Privatised mining industry drives growth and development

By Brenda Zulu
Zambia’s modern copper growth story really started around the turn of the century, in 2000, with the privatisation of the country’s copper mines, says Nathan Chishimba, president of the Chamber of Mines.

Speaking at a media conference today, Chishimba says available statistics show a dramatic improvement, from 2000 to 2011, of key indicators not just of the mining industry itself, but the economy in general.

“The newly privatised industry was able to invest and modernise, and so take maximum advantage of the steadily rising demand for copper coming out of China,” he says. 

This drove Zambia’s development, spurring GDP growth and helping the country achieve annual growth rates of 7% to 10%. 

“In the first decade of the new century, the mining industry has ploughed more than US $10 billion into new mining ventures. It has trebled the country’s annual mining output to around 800 000 tonnes and increased employment fourfold to more than 80 000. This mining growth has been key in taking government tax revenue from less than half a billion in 2000 to a peak of K8 billion ten years later,” Chishimba says.

In addition, the mines were able to invest heavily in CSR and socio-economic development in local communities. These include the funding and operation of schools and hospitals; the building of roads, houses and community infrastructure; and the funding of scholarships at school and university level.

High costs are costing Zambian mines money

By Brenda Zulu
The high cost structure of many Zambian mines means they are losing money, and finding it hard to complete in the global marketplace, says Nathan Chishimba, president of the Chamber of Mines.

Speaking to the media in Lusaka on today, he explains that many mines are producing copper at $5 000-$7 000 per tonne, which is higher than the current copper price of around $4 600 per tonne. The difference represents the loss made on each tonne of copper sold. This can run into millions of dollars a month, depending on each mine’s monthly production figures.

Important reasons for the Zambian industry’s high operating costs, particularly for the older mines on the Copperbelt, are that they are deep ore bodies, which means the copper is harder to find. He added that they are also low grades, which means you get less copper from each tonne of ore mined.

Low productivity, which means you have to do more work overall to produce a tonne of finished copper; and erratic power supply, which makes it difficult to keep operations running efficiently and safely.

In addition, regulatory and policy issues affect the mines high rates of royalty tax, based on turnover, which has to be paid irrespective of whether the mine is making money;  and changing policy regimes, which make it hard for mines to plan for the long term, and deter investors from starting new mines or expanding existing ones.

Chishimba says: “This issue is critical because many mining companies in other parts of the world can produce copper with lower costs, raising the risk of higher-cost producers being squeezed out of the market.”

Zambian mining industry to drive ‘strategic consensus’ for long-term economic growth

All Zambia conference planned to broaden economy beyond mining 

By Brenda Zulu

Reeling from the worst crisis it has faced this century, and losing millions of dollars a month in a depressed copper-price environment, the Zambian mining industry is to push for a long-term strategic consensus to promote the growth not just of the mining industry, but of the entire country.

 “As an industry, we carry the weight of an entire nation on our shoulders in terms of investment, jobs and foreign exchange earnings,” said Chamber of Mines President, Mr Nathan Chishimba, speaking at a media conference in Lusaka on Wednesday 16^th December.

Since 2000, on the back of rising copper demand from China, the Zambian copper mining industry has led the nation’s development, spurring GDP growth and helping to achieve annual growth rates of 7% to 10%. The industry has ploughed more than US $10 billion into new mining ventures, trebled the country’s annual mining output to around 800 000 tonnes and increased employment fourfold to more than 80 000. This mining growth has been key in taking government tax revenue from less than half a billion Kwacha in 2000 to a peak of K8 billion ten years later.

“We are the basket which holds all the proverbial eggs. Working together we have to create a high-growth, diversified economy which spreads risk and opportunities across the economy, creates more jobs and widens the tax base,” said Chishimba. “As we are seeing in the current crisis, Zambia should not be relying only on mining for its future.”

As a measure of the industry’s unity of purpose, the Zambian Chamber of Mines media conference was attended by senior executives of First Quantum Minerals (FQM), Konkola Copper Mines (KCM), Mopani and Barrick Lumwana and other senior industry figures. These are Zambia’s four largest copper mining companies, accounting for around 70% of the country’s annual output.

The objective, according to Chishimba, was to provide context and understanding for the slump facing Zambian and global copper miners after a reduction in demand in the past five years from China, the world’s largest consumer of copper (45% of world production). It has led to a five-year slide in the copper price, which is around 60% off its 2011 peak – triggering production cutbacks and layoffs in all of the world’s major copper-mining nations, from Zambia, Congo and Chile to Australia, Canada and the United States.

The conference also heard that the Zambian mining industry faced specific local constraints such as a debilitating power shortage that has reduced production capacity, increased costs and, in certain cases, forced the closure of operations, with the loss of many jobs.

“We suffer from both production challenges, such as old mines, deep ore bodies, low grades, low productivity, and regulatory challenges – for example, a constantly changing policy and tax environment.  The effect is twofold: our copper is expensive to produce, and investors are reluctant to start new mines or expand existing ones.”

On the long-term prospects for the global mining industry, Chishimba said there had always been demand for copper on the back of industrialisation and modernisation of the world economy, and nothing suggests that this is about to change.  However, for Zambia to benefit from that continued demand, the Zambian mining industry needs to become more competitive.

“There are new, low cost mines coming on stream in other countries that can thrive in this low price environment. Unless Zambia takes action now to address our challenges, so that we can compete with these other countries, our future as a copper producing nation is in peril,” he said. 

Chishimba said the challenge is for both the industry and the country to learn the lessons of the past and present.

“This national crisis poses long-term questions over Zambia’s economic development, which cannot be avoided.  We all need to come together and agree the conditions which best promote the growth both of the mines and the broader economy. As an industry, we are ready to create dialogue on this vital strategic issue on which the future of our nation depends.”

Mr Chishimba concluded by saying that the Chamber of Mines, with the full weight of support of its members, would engage with stakeholders on this topic in the coming year. It is the industry’s intention to host an ‘All Zambia’ conference next year, as part of the drive to reach long-term consensus on economic diversification.

Growth the answer to Zambia Mining crisis

By Nathan Chishimba, President: Chamber of Mines

It’s easy to be despondent in the current economic crisis facing the country, what with power shortages, a depreciating currency, a sluggish economy, and a mining industry battling shrinking demand, declining profitability and job losses.

But it’s precisely at times like these that we, as a nation, need to focus and learn the lessons from the current crisis, because it need not be permanent.  There’s a saying which argues that being broke isn’t a big deal – it just means you’re short of cash. It’s a temporary situation, and can be remedied by the right measures.

We in the mining industry have been restructuring our operations, lowering our costs and contemplating investments which improve our efficiency and try to keep people in work. But what are the right measures when we’re dealing at the level of an entire country? Is there a magic bullet?  All the research available on how countries get rich and stay rich suggests that there is – and it’s economic growth.

No country has ever lifted itself out of poverty other than through economic growth. Economic growth creates wealth; and wealth creates jobs, disposable income and tax revenue. 

Economists like to talk about the “The Rule of Seventy”, which says that if you divide 70 by a country’s annual growth rate, you get the number of years it takes for the economy to double in size. So with a consistent growth rate of say, 7% (which Zambia has easily achieved before), a country’s economy would double in size within 10 years – in other words, the average citizen would be twice as wealthy.  After another 10 years of 7% growth, the economy would double in size again; and so on.

China has set the standard in recent times. With its average growth rate of 10% a year for nearly four decades, its economy has grown more than 30 times since 1980. People like to talk about the Chinese miracle; but, it’s no miracle – it’s just economic growth.

Perhaps the biggest surprise about economic growth is that any country can achieve it. This emerges in an interesting study, Habits of Highly Effective Countries. It was published in 2006 by the South African Law Review Project to help that country’s policymakers. The study doesn’t advocate particular policies, but merely notes, empirically, which ones are correlated with high economic growth.

It concludes that “the outlook for a country’s economy is dependent on factors within its direct control, and not on such variables as natural resources, climate, size, race, culture or arable land; nor is it dependent on extraneous [factors] like foreign aid or tariff-free access to foreign markets.”

In support of this counter-intuitive statement, the study lists the 20 highest-growth economies over periods of 5 and 10 years respectively, and notes that they cover “the full range of possibilities”, from poor to rich, small to big, formerly capitalist to formerly socialist, resource-rich to resource-poor, countries that were until recently colonised and countries that were not, and which cover a wide range of religions, races and cultures. African colonies feature both among the highest- and lowest-growth countries, and none of the world’s colonisers appear in either [category].

“This reaffirms the evidence suggesting that any country is likely to prosper, regardless of its circumstances or history, if it implements policies that are associated elsewhere with prosperity,” the study notes.

In all fairness, it is only reaffirming what numerous other studies have shown over many years: economic growth is no accident, but the direct result of policy.

This basic truth is tremendously encouraging for us in Zambia, for it tells us that despite the serious situation we currently find ourselves in, there is a way out. This explains why we, as an industry, are calling for a national strategic consensus among all stakeholders to promote the growth not just of the mining industry, but of the economy in general.  The long-term objective is a diversified high-growth economy in which the mining industry is no longer the sole contributor, but simply one of many industries selling products and services, creating jobs, and generating wealth for Zambia’s people and tax revenue for Government services.

It requires tremendous political leadership and courage to implement such policies, for they invariably upset the status quo and create short-term challenges for some even as they generate gains for others.  Recent public pronouncements by His Excellency, President Edgar Lungu on the absolute necessity for a growing, diversified economy are encouraging, and show the government is alive to the need for such a transformation. As an industry, we stand ready to work with government, and all other stakeholders, to help make this a reality. 

Economic growth is not a short-term fix; it’s a long-term imperative. These are policies which must take us not to the next Budget, or the next set of corporate financial statements, but 30 years and more into the future, to the economy that our children and grandchildren will inherit. 

Whether Zambia’s economy will have grown in size several times by then, or merely stagnated, will depend directly on the policies which we have the courage and foresight to implement today.

Power shortage makes a bad Mining situation worse

By Brenda Zulu

The power shortage in Zambia has made a bad situation worse by placing additional constraints on the mining industry, says Nathan Chishimba, president of the Chamber of Mines.

Amplifying a key point made in his media presentation in Lusaka on 16^th December, he says this makes Zambian mines even less competitive in the present crisis relative to their counterparts in other copper-producing countries.

“In all countries, mining is a very energy-intensive business, requiring steady and reliable supply to ensure that equipment and machinery is operated efficiently, and that the safety of workers is not compromised.”

The main effect of the power shortage has been to force mines to operate at reduced capacity. This results not just in lower production, but idled workers and lower productivity. Meanwhile, mines have fixed costs, which have to be met.

Emergency power has to be sourced – whether through generators or imports – and this is invariably more expensive than the traditional supply. In some cases, expansion plans have had to be put on hold, and operations have had to be closed or put on care and maintenance, resulting in layoffs and retrenchments.

“This is the most unfortunate aspect of the power shortage, because it adds to the pressure on jobs already caused by the global crisis and the slowdown in demand for copper,” says Chishimba.

Operationally, the net effect is to push up the costs of production, making Zambian copper even more expensive to produce.  “A low copper price and a serious power shortage are probably the worst possible combination, both for the mining industry and for the country,” says Chishimba.

How China’s growth stumble affected Zambia

By Nathan Chishimba, President: Zambia Chamber of Mines

There’s a well-known saying in the banking business which goes something like this: if you owe the bank $100, it’s your problem; if you owe the bank $1 billion, it’s the bank’s problem.

Similarly, if a single country consumes 10% of the world’s copper production, it’s not a problem; but if a single country consumes 45% of the world’s copper, then it’s a big problem. Why? Because if that country should suddenly run into economic difficulty and cut back on its copper consumption, then the world’s copper mines would face a serious and sudden drop in their business. 

That, simplistically speaking, is exactly what has happened in the world copper market in the past five years. China is the world’s largest consumer of copper, accounting for some 45% of world production. Barely 10 years earlier (2004), China’s consumption was only 21% of world production; and 10 years before that (1994), it was a mere 8% of world production.

So over the course of the past 15 years or so, particularly since the turn of the century in 2000, China has been like a giant industrial glutton, literally gobbling up much of the world’s copper. Its voracious appetite has been caused by the country’s spectacular economic growth, fuelled by the market reforms initiated in 1979 by the Chinese leader, Deng Xiaoping. Concerned with the depth of poverty in then communist China, Deng astonished the world by permitting free-market practices and the profit principle to operate in the country. 

He said: “It doesn’t matter if the cat is black or white, so long as it catches mice.” This deliberate and strategic policy decision unleashed the spirit of enterprise of the Chinese people, attracted billions in foreign investment and made the country a magnet for the world’s leading manufacturers and industrial companies. Since 1980, the country’s economy has grown more than 30 times, and China has lifted more than 700 million people out of poverty – a feat unequalled in history.

Today, China is the world’s largest manufacturer, the world’s largest exporter, the world’s largest car market, the world’s largest retail market, the world’s largest user of the internet and the world’s leading producer of industrial patents.

This decades-long growth spurt meant the country became a key consumer of industrial minerals like copper and steel. That’s because copper is used in all the areas that one would associate with a growing economy: construction, power transmission, industrial machinery and transportation (cars, trains, planes). Copper wiring and plumbing is also an integral part of household appliances, heating and cooling systems, and telecommunication devices such as cell phones.

Businesses expand to meet demand, and the world’s major mining companies, from Zambia to Chile, expanded production and invested in new mines to be able to supply China’s appetite for copper. Zambia’s newly privatised mining industry caught this wave in about 2000,and expanded massively over the next decade, investing more than $10 billion, trebling employment in the mining industry to around 70 000, and boosting copper production nearly threefold to around 800 000 tonnes.

But about five years ago, in 2011, growth in the Chinese economy began to slow, resulting in a contraction in demand for copper, steel and other industrial metals. After years of double-digit annual economic growth, which reached levels of 14%, the country’s growth rate slowed to around 7%. That’s still spectacular, but the fall was enough to cause a prolonged decrease in demand in copper consumption. 

The resulting oversupply of copper on the market as a result of all that mining investment during the boom years means the price has fallen steadily, from a high of nearly $10 000 a tonne in 2011 to around $4 600 today. From Peru and Zambia to Australia and the United States, copper mines have felt the effect on their operations – shrinking revenue, rising costs and declining profitability. The world’s copper mines have been rocked by retrenchments, layoffs and mines being put on care and maintenance.

The current period of crisis is being used by the world’s copper mines to review the efficiency of their operations, cut their costs, and in many cases automate aspects of their operations to produce copper more cheaply. We in Zambia are in the same boat, and hope to emerge from the present crisis in better shape. It’s the world’s strong, competitive copper mines which will be the least immune to future price shocks.

Nobody doubts that the upturn will come, as it always has in the past; but at this stage, no one is prepared to say when.  The bottom line is that China has not stopped buying our copper; it is still buying increasing quantities of the metal – but just not at the same phenomenal rates as before. For now.