Privatization of ZZCM nears completion

First Quantum Minerals (FM-V) and Swiss trader Glencore International have struck a deal with the government of Zambia and Zambia Consolidated Copper Mines (ZCCM) to buy a 90% interest in a new company that will acquire two of ZCCM’s mines.

Combined, the Mufulira and Nkana mines produced 86,000 tonnes copper and 1,250 tonnes cobalt in the fiscal year ended March 31, 1999.

Nkana hosts a resource of 323 million tonnes grading 2.21% copper and 0.1% cobalt, including a reserve of 76 million tonnes grading 2.26% copper and 0.14% cobalt. The resource at Mufulira consists of 71 million tonnes grading 3.1% copper, including a reserve of 29 million tonnes grading 3.02% copper.

First Quantum and Glencore can earn their combined interest in return for payment of US$43 million. ZCCM will retain a 5% free and 5% repayable carried interest. Also, the newly formed company is required to spend US$154 million on Mufulira and Nkana over the first three years, and, subject to further evaluation of the assets, an additional US$340 million.

Zambia’s copper mines have been in steady decline since the early 1970s, when they were nationalized by then-president Kenneth Kaunda. Since that time, annual copper output has shrunk to 250,000 from 700,000 tonnes.

The current government has sold the Konkola, Nchanga and Nampundwe mines to South African-based Anglo American. The mines account for about 70% of Zambia’s copper production. First Quantum and Glencore will effectively hold the balance of the country’s production.

First Quantum already produces copper from its wholly owned Bwana Mkubwa mine, about 5 km southeast of Ndola, at the southern end of Zambia’s copper belt. In the first quarter of 1998, the company completed construction of a US$30-million solvent extraction-electrowinning (SX/EW) tailings retreatment plant and a sulphuric acid plant. The SX/EW plant is designed to treat tailings from the old Bwana Mkubwa mine at the yearly rate of 1.6 million tonnes, whereas the other facility can produce 110,000 tonnes of sulphuric acid per year.

During the third quarter of 1999, Bwana Mkubwa cranked out 5.5 million lbs. of copper cathode and 17,871 tonnes of surplus acid at cash operating costs of US35 per lb. copper and minus-US2 per lb. copper (net of surplus acid revenue). During the first nine months of the year, production totalled 15.5 million lbs. of copper cathode and 49,128 tonnes of surplus acid at US39 per lb. copper and US4 per lb. copper (again, net of surplus acid revenue).

At last report, proven reserves stood at 7.4 million tonnes grading 0.726% copper, or 102 million lbs. of contained copper.

In related news, First Quantum has released results from metallurgical tests performed at the company’s 95%-owned Connemara gold mine in Zimbabwe. The tests were part of an ongoing study into the feasibility of expanding the open-pit operation to 50,000 oz. per year from 21,000 oz. Such an expansion would reqire a transition to semi-autogenous grinding and carbon-in-leach processing; at present, gold is recovered by heap leaching.

The resource at Connemara consists of 509,000 oz. in 6.5 million tonnes grading 2.43 grams per tonne, including a measured resource of 282,000 oz. in 3.5 million tonnes grading 2.53 grams. The estimate, performed by Digital Mining Services of South Africa, employed a cutoff grade of 0.5 gram.

During the third quarter of 1999, the mine produced 6,671 oz. gold at a cash operating cost of US$172 per oz.; during the first nine months, 15,081 oz. at US$206.

Mineralization at Connemare occurs in a silicified banded iron formation and phyllites within greenstones that form a discontinuous line of northerly trending ridges. The ridges extend for 10 km and are adjacent to a major granitic basement contact. The gold resource is sandwiched between the North and South pits.

Last August, drilling confirmed the presence of gold mineralization to a depth of 100 metres in the North pit, where a large, 400-metre-long zone remains open at depth and appears to increase in width and grade at depth.

First Quantum says there is also potential for gold mineralization (both oxide and sulphide) on a parallel banded iron formation 250 metres east of the current resource. Drilling in this area has produced encouraging results, including 6 metres grading 3.78 grams gold, 11 metres of 1.72 grams, and 20 metres of 1.72 grams.

The company’s third-quarter earnings totalled US$1.5 million (or US6 per share) on revenue of US$9 million, compared with a loss of US$2.7 million (US12 per share) on US$5.9 million in the corresponding period of 1998.

Revenue in the first nine months of 1999 amounted to US$24.9 million, compared with US$9.9 million a year earlier. Cash flow between the two periods fell to US$11.2 million from US$3.6 million.

In March 1998, the company signed two agreements with Gecamines, which is owned by the Democratic Republic of Congo. The deals allow for the retreatment of four high-grade copper-cobalt tailings dumps. First Quantum has postponed any other activities in the politically unstable nation.