Shaky outlook for Zambia´s mines as copper prices dives

Zambia’s tarnished reputation as a safe destination for foreign direct investment is taking a negative toll on the outlook for the mining sector. If its reputation had not been so damaged by the government’s actions earlier in the year, the shareholders of the mines, and those of the exploration companies, would have taken a longer term view and been more willing to assist the industry to bear the current pain of low copper prices, a senior Zambian mining official who prefers not to be named told FTW. The unilateral breaking of internationally recognised development agreements in March 2008, coupled with the introduction of a highly unfavourable fiscal regime and a new Mines and Minerals Act which made tenure of mining tenements less secure, already damaged Zambia’s reputation as a safe destination for mining investment. “The mines previously owned and operated by the state under ZCCM had huge inefficiencies built into their operations, and while tremendous improvements were made in productivity and cost-cutting, they remain high-cost operations in world terms,” our source said. “The global financial crisis has caused a drastic fall in copper prices from a peak of over US$ 4.00 per lb to approximately US$ 1.60 per lb. The main privatised mines have cash operating costs considerably above the current copper price. It is inevitable that they will seek to minimise losses by closing down the least efficient parts of their operations with a consequent significant cut-back in both production and work force. In addition all the mines in Zambia are reviewing, and in many cases suspending or cancelling, planned capital expenditure. “Furthermore the low copper price coupled with the poor fiscal regime led several new projects to be placed on hold. In addition the low copper price plus concerns regarding security of tenure have led most exploration companies present in Zambia to curtail their exploration programmes,” the official noted.