Zambian smelting shortfall a concern, Lundin says

When Phil Wright recently lashed out against Equinox Minerals‘ (EQN-T, EQN-A) hostile takeover bid for Lundin Mining (LUN-T) in a conference call, the chief executive cited the shortage of Zambian smelting capacity as yet another project risk facing Equinox.

Ore from Equinox’s Lumwana copper project, 220 km west of Zambia’s Copperbelt, is predominantly sulphide and treated through a conventional sulphide floatation plant, producing copper concentrate for smelting. 

In February Equinox announced that it was studying the feasibility of expanding Lumwana’s initial design capacity of 20 million tonnes per year to 45 million tonnes per year and said it will make a final decision in 2012.

In the March 21 conference call, however, Wright questioned whether Zambia would have enough smelting capacity to handle production from Lumwana.

“Independent market studies indicate a shortage of Zambian smelting capacity that commences in 2015, excluding any expanded production from Lumwana,” Wright said. “Now we know that other
market participants are sufficiently concerned about the shortage of smelting capacity that they plan to build their own smelter(s). That’s not a move that mining companies take very lightly. So you can take it that it’s not just the independent studies that are showing a shortage of Zambian smelting capacity, but market participants are deeply
concerned as well.” 

Wright added: “If they (Equinox) can’t sell it in Zambia, it appears that they will be facing a 15% export duty payable.” 

Equinox’s head of investor relations in Perth, Len Eldridge, could not be reached for comment. But according to the company’s website, Lumwana currently has two primary offtake agreements in place, one with the Chambishi Copper Smelter (CCS) and one with Konkola Copper Mines (KCM).

Chambishi has an agreement to take up to 230,000 dry tonnes of copper concentrate under a five-year take or pay arrangement, while Konkola has entered into a five-year offtake agreement with Lumwana to treat 70,000-80,000 dry tonnes of copper concentrate at its recently commissioned Nchanga smelter. (An offtake agreement with Mopani Copper Mines was terminated in 2010.) 

“The CCS and KCM offtake agreements cover the majority of Lumwana’s production and any overflow is expected to be taken up by metal traders with logistics on the Copperbelt,” Equinox noted.

The Lusaka Times is reporting that Zambia’s Mines and Minerals Development Minister Maxwell Mwale says the country’s copper production is expected to hit 1 million tonnes per year by 2015, up from the current 713,000 tonnes.

Lundin and Inmet Mining (IMN-T) terminated their proposed merger on March 30, leaving Inmet with a $120-million break fee.