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Feb 2007 - Zambian / DRC

The Re-birth of the Zambian / DRC Copperbelt

One of the main themes of the presentations at the Indaba 2007 Conference in Cape Town was the re-birth of the Zambian/Katangan (DRC) Copperbelt. Last year there were some papers on progress on the Zambian side, which were updated this year.

However, it is the DRC component that has surged ahead, with some agreements having been signed as recently as 2005, and growing confidence in the country following the recent elections that returned Joseph Kabila. A full re-birth of the Copperbelt could have significant implications for the supply side and consequent prices of both copper and cobalt within the next 3 to 4 years.

We have used the Tenke (a JV between Tenke and Phelps Dodge) plan as a base for including other companies’ mines on the Copperbelt as it was the most comprehensive, and compiled Table 1 of the expected additions based on the presentations that were given at the Conference.

As shown in Table 1, copper production from the Copperbelt almost doubles in the next 2 years from ~367,000t in 2006 to 690,000t in 2008, and then more than doubles again to 1,480,000t in 2010. To put these figures into perspective, LME stockpiles at 8 February 2007 were about 216,000t Cu, and the supply – demand figures are ~18mtpa, which infers that the increases in supply may be mopped up in demand growth (currently rising at about 700,000tpa).

Although rated at 250,000tpa of copper production in 2010, Nikanor stated that there could be a future expansion to 400,000tpa of copper. It should be noted that the companies in Table 1 are based on those that presented or were present at Indaba 2007. There is other exploration and there could be production from other companies which have not yet been included.

The re-birth of the Copperbelt involves significant investment monies, large amounts of which appear to have already been raised. Apart from the US$715m for Equinox’s new Lumwana mine in Zambia, Katanga has earmarked ~US$430m to refurbish and restart the old Kamoto mine, Tenke has US$650m planned to be spent on the Tenke Fungurume property, and US$1300m is expected to ultimately be spent on Nikanor’s Kov region by 2010.

Some competitors have raise questions on the ability of the various new large companies to spend their earmarked monies in their planned times as DRC’s road infrastructure is largely regarded as “work-in-progress”. However, there are a number of plans to build new roads over various sections of the DRC.

On the power side, MAG (a listed power company) stated that they are starting to refurbish the INGA hydro-electric scheme consisting initially of INGA 1 (351MW) at a cost of US$25m, followed by 50% of INGA 2 for US$110m (being 50% of 1424MW or 712MW). Most of the new mines in the DRC expect to draw on cheap hydropower (~US3c/Kwh) making them cost competitive despite some of their relatively high grades, such as probable reserves of 4.8%Cu at Nikanor’s Kov.

The surge in growth in the DRC is not without a few penalties as was shown in a comparative slide of the tax regimes of the DRC, with Zambia in brackets, viz : company tax DRC : 30% (Zambia : 25%), withholding tax : 10% (nil), purchase tax : 5% to 30% (nil), import duty : 5% (nil), government royalty : 2%NSR (0.6%NSR), and possible government holding DRC : 25% (Zambia : 15%).

The DRC Copperbelt was also known for its production of cobalt and while a number of costs were quoted at an assumed Co price of US$10/lb, significant cobalt production is expected such as an additional 5,000tpa from Katanga, 27,500tpa from Nikanor’s Kov (in 2010), 8,000tpa (and rising) from Tenke in 2009, and ~6,000tpa (may rise to 18,000pa) from First Quantum’s Kolwezi Tailings project. Such significant production of Co could materially reduce the Co price affecting the credits of these operations and the operations of nickel laterite mines.

Only Anvil really appears to be spared, since its main by-product credits are in silver.

It can be seen that if all these new mines are able to start production according to their stated timetables, then there could be material increases in the supplies of copper and cobalt which may reduce prices and impact on the by-product credits of companies affected.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (ERA, an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, may hold interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Table 1. Copper Production (000tpa) in the Zambian/DRC Copperbelt (source : Indaba February 2007)GDNfeb07-1

Figure 1. Mines in the Zambian / DRC Copperbelt (source www.tenke.com)GDNfeb07-2

  • Written by: Keith Goode
  • Thursday, 01 February 2007

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