Zambia Mining Report Q4 2011

Date: September 22, 2011
Pages: 64
US$ 1,175.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Zambia's mining sector is set to continue the recovery seen over the last decade. The country had declining copper output throughout the 1990s but a mixture of low taxes, privatisation and elevated copper prices has seen a substantial boost to investment and output. We expect the value of the mining sector to reach US$1.35bn by 2015 from US$590mn in 2010, marking an annual average growth rate of 7.5%.

Copper Output To Surpass 1mtpa In 2014 Copper mining will remain the mainstay of Zambia's mining sector, with output reaching 1.3mnt (mn tonnes) in 2015, from 732kt ('000 tonnes) in 2010. Much of this growth will be driven by First Quantum, which expects to start to produce 190ktpa ('000 tonnes per annum) by 2014 at the Sentinel deposit and is increasing output at the Kanshanshi mine from 250 to 400ktpa in 2015.

We expect the country's copper production will surpass 1mntpa (mn tonnes per annum) in 2013, a year later than the Zambian government forecasts. The company appears to be focusing on Zambia as the centre of its African growth opportunities, after the legal wrangling with the DRC government over the Frontier mine. The other major contributor to growth will be Vedanta Resources, which is doubling output at the Konkola mine to 400ktpa in 2015.

Cobalt will exhibit similar levels of growth to copper as the two metals are generally mined together. In the short term, Equinox Minerals plans to double output at its Lumwana mine to 4.0ktpa in 2011. In addition, First Quantum's Kanshashi mine is expected to increase cobalt production from 3.5 to 5ktpa in 2015. Overall, we expect Zambia's cobalt production to reach 13.4ktpa in 2015, marking average growth of 8.9% a year from 8.8kt in 2010.

Regulatory Environment Zambia's mining sector has been highly amenable to foreign investment since the privatisation of the state controlled Zambia Consolidated Copper Mines (ZCCM) at the end of the 1990s. Indeed, while one of the opposition parties, the Patriotic Front, has stated that it seeks greater control of the mining sector and will increase taxes on mining companies, our country risk team expect the ruling party to remain in power and sustain the country's investor-friendly outlook.

Aside from its substantial high-grade copper reserves, Zambia's mining sector is favourable to mining companies as the government recently ruled out the reintroduction of the windfall tax on mining companies' profits. This gives Zambia a competitive advantage over other large copper producers such as Australia, Chile and Peru where levies on mining output have been proposed or already implemented. We expect Zambia to remain a business-friendly environment as foreign investment in the country's mining sector is a key part of the Zambian government's plans to maintain strong growth over the coming years.

Key Players Zambia's mining sector is dominated by a few foreign copper mining companies, most notably First Quantum and Vedanta Resources. We forecast the sector will remain dominated by foreign mining companies as the government has privatised all the former state assets involved in mining and has given no indication of plans to re-enter the sector. We expect to see the sector remain consolidated as most of the growth plans have been announced by companies already present in the country.

That said, Vale is set to enter the sector with the development of the 50ktpa Konkola North copper mine in 2012. This mine is part of Vale's plans to invest between US$15-20bn in Africa over the next five years, from US$2.5bn in 2010.
Executive Summary
SWOT Analysis
Zambia Political SWOT
Zambia Economic SWOT
Zambia Business Environment SWOT
Global Mining Outlook
Table: Recent Tax Increases
Table: Largest Coal Projects
Table: Frontier Mining Projects
Industry Trends And Developments
Table: Main Expanison Plans
Table: Mining Industry Value And Output, 2008-2015
Business Environment
Mining Business Environment Ratings
Table: Africa Mining Business Environment Ratings
Zambia’s Business Environment
Table: BMI’s Business And Operation Risk Ratings
Table: BMI’s Legal Framework Rating
Table: Labour Force Quality
Table: Annual Foreign Direct Investment Inflows Into The Middle East And Africa, 2006-2008
Table: Zambia’s Top Export Destinations, 2002-2009 (US$mn)
Table: Trade And Investment Ratings
Political Outlook
Industry Forecast Scenario
Table: Largest Expansion Plans
Table: Zambian Copper Production, 2008-2015
Table: Coal Projects
Table: Coal Production, 2008-2015
Table: Main Projects
Table: Cobalt Production, 2008-2015
Regulatory Structure
Competitive Landscape
Table: Selected Mining Companies' 2010 Figures (US$mn)
Company Profiles
First Quantum
Vedanta Resources
Commodity Strategy – Monthly Metals Update
Global Assumptions, Q4 2011
Table: Global Assumptions, 2009-2015
Table: Global And Regional Real GDP Growth, 2010-2013 (% change y-o-y)
Table: Developed Market Exchange Rates, 2010-2013 (average)
Table: Emerging Market Exchange Rates, 2010-2013 (average)
Developed States
Table: Developed States’ Real GDP Growth, 2010-2013 (% change y-o-y)
Emerging Markets
Table: Emerging Markets’ Real GDP Growth Forecasts, 2010-2013 (% change y-o-y)
Business Environment Ratings Methodology
Table: Mining Business Environment Indicators
Table: Weighting Of Components
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