Low copper price hits deep copper miners hardest
Lusaka – Zambia’s deep copper mining projects are likely to suffer the most unless the price of the red metal improves.
Copper miners fear that unless the price improves beyond US$7 000 per tonne, they may be forced to review their investment in the copper-rich Southern African state.
The price of the red metal has in recent months declined by more than 70 percent, with the country's major foreign exchange earner this week dropping to US$6 710 a tonne on the London Metal Exchange (LME), its lowest since July 12.
Zambia’s Finance Minister, Alexander Chikwanda, has warned that the underground mines will be the hardest hit should the copper price continue plummeting as the cost of production will increase.
Minister Chikwanda, however, says new mines, which have come on stream ‑ particularly Kansanshi and Lumwana in north-west, were likely to absorb the price shocks, as they were low-production cost mines using newer technology.
He added that it is the government’s desire to encourage mining companies to be innovative and remain competitive on the global metal market.
“We won't close our copper mines because of the declining price but there are mines which are coming where the costs are very reasonable like Kalumbila open cast mines will be profitable,” Minister Chikwanda told local media.
“But don't write off copper yet. The problem we have now are the deep mines like Konkola, Mufulira, Nchanga and Mopani Nkana where production costs are in excess of the US$7 000 per tonne because they are mining copper two kilometres deep.
“And those mines, the costs are absolutely astronomical but the open casts are okay and we are going to do well with those.” The drop in copper prices reflects the declining industrial activities in the world.
Unless the downward trend reverses, mining companies in Zambia fear that they will be forced to review their labour and other operational costs to meet the investment objectives, according to the Zambia Chamber of Mines (ZCM).
“Should the downward trend in copper prices continue, there invariably will be a need to review all aspects of operations of the mines (in Zambia),” says Emmanuel Mutati, the chamber’s president. Mutati told reporters recently that the decline in copper prices would also affect the country’s treasury, as fewer transactions would result in reduced revenue inflow, through tax, into the state coffers.
Despite the volatile copper markets, miners have remained resilient and have since invested close to US$8 billion in the various old and new projects since the time of privatisation of the mines in Zambia in early 2000.
This in turn raised the country’s copper out-turn from a lowly 250 000 tonnes per annum in the 1970s to over 700 000 tonnes presently.
The finance minister says Zambia is looking to a future where the country will diversify from copper mining, being a wasted asset.
Minister Chikwanda says the future for the country was to diversify the economy from dependence on mining by building a sound agricultural sector.
“Copper may be dropping but look at the rise in the price of cotton. Zambia has alternatives and so we don't have to lose sleep because the price of copper has dropped,” the minister says.
Zambia forecasts to increase copper out-turn capacity to 1.6 million tonnes in three years and improve the country’s rating to fourth world largest producer from the present seventh position globally.
All the above attributes arise from the massive investment that the new mine owners have put into the old and new projects.
Mutati stressed that with the coming on stream of various projects and the investment ploughed into the industry, by 2016 copper out turn could increase to 1.5 million tonnes per annum spurred by the various new mining projects.
Key factors affecting the mines presently include insufficient energy and other related costs to sustain the industry.
Data from the chamber of mines indicate that most of the mines assumed by the new investors at privatisation in the early 2000s are more than 80 years old.
Coupled with old technology, the investors are left with no spare parts in some instances, thereby affecting their profitability, Mutati said.
He cited as an example, the Mufulira Copper Mines, which has been operating for more than 80 years now.
Vedanta Resources, owner of Konkola Copper Mines, Mopani Copper mine, a unit of global commodity trader, Glencore and China Non-Ferrous Metals Africa Co-operation, owners of Chambishi copper mines and smelter north of Zambia, are key players in the country’s copper industry.