Once a copious producer of copper, Zambia has fallen on hard times of late. In 1999, the country’s output totalled just 260,000 tonnes — a far cry from the historic annual peaks of 700,000 tonnes between 1969 and 1976.
The erosion of Zambia’s production epitomizes the plight of many in post-colonial Africa. After gaining independence in 1969, the country adopted a socialist philosophy, subsequently nationalizing its industries and setting in motion a slow process of decay.
Yet recent years have seen the country’s mines and metallurgical complexes revert back to foreign hands as part of a privatization program initiated in the early 1990s. Accordingly, production is rising and costs are falling.
Taking a leading role in Zambia’s rebirth are partners
Since taking over in April, First Quantum has been busily upgrading the mines and surface facilities to Western standards. As a result, copper head grades at Nkana have increased by 27% over the average for the past 15 years, to 1.9% in September, while cobalt production that month jumped to 133 tonnes from an average 65 tonnes for the past three months and much less beforehand. Meanwhile, stope development at Mufulira, a particularly troublesome spot in the past, is now sufficiently ahead of schedule to enable consistent deliveries to the mill.
For the three months ended Aug. 31, the two mines cranked out a combined 15,073 tonnes copper and 196 tonnes cobalt at a cost of US$1,433 per tonne copper (US65 per lb.), net of byproduct credits and tolling charges. Although total costs at both mines rose over the previous two months of accountable production, cash costs at Nkana fell by 12%. The operations are expected to break even by year-end.
As part of their deal with ZCCM, the partners are committed to US$159 million in capital expenditures over the next three years, which is expected to boost annual copper output to a steady 140,000 tonnes. Although cash flow and external financing agreements are expected to suffice, Glencore has provided a two-tier working capital facility of up to US$40 million for immediate concerns.
First Quantum also holds a 100% stake in the nearby Bwana Mkubwa copper tailings recovery project, which it acquired in 1996. To treat the material, more than US$30 million was spent constructing a modern solvent extraction-electrowinning plant and a stand-alone sulphuric acid plant.
In the recent quarter, Bwana Mkubwa produced 2,551 tonnes of copper and 17,356 tonnes of surplus acid at a cost of US$132 per tonne copper (net of credits). Total operating costs averaged US$1058 per tonne — 20% lower than the comparable quarter of 1999, when 2,500 tonnes copper and 17,871 tonnes of surplus acid were produced.
First Quantum reported net earnings of US$2.2 million (or 9 per share) on revenue of US$28.7 million in the three months ended Aug. 31, compared with US$1.5 million (6 per share) on US$9 million in the similar period of 1999.
Net earnings in the nine months ended Aug. 31 topped US$3.4 million (13 per share) on US$56.8 million, compared with a loss of US$381,213 on US$24.9 million a year earlier. The 128% increase in revenue came on a 188% rise in attributable copper production, plus new sources of income from cobalt and tolling charges.
“As the rehabilitation of [Nkana and Mufulira] continues, further growth in production, cash flow and profitability are anticipated in the fourth quarter and beyond,” states Martin Rowley, First Quantum’s chief financial officer.
First Quantum’s attributable production for the nine months ended Aug. 31 was 20,197 tonnes copper, 156 tonnes cobalt, 14,115 oz. gold (from the now-suspended Connemara gold mine in troubled Zimbabwe) and 46,287 tonnes surplus acid. Combined operating costs averaged US$992 per tonne copper (net of byproduct credits and tolling charges).
On Aug. 31, First Quantum had a negative working capital of US$6.5 million but US$2.4 million in cash.
Konkola Deep
South African mining house
Alongside First Quantum and Glencore, Anglo and its partners inked deals for Nchanga and Konkola, plus the Nampundwe pyrite mine and an option on the Nkana smelter and refinery. Anglo is the largest participant, at 65%, with the remaining interest shared by ZCCM, with 20% (15% of which is repayable), and International Finance Corp. and the CDC Group, with 7.5% each.
For its share, Anglo paid US$30 million upfront and must pay another US$60 million in six annual instalments, starting in 2006. However, the government owes the major US$30 million for its 27.3% share in ZCCM, putting Anglo’s total acquisition costs at US$60 million.
Together, the participants are committed to investing US$208 million in the mines alone over three years, though the actual amount is expected to top US$260 million. So far, Anglo has contributed more than US$78.8 million of its share.
The group is also committed to funding the estimated US$523 million needed to develop the Konkola Deep mining project, subject to the arrangement of financing. The project is to begin in late 2001 and take five years to complete.
During the three months ended June 30, Nchanga and Konkola combined produced 36,493 tonnes finished copper, compared with a planned 41,445 tonnes. Cobalt output was also off from projections, at 431 tonnes versus 466 tonnes.
Anglo attributes the shortfall to a combination of delays in receiving parts and equipment and to a lack of development headings by ZCCM prior to the changeover. Nevertheless, the mines turned in an operating profit of US$14,000 in the quarter.
By year-end, the mines are expected to have produced about 140,000 tonnes copper at a break-even cost. Production for 2001 is forecast at 240,000 tonnes, which would make the group the largest producer in the country.
Ahead of schedule
The additional section is expected to add about 3,600-4,100 tonnes cobalt and 2,700-4,500-tonnes copper to Chambishi’s output. The existing plant has a rated capacity of 2,270 tonnes cobalt and 13,600 tonnes copper. Combined with production from the Nkomati nickel mine in South Africa (Avmin’s only other base metal operation), this will propel Avmin to the forefront of world production.
Avmin owns a 90% interest in Chambishi, with ZCCM holding the remainder. Included are 20 million tonnes of cobalt-rich slag at Nkana, which is the material that will be passed through the new plant prior to being refined into cobalt and copper cathodes in the existing one.
All told, Avmin will have invested US$185 million in Chambishi by the time commercial production begins.
Chibuluma South
With five years of reserves left at the Chibuluma West mine, London-listed
Chibuluma South will become the first new mine to be developed in Zambia in three decades.
Known resources of 7.8 million tonnes grading 4.31% copper (plus cobalt) are expected to yield about 16
,000 tonnes copper annually over 16 years.
The mine is to be developed in two stages, first as an open-pit operation and then as an underground one. A ramp system and a 620-metre vertical shaft will facilitate development of the latter.
Making up 18% of the total resource, the surface material is sufficient for four years of output. By then, Chibuluma West will have one year’s worth of reserves remaining. (The mine currently hosts 1.2 million tonnes grading 4.7% copper and produces 8,400 tonnes copper annually, plus cobalt.)
Ore will be processed on-site into concentrates, which will then be trucked to Nkana or Nchanga for toll smelting and refining.
According to feasibility projections, operating costs will average $1,102 per tonne copper for the first stage, and $1,279 per tonne thereafter.
Capital and development expenditures, estimated at US$25 million, are being funded through a combination of debt and cash flow. Income from Chibuluma West and the open pit are expected to lessen the need for external financing.
Vancouver-based
New farm-in agreements
After years of exploring alone, British giant
“There is some perception that we were in the process of exiting from Zambia, but this simply is not the case,” states exploration manager Eric Tweedie. “Simply put, we are continuing to explore but in a way quite different to what we did historically. In addition, we are also engaged in discussions with various partners regarding new farm-in opportunities.”
Since 1994, Billiton has spent more than US$13 million exploring its properties by means of drilling and other methods. Targets sought include: iron oxide copper-gold prospects; copper-iron skarn environments; sediment exhalative zinc deposits; and carbonate-hosted zinc-lead mineralization.
Although confidentiality agreements prevent Tweedie from providing details, he notes that deals on four projects are awaiting final approval. Partnerships with juniors are being emphasized.
For the time being, Billiton has budgeted only a small amount for the various projects, as the impending deals are of a participatory nature.
“We view Zambia in a positive light in the sense of overall exploration potential, investment regime and the level of sovereign risk,” adds Tweedie.
A similar view is held by the group of producers noted above, all of which also have tied up ground beyond their mining licences. For example, First Quantum has optioned four licences covering 15,322 sq. km from
In all, more than US$860 million will be pumped into Zambia’s mines and metallurgical complexes over the next three years. This excludes any exploration expenditures elsewhere in the copper belt.
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