Zambia – could its mining sector emerge from its slump in 2016?

Zambia – could its mining sector emerge from its slump in 2016?

The Zambian government is confident that their actions will ensure the industry can not only recover but actually grow in the coming 12 months, this is despite the current low demand and commodity prices.

Zambia Copper Output to Double in 2017
The trade in minerals continues to be a major part of many African economies.
Zambia : A Major Investment For Its Mining Railways Network

Is growth of the mining sector really possible when both demand and commodity prices remain low?

Background

The success or failure of the copper mining industry in Zambia has historically had a massive impact on the overall economy of the country. Huge declines in output due to a lack of investment, followed by the privatization of the industry has resulted in vastly fluctuating production levels and prices, and as a result an unstable economy since the 1960’s. The government’s response was to grant mining licenses to a number of international mining companies for copper and alternative minerals such as nickel, uranium and tin. Nickel is seen by some as the possible replacement for copper as their top export in the future.

Challenges

The economic slump in China has reduced the demand for metals including copper, and as a result the price of copper has nearly halved in the last two years. China is one of Zambia’s largest consumers of copper, so this reduction in demand in addition to an electricity shortage have put Zambia’s mining industry at serious risk.
A number of mines have already closed and over 15,000 miners have lost their jobs, with many more layoffs expected. Not only are further jobs at risk but economic growth has also slowed and their currency is struggling to hold its value against the US dollar, losing half of its value in 2015.

Ensuring an adequate power supply is available

The mining industry in Zambia is a major consumer of electricity, in fact just one copper mine accounts for almost 14% of the total demand. The power supply in Zambia is however not only expensive but also unreliable as the bulk of it is produced by hydro electrical power stations. These issues are adding to the problems mines are facing as they increase production costs, which in conjunction with the current low metal prices are forcing mines to plan further layoffs.

Government response

In an attempt to stop the decline in the mining sector, the government has reduced mineral royalties from 9% to 6% for underground mines and from 20% to 9% for open cast mining. They have additionally committed to the construction of a new thermal power station, and promise that the electricity it produces will be allocated to the mining industry as a priority, in both adequate and reliable volumes and at competitive prices.

Chishimba Kambwili, a chief government spokesman has also confirmed that a long running dispute with the mining companies involving VAT refunds totally $600 million, is also currently being resolved.

Confidence is growing

The Zambian government is confident that their actions will ensure the industry can not only recover but actually grow in the coming 12 months, this is despite the current low demand and commodity prices.
The introduction of the Mines and Minerals Act of 2015 which not only increased the amount of time allowed to complete explorations, but also the area over which explorations can be made, is also expected to benefit the countries overall mineral wealth by ensuring that the mining companies have the best possible chance to both discover and excavate meaningful quantities of valuable mineral deposits.

COMMENTS

WORDPRESS: 0
DISQUS: 0