Africa’s rich copper belt lures majors

Africa’s copper belt has been in decline for decades, but that could change now that deep-pocketed majors have inked deals to increase their exposure to one of the world’s richest mineral districts.

Phelps Dodge (PD-N) recently joined BHP‘s (BHP-N) efforts to develop the massive Tenke Fungurume copper-cobalt deposit in the Democratic Republic of Congo (DRC), while London-based Billiton has completed a $1-million private placement in First Quantum Minerals (FM-V) to earn majority interests in parts of the Mwinilunga and Luamata copper projects in Zambia.

Mwinilunga and Luamata are two of many projects in which First Quantum holds whole or partial interests, though efforts have been focused on three in particular: Nkana, Mufulira and Bwana Mkubwa, all of which are in production. The company recently repaid a US$9.6-million loan to Glencore International, the majority partner at Nkana and Mufulira, to entrench its 44% stake in those two properties, whereas Bwana Mkubwa is wholly owned.

Mwinilunga and Luamata cover the proposed southeastern extension of the Lufilian arc, where it swings back from the Democratic Republic of Congo. The theory, developed by Cyprus Amax prior to its takeover by Phelps Dodge (PD-N), is that the entire arc is a fold-thrust belt, in which mineralizing fluids were channelled into high-strain zones and underlying porous clastic rocks. This is contrary to conventional wisdom, which holds that the deposits formed in a syngenetic or diagenetic environment.

Geochemical surveying outlined several promising major soil anomalies. At Luamata, for instance, trench results from a small portion of a 6-km-long soil anomaly averaged 2.61% copper and 0.39% cobalt over 5.4 metres, with the best trench containing 5.09% copper and 0.77% cobalt over 6.1 metres.

Proceeds from the placement, which consisted of 222,222 shares priced at $4.50 each, are funding initial exploration. Once that program is complete, Billiton has 60 days in which to select three areas and then spend a total of US$2.4 million on exploration over four years to earn 51% interests. Each area must be less than 500 sq. km in extent but be on either property. An additional 19% can be acquired in exchange for financing any discovery to commercial production.

Phelps Dodge retains one-time back-in rights for 20% in the Mwinilunga and Luamata properties, which could result in the dilution of existing interests. The major can exercise its rights once US$5 million has been spent at Mwinilunga and US$2 million at Luamata.

In the three months ended Feb. 28, First Quantum earned US$1.34 million (or 4 per share) on revenue of US$32.62 million, compared with US$132,543 (1 per share) on US$7.99 million in the corresponding quarter of the previous year. The difference reflects the fact that the company did not acquire its stake in the Nkana and Mufulira operations until April 1, 2000.

Cash flow rose to US$4.3 million from US$2.3 million between the two periods.

First Quantum’s attributable production in the recent quarter topped 11,454 tonnes copper, 180 tonnes cobalt and 14,642 tonnes surplus sulphuric acid. Operating costs averaged US54 per lb. copper, net of byproduct credits and tolling charges.

First Quantum realized an average US84 per lb. for its copper output. Copper accounts for 65% of the company’s operating revenue, the next biggest sources being tolling charges and cobalt, at 15% and 11%, respectively. The remainder comes from surplus acid production, among other sources.

The Nkana division cranked out 9,922 tonnes copper and 368 tonnes cobalt at a cash cost of US71 per lb. copper. About 3,000 tonnes copper-in-concentrate had to be stockpiled at the Mufulira smelter, owing to technical problems at the smelter.

Production at Mufulira topped 8,712 tonnes copper, with cash costs averaging US58 per lb. The output is lower than expected, owing to problems at several drawpoints in a high-grade section that were caused by rock failures in the hangingwall. Repairs are ongoing.

Two inclined shafts at Mufulira are scheduled for refurbishment in the second and third quarters. Although this will increase annual hoisting capacity to 3.3 million tonnes from 2.4 million tonnes, production, in the meantime, will be severely hindered.

The Bwana Mkubwa mine produced 2,323 tonnes copper and 14,642 tonnes of surplus acid, compared with 2,454 tonnes copper and 11,194 tonnes surplus acid a year ago. Cash costs nearly doubled to US21 per lb. copper, reflecting a decrease in acid revenue. In late 2000, First Quantum signed long-term acid contracts to ensure future cash flow, but at the cost of lower prices.

First Quantum expects to produce 58,000 tonnes copper and 800 tonnes cobalt in fiscal 2001. Operating costs are forecast at US64 per lb. copper, partially reflecting the company’s hedging program.

On Feb. 28, First Quantum had US$7.5 million in working capital and US$31.99 million in long-term debt. This represents a significant improvement from a year earlier, when it had a working capital deficit of US$11.25 million and the same amount of debt.

An easing of political tensions in DRC have provided some breathing room for companies trying to develop Tenke Fungurume, a massive copper-cobalt project situated in Katanga province.

Junior Tenke Mining (TNK-T) originally had rights to a 55% interest in the project with the remainder held by Gecamines, the state mining company. It has since granted BHP an option to acquire 45% of its interest. Since taking over as operator, the major has focused its efforts on technical and economic studies related to potential future development. The latest agreement allows Phelps Dodge to earn 50% of BHP’s position.

Meanwhile, discussions are ongoing with Gecamines over the best approach for future development. A preliminary study for a solvent-extraction electrowinning operation was previously completed, based on 85 million tonnes with an acid-soluble grade of 3.19% copper and 0.29% cobalt. The study called for at least a 15-year mine life.

Tenke Fungurume’s overall resource stands at 547 million tonnes of 3.5% copper and 0.29% cobalt (acid-soluble grade).