Announces Expansion of its Operations to Zambia, Africa, with Acquisition of Exploration Rights for Copper Tenement). It is only natural, that we at the Holdings are keeping continuous track of activities of our peers in the country. In our post (Investments in Mining and Energy: Zambia) we initially mentioned some companies that are involved in mining. Here we would like to present a couple of posts that reflect the latest updates on their operations.
First it is worthwhile to mention some major news updates on the Zambia’s mining business:
  • The Steel Guru reported on June 1st that mining revenue in Zambia are expected to grow to 30% from the current 4% by the year 2013 when mining companies start making profits.
  • The Post Zambia informed that the country’s mineral sector has the potential to produce a diversified range of minerals which can raise US $20 billion if properly managed and developed; and the copper/cobalt sector could increase its production from the current 600,000 to 1.5 million metric tons within the next five years.
  • An interesting discussion about windfall tax and the state of mining was reported by the Steel Guru: “… production infrastructure had been dilapidated resulting in low production citing the year 2000 when copper production was only 257,000 tonnes. Infrastructure has been rehabilitated and new facilities opened up resulting in copper production of over 600,000 tones in 2009, among other benefits. Copper sales stood at 656,000 tones in 2009 while in 2008 sales were at 515,000 tonnes and 459,000 tonnes in 2007.”
  • One of the major setbacks was the last week’s electric power failure that significantly affected mining operations.
About 60 companies are listed as operational in Zambia by MBENDI . And it is impossible to describe activities of each one; many of these companies suffered setbacks from the financial crisis.
Of course  the biggest in the country is ZCCM Investments Holdings Plc (ZCCM-IH) --  investment holdings company (listed on the Lusaka ,London, and Euronext Stock Exchanges). This has the majority of its investments held in the copper mining sector of Zambia. The Company’s shareholders are the Government of the Republic of Zambia (GRZ) with 87.6% of equity and private equity holders (12.4%) that are spread throughout the world.
The Post Zambia reported this month that ZCCM – Investment Holdings (ZCCM-IH) has never published audited financial statements for the last four years. However, all consolidated data on investments is represented at  this page.
ZCCM owns equity of the following Zambian copper mining companies:
  • Chambishi Metals (10%)
  • Chibuluma Mines plc Zambia(15%) in Kalulushi
  • Copperbelt Energy Corporation (20%) in Kitwe
  • Kansanshi Mining plc (20%)
  • Konkola Copper Mines (20.6%) in Lusaka
  • Luanshya Copper Mines plc (15%)
  • Mopani Copper Mines plc (10%)
  • Equinox Minerals (5,55%)
 More information may be found at the Google Finance site.
Interesting to note that there is a heated discussion in the country on the immediate stoppage of government subsidy to Zambia Consolidated Copper Mines Investment Holdings as the major shareholder who had to support the operations when the company was making losses.
 One of the biggest foreign miner in Zambia is a London Stock Exchange- listed  Vedanta Resources PLC (VED.LN). the company’s assets consist of four mines, one at Konkola, two at Nchanga and one at Nampundwe, a tailings leach plant at Nchanga and a smelter at Nkana. Konkola Copper Mines - KCM (Chililabombwe) – Vedanta owns 79.4% of equity --  operates the wettest mines in Zambia and pumps out water every day to allow normal mining operations. A new smelter at Nchanga, with a total capital outlay of approximately $470 million, is expected to have a capacity to produce annually 300,000 tpa of copper anode and 1,850 tonnes per day of sulphuric acid. Feed concentrates are expected to be primarily from KCM’s own mines.

Here is a brief summary on the Zambian operations from the latest corporate presentation:

 World class resource

  • 471mt of Reserves and Resources
  • 12mt of contained Cu, 25+ years average mine life
  • Konkola mine grade of 3.6%; average KCM grade of 2.5%
Well invested production facilities
  • Nchanga smelter achieves rated capability in capacity and recovery
  • KDMP mid-shaft loading – 31 March 2010; Project on track
  • $1.5 bn capital investment
Key deliverables
  • Growth from 133kt production in FY2009 to exit capacity of 400+ kt in FY2012
  • Further cost reduction and stabilization, targeting < $1.00 / lb in cash cost
  • Resource growth through exploration
Largest mining investment in Zambia
  • Strong working relationship with Zambian government
  • Healthy labour relations
  • Committed to training and developing Zambia’s workforce
  • Local communities: health, education and welfare programs
 This concludes the first part of update on mining operations in Zambia. More to follow…..

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