Zambia’s just deepened worries of sinking global copper output

Zambia’s Chamber of Mines delivered Thursdays further signs of a major global undersupply of copper about to hit the market by announcing that the country’s output of the metal could be as much as 100,000 tonnes lower than last year.

The industry lobby group attributed the expected drop in production to changes to mining taxes introduced in January, which is driving companies to cut output.

“The new tax regime forced miners to do the unthinkable – cut production – because many cannot afford to continue producing as before,” it said in a statement.

Zambia, Africa’s second largest copper producer, churned out 861,946 tonnes of the metal last year. In the first three months of this year, the nation’s copper output fell by 11.3% to 195,244 tonnes, compared to the previous quarter, the Bank of Zambia said earlier this week.

Copper output in Africa’s second largest producer could decline by as much as 100,000 tonnes this year, adding to recent, sharp declines at the world’s main producing nations.

The world’s main copper producing nations have been showing output declines this year, according to the latest monthly bulletin from the International Copper Study Group (ICSG).

Global production declined 2.4% in February 2019, when compared to the same month last year, with 1,515kt (19,749ktpa) of contained copper produced globally.

Chile, the world’s No.1 producer of the metal, led the pack with output down 7.1 % y/y to 415.9kt (5,412ktpa) while Peru, the second main global producer, saw its output fell by 5.1% y/y to 176.1kt (2,296ktpa).

Despite weaker copper production so far this year, ICSG data indicates a small surplus in February of 74kt with refined usage down 14% y/y, totalling 1,758kt (22,917ktpa).

Industry analysts at CRU believe that is undeniable that global demand for copper will soon surpass supply, the world may not need as many new mines as originally forecast.

Over the past year there has been board approval for several high-profile expansions and new projects that are due on-stream over the next five years.

CRU says the coming online of major projects, including Anglo American’s Quellaveco (2022), Teck Resources’ Quebrada Blanca expansion (2021) and First Quantum’s Cobre Panama (already in production) should momentarily eliminate the gap between supply and demand.

The research group now expects 900,000 tonnes a year more mine copper supply by the early 2020s than at this time in 2018. 

The EV effect

While the effect on copper demand from the electric vehicles (EVs) sector is expected to be important, the consensus is that it will not meaningfully impact on demand until the second half of the 2020s, CRU says.

The red metal is a key component in the lithium-ion batteries used in EVs, as well as power inverters and in the charging infrastructure needed to keep them running.

Data released by the International Copper Association (ICA), an industry-funded body, shows more than 40 million charging ports will be needed over the next decade, consuming an extra 100,000 tonnes of copper a year by 2027.

Zambia just deepened worries of sinking global copper output

All types of EVs require copper. It is used in batteries, windings, rotors, wiring, busbars and charging infrastructure. (Source Research commissioned by the International Copper Association (ICA).)

From those stations, at least 3 million will be built in China by 2030, according to the study.

Consumption from the car industry will also weigh on demand, but later. An average gasoline-powered car uses about 20 kg of copper, mainly as wiring. A hybrid needs about 40 kg and a fully electric car has roughly 80 kg of copper (176 pounds).

Zambia just deepened worries of sinking global copper output

Copper demand will be substantially impacted by the growing market for electric vehicles (EVs) over the next decade. (Source Research commissioned by the International Copper Association (ICA).)

It means that, in the next decade, global copper demand will increase between 3 and 5 million tonnes, experts predict. Once electric vehicles become popular, they estimate demand to reach 11,000,000 tonnes of new copper for EV’s alone.

Copper is also a key element in green technologies and renewables, which despite being adopted at a fast pace, they still represent only a minor percentage of the world’s total energy production.

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Operations resumed at Zambia’s Munali nickel mine

Mabiza Resources and its major investor, London-based Consolidated Nickel Mines or CNM, announced that operations have been resumed at the Munali nickel mine, located in southern Zambia.

The restart is taking place following a $50-million refurbishment that included the re-engineering of all key technical aspects of the project, from reinterpreting the orebody and changing the mining method, to revising the metallurgical process with the introduction of Dense Media Separation technology and differential flotation.

This process began in 2014, three years after the mine was placed on care and maintenance due to low nickel prices and poor operational performance.

Munali's total reserves are estimated at 6.01Mt @ 1.00% Ni.

Munali is located 70 kilometres south of Lusaka and comprises an underground mining operation extracting nickel sulphide ore. There is also an operational crush, mill, and float plant with capacity of 80,000tpm.

In a media statement, Mabiza and CNM said that, following the restructuring of the mine, they expect to drive production to steady-state levels of 60,000tpa by Q4 2019.

"Today is the culmination of nearly four years of hard work by the team and has involved a full reassessment of the project to de-risk it both technically and economically," Simon Purkiss, CEO of CNM, said in the media brief. “We are committed to being a responsible miner and ensuring the socio-economic benefits created by the mine are lasting and shared with our local communities and host government.”

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First Quantum shares jump on refinancing

Shares in Canada’s First Quantum Minerals (TSX:FM) were up 2.5% after announcing that it has signed a new $2.7-billion term loan and revolving credit facility, replacing the existing $1.5 billion one.

Underwritten by three core relationship banks, the loan can be increased to up to $3 billion before the end of year, the Vancouver-based miner said. It comprises a $1.5-billion term-loan facility and a $1.2-billion revolving credit facility maturing on Dec. 31, 2022.

The refinancing extends the debt maturity profile of the business, eliminating all material debt maturities through to 2022. In addition, it provides liquidity headroom under the revolving credit facilities.

$2.7-billion term loan and revolving credit facility can be increased to up to $3 billion before the end of year.

Earlier this week, First Quantum grabbed headlines on rumours it had offered to buy the Zambian government’s 20% in Kansanshi, Africa’s No.1 copper mine, for as much as $700 million.

The company already owns 80% of the mine with state-owned ZCCM Investments Holdings Plc holding the rest.

The operation is First Quantum’s biggest mine, and accounted for more than half the company’s revenue in 2017.

Last month, the miner scrapped plans to lay off 2,500 workers in the southern African country over an increase in mining taxes, and has committed to extend talks with the nation’s government over the issue.

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Gemfields to pay $7.8m to settle claim of human rights abuses in Mozambique

Precious gemstones miner Gemfields has chosen to pay  £5.8 million (about $7.8m) to community members residing near its Montepuez ruby mine in Mozambique, in a “no admission of liability” move that settles a claim of human rights abuses brought against it by locals.

Leigh Day, the London-based law firm representing a group of 273 Mozambicans, argued last year that security forces employed by the miner had shot, beat and subjected to humiliating treatment and sexual abuse to its clients.

Gemfields, which describes itself as “a leading supplier of responsibly sourced coloured gemstones”, always maintained it was not liable for the alleged incidents, but it has taken the view that the agreed settlement “best balances the interests of the assorted stakeholders” and avoids tainting the company's relationship with sections of the local community, it said in a statement.

Sum will cover Leigh Day’s legal expenses and be distributed to the claimants represented by the London-based law firm.

“We wish to ensure that we are regarded as trusted and transparent partners … rather than legal adversaries,” chief executive Sean Gilbertson said of the relationship with the Montepuez community going forward.

“These incidents should never have happened. However, we commend Gemfields for engaging constructively to resolve this case promptly and for putting in place an independent grievance mechanism,” Leigh Day partner, Daniel Leader, commented.

Early last year, the company put up a voluntary announcement in which it acknowledged that, in the past, instances of violence had occurred on and around the licence area, "both before and after Gemfields' arrival in Montepuez".

In addition to the settlement amount, the company is setting up an independent operational grievance mechanism to enable community members to lodge complaints more easily. It has also committed to creating a new agricultural development and training fund of at least £500,000, or $659,000 at current exchange rates.

The coloured gems miner, which owns the luxury Fabergé jewellery brand, is the operator and 75%-owner of the Montepuez open pit ruby mine, through its subsidiary Montepuez Ruby Mining (MRM).

It also owns the Kagem emerald mine in Zambia and holds controlling interests in various other gemstone mining and prospecting licences in African countries including Ethiopia and Madagascar.

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First Quantum calls off massive job cuts in Zambia

Canada’s First Quantum Minerals (TSX:FM) has scrapped plans to lay off 2,500 workers in Zambia over an increase in mining taxes, and has committed to extend talks with the southern African nation’s government over the issue.

The Toronto-based said last month it had exhausted all other avenues of cost reduction, adding the job cuts would be implemented in phases during the first three months of 2019.

Zambia, Africa's second-largest copper producer, increased this year its sliding scale for royalties of 4% to 6% by 1.5 percentage points, and introduced a new 10% tax when the price of copper exceeds $7,500 per tonne.

The nation also plans to replace value-added tax with a sales tax by April to help bring down mounting public debt.

“First Quantum will not now proceed with the planned lay-off of any Zambians involved in its production activities,” the miner said in a statement published by local online news site Mwebantu.

The layoffs had been expected to affect 1,250 employees at the Kansanshi mine in Solwezi and 1,250 at the Sentinel operation at Kalumbila.

“Following detailed analysis and after having considered various factors resulting from the new taxes, First Quantum has decided to reduce only those elements of its workforce in Zambia associated with Capital Projects,” the company said.

In 2017, First Quantum accounted for more than half of the country’s copper output, and is the largest individual taxpayer. Mining operations in Zambia, in turn, account for 84% of the Canadian miner’s revenue.

Other than First Quantum, companies operating in the southern African nation include Glencore, Vedanta Resources and Barrick Gold. The latter said earlier this week it’s considering selling  its Lumwana copper mine given the “challenging conditions” it’s facing.

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Barrick mulls selling Zambia copper mine over higher taxes

Gold giant Barrick (TSX:ABX)(NYSE:GOLD) said Monday that while it continued to engage with the Zambian government and community stakeholders about a mutually-beneficial way forward for its Lumwana copper mine, it would consider selling the operation given the “challenging conditions” it’s facing.

Barrick said finding a win-win solution between the industry and government would increase investor confidence in Zambia and safeguard the long-term prospects of its mining sector.

Following the first Lumwana board meeting after the merger with Randgold, Barrick’s chief operating officer for Africa and the Middle East, Willem Jacobs, said the company understood the Zambian government was under pressure to increase its revenue. But he noted the planned tax changes would put Lumwana in a difficult situation.

“The proposed changes to taxes and royalties would imperil the mine’s ability to sustain returns to all stakeholders, such as the significant contribution of more than $3.3 billion it has already made to the Zambian economy over the past 10 years,” Jacobs said in the statement.

Zambia, Africa's second-largest copper producer, increased this year its sliding scale for royalties of 4% to 6% by 1.5 percentage points, and introduced a new 10% tax when the price of copper exceeds $7,500 per tonne.

The nation also plans to replace value-added tax with a sales tax by April to help bring down mounting public debt.

Mining accounts for more than 70% of Zambia's foreign-exchange earnings. Other than Barrick, companies operating in the southern African nation include Glencore, Vedanta Resources and First Quantum. The latter warned last month it would have to lay off 2,500 workers at its local mines because of the taxes and royalties change.

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First Quantum Minerals to let go 2,500 workers in Zambia over tax hikes

Canada’s First Quantum Minerals (TSX:FM) became Friday the first top miner with operations in Zambia to react to a planned mining tax increase in the southern African nation by announcing it would have to lay off 2,500 workers at its local mines.

In an internal memo, the Toronto-based miner said the job cuts will be implemented in phases during the first quarter of 2019, adding they’ll be equally split between its Kansanshi and Sentinel mines.

First Quantum, which operates the Kansanshi and Kalumbila mines in Zambia, accounted for more than half of the country’s copper output last year.

“Reducing employee numbers should be a last resort after all other avenues of cost reduction have been exhausted. We would like to assure to all our employees that this is exactly the position we are in,” FQM Director of Operations at Sentinel, Matt Pascall, wrote according to Lusaka Times.

Africa’s second-largest copper producing country is set to introduce next year fresh mining duties and replace value-added tax (VAT) with a sales tax and increase royalties.

The government estimates that mining tax revenues will climb to $1.3 billion next year thanks to the changes, up from $800 million this year. Zambia’s Chamber of Mines, however, says revenues will rise to only around $840 million.

First Quantum, which operates the Kansanshi and Kalumbila mines in Zambia, accounted for more than half of the country’s copper output last year and is the largest individual taxpayer. The country, in turn, accounts for 84% of First Quantum’s revenue.

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Zambia tax authority clears Gemfields’ Kagem mine of tax evasion

Precious gemstones miner Gemfields (JSE: GML) has announced that the Zambia Revenue Authority (ZRA) has cleared its Kagem emerald mine following a probe into alleged tax evasion.

During an unannounced visit in August, the ZRA seized documents and files including those allegedly used to evade payment of Value Added Tax (VAT), income tax, with-holding tax and other taxes.

Probe was part of a wider effort by Zambia’s government to track down billions it is suspected of losing to foreign miners.

Gemfields, which also owns the Fabergé jewellery brand, said that the ZRA was unable to find evidence of wrongdoing or late payment by either Kagem or Limpopo Polygraphs.

The Kagem probe was part of a wider effort by Zambia’s government to track down billions it suspects of losing to foreign miners.

Mining accounts for more than 70% of the southern African nation's foreign exchange earnings. The government is currently mulling an increase to mining taxes and the introduction of new duties. It also plans to replace value-added tax (VAT) with a sales tax and increase royalties beginning January 2019.

Zambia estimates that mining tax revenues will climb to $1.3 billion next year thanks to the tax increases, from $800 million this year. The country’s Chamber of Mines, however, says revenues will rise to only $840 million approximately.

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