Zambian copper goals face challenges despite billions pouring in

Zambia wants to increase copper output to 1 million tonnes by 2027 as billions of dollars in investments flow to the African country and the regional mining belt it’s part of.

The landlocked country, the continent’s second-largest copper producer, is aiming to lift production by more than 40% from 699,000 tonnes in 2023, according to the government’s medium-term budget outlook issued this week. The goal by 2031 is 3 million tonnes a year.

“These targets are optimistic as the country struggles to provide certainty for mining investments, with a lack of power causing particular issues this year,” Colin Hamilton, head of commodities research at BMO Capital Markets, said in a note on Tuesday. “The country’s copper output reached a 14-year low in 2023 due to continuous tax uncertainty and political instability.”

A quick tally of several planned investments amounts to about US$7.5 billion earmarked for Zambia copper projects and railways across neighbouring countries to ports. The country is emerging as a battleground for United States and China over critical minerals to supply the global energy transition. The U.S., which has been sidelined in Africa by Chinese spending in recent decades, is betting on Zambia as one beachhead to roll back Chinese domination of most green energy metals.

On the investment side, Vedanta Resources (LSE: VED) said on Friday it was paying US$245.8 million in dues to restart the Konkola copper mines. A week earlier China’s JCHX Mining pledged US$300 million to upgrade the Lubambe copper mines. A consortium of lenders agreed July 11 to fund three quarters of a US$400-million coal-fired power plant to augment drought-wracked hydroelectric energy that has hampered mining.

Gates, Bezos

KoBold Metals, a U.S. startup backed by Bill Gates and Jeff Bezos that’s focused on new prospecting technology, plans to invest US$2.3 billion to develop the Mingomba copper project, President Hakainde Hichilema said last month. The project aims to produce more than 300,000 tonnes of copper annually, potentially making it one of Zambia’s largest copper mines. ​

In March, Hichilema formally awarded 51% of the mothballed Mopani copper mine to United Arab Emirates-based International Resources Holding for US$1.1 billion in debt retirement and upgrades. Output stalled and the government took over the mine in 2021 after former operators amassed US$1.5 billion in loans to Glencore (LSE: GLEN).

Barrick Gold (TSX: ABX; NYSE: GOLD) is planning nearly US$2 billion to increase annual output at the Lumwana mine to about 240,000 tonnes in 2028 from 118,000 tonnes last year.

Meantime, the United States and China are squaring off by investing huge sums into rival railways to get Zambia’s minerals to ports. One is on Africa’s Atlantic coast to serve Western markets, the other on Africa’s east side for the Asian giant.

The U.S. is funding part of the US$2.3 billion to revamp the Lobito corridor to the Angolan port from Zambia and the Democratic Republic of Congo, the continent’s largest copper producer. China says it will spend US$1 billion to revive a 1970s-era line from Zambia to Dar es Salaam in Tanzania.

Colonial-era rails

Railways dating from colonial times typically focused on getting minerals to market and few turn a profit even with a mining connection, The Economist noted this month. It recounted multi-billion-dollar plans in Kenya and Ethiopia falling short. It also cited a consultant criticizing Ivanhoe Mines’ (TSX: IVN; US-OTC: IVPAF) Robert Friedland as unrealistic for proposing a US$3-to US$5-billion rail line to serve a Guinea iron mine.

“Most African rail investments are thus likely to need “de-risking” by development agencies or multilateral lenders,” The Economist wrote. “Yet that makes projects vulnerable to political winds in foreign capitals.”

For the U.S., that might see Kamala Harris as president embrace African ties, while the signals ahead of a potential Donald Trump administration indicate distancing from climate-change-fighting minerals and a stronger America-first approach.

Zambian mining also faces uncertainty in permit approvals. The country has the world’s longest development time for new mines at 34 years, according to S&P Global. The U.S. and Canada clocked in a 29 and 27 years, respectively, to fill out the top three lengthiest jurisdictions.

Brownouts

The government had to reduce power output by 700 megawatts (MW) from hydroelectric plants this year because of a drought. Mining firms are to receive 150 MW less than usual until December, according to First Quantum Minerals (TSX: FM). The company may spend US$25 million this year to secure enough power from Mozambique and Namibia so that operations aren’t affected.

First Quantum is funding improvements to Zambia’s grid and advancing a 430 MW solar and wind project with TotalEnergies and Chariot Energy expected to start in 2026 and 2027. The Vancouver-based company accounts for about three quarters of Zambian copper production, according to GlobalData, with its Sentinel and Kansanshi mines in the country’s north near the DRC border.

Zambia also faces declining copper prices at the moment, although long-term demand for electric vehicles and a recovering Chinese property sector is expected to support the metal’s price. It was US$4.16 a lb. on Tuesday, its lowest since April.

“There is little doubt the copper cathode market is well-supplied at present, reflected in copper prices dropping to a three-month low,” BMO’s Hamilton said.

Copper surplus

Global copper mine production at 22.5 million tonnes in May was flat compared with a year earlier, according to the Lisbon-based International Copper Study Group, a market booster. Estimated global refined demand for May increased 2% from a year ago to 27.2 million tonnes a year as steady demand in China was outweighed by higher consumption elsewhere. The market had a surplus of 769,000 tonnes for the month.

Still, Zambia is forecasting the mining sector will grow at an average of 11.7% over the medium term.

“With the resolution of the challenges at Mopani and Konkola copper mines in the first half of 2024, it is expected that over the medium term and beyond the business environment will become conducive as outstanding obligations will be met,” Zambia’s finance ministry said this week.

“In addition, the coming on of greenfield projects and continued development of the brownfield projects will contribute to increased production.”