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.

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.