At Mining for Zambia, we often talk about the world’s growing appetite for copper, but it can be difficult to fathom just how quickly demand is soaring. Try this: an additional 7 million tonnes of the red metal will be needed by 2030, just to keep up with a modest growth in demand of 2-3%. This was the calculation shared by Anglo American’s base metals chief, Ruben Fernandes, who kicked off the annual Asia Copper Conference, held in Shanghai from 20-21 November, as part of the Asia Copper Week.
In Zambia, we generally regard ourselves as a major player in the copper sector but Zambia did not really feature in the high-level discussions held by experts and stakeholders from Asia, Africa, Europe, and the Americas on global copper trends. It was a salutary reminder that we are a relative minnow in an ever-expanding pond that is the global copper industry. Fortunately, Mining For Zambia attended the conference and, during discussions with delegates, put Zambia back on the proverbial copper map.
“We need more supply.”
There was no debate among delegates about the fact that global demand for copper is on the rise. Either more mines need to be commissioned, or production at existing mines needs to be stepped up. “We need more supply,” said Fernandes. “Can we develop more copper mines in 10 years? Yes. But is it easy? No. 7 million tonnes means we need 14 Collahuasi’s by then.”
Note: Collahuasi Copper Mine is a joint venture that is 44% owned by Anglo American, and has an average copper output of 530,000 tonnes.
“Of course, we’ll have new copper coming from recycling — it’s not only from mining, but we need more supply. We need to balance risks with new technology and have good investment proposals for boards. It’s not about obstacles. We need to take into consideration that it’s important to have copper for the world.”
Is Zambia’s copper industry positioned to take advantage?
Not at present. The country currently has no new world-class copper projects in development. Despite the government’s decision not to revert to an economically devastating Sales Tax system, Zambia’s mining industry is still being held back by restrictive policies.
While Anglo American’s new $5.3-billion copper project, Quellaveco Mine in southern Peru, is set to come online in 2022, exploration budgets in Zambia sit at approximately 10-20% of the amounts invested a decade ago.
There is an enormous amount of potential for Zambia to increase copper supply, that much is certain. Kansanshi’s S3 mine expansion — which is critical for extending the life of mine and keeping production at current levels — is in urgent need of financial backing. Without investment, production at Kansanshi will irreversibly decline from 2023 onwards.
Zambia currently has no new world-class copper projects in development. Despite the government’s decision not to revert to an economically devastating Sales Tax system, Zambia’s mining industry is still being held back by restrictive policies.
The possibility of a second mine at Lubambe, which would dramatically increase production from the late 2020s, is also under discussion. Shareholder approval would set the wheels in motion for these two very promising long-term projects. But, without the guarantee of a return on these investments, raising capital from investors is impossible. The current tax regime has simply removed the financial incentives to invest.
Where is the copper market heading?
Fernandes offered his view: “It’s about [finding] a balance between macro trends and fundamentals that will impact prices next year. The trade war between China and the US is a factor. Next year we’ll see a slightly positive trend in copper because tensions will weaken — and also because of the fundamentals. I don’t see extreme volatility. Copper has been important for the last 9000 years, and it will continue to be important in the next 9000 years. The world is changing, but I’m still a bull.”
To what extent is copper production driven by green technologies, such as solar and wind power, and electric vehicles (EVs)?
“EV’s development is very fast in China,” responded Zhicong Li, Deputy General Manager of Minmetals Nonferrous Metals, Co Ltd. “This will lead to infrastructure including charging stations, which will impact demand for copper. Globally, by 2025, EVs will lead to demand for one million tonnes of copper.”
Research commissioned by the International Copper Association projects that copper demand in EVs will rise from 185,000 tonnes in 2017 to 1.74 million tonnes by 2027, with an estimated 27 million electric vehicles on the road. This excludes an additional 0.7 kg (minimum) per EV charger.
“In addition to renewables, 5G [technology] will also contribute to increased copper consumption — we can look forward to that,” added Li.
What are the particular trends in consumption and production within the Chinese market?
President of Trading and Operations at Metal Challenge Global Trading Co Ltd, Rui Shi, responded:
“Copper has been important for the last 9000 years, and it will continue to be important in the next 9000 years. The world is changing, but I’m still a bull.”
“In the past 20 years, China has been the focus of the global market. China’s consumption is stable but, because of the impact of the US-China trade war, some investment [in China] has been impaired. Can China’s consumption still reach predicted numbers? That remains a question mark.
We’ve seen 20% growth in consumption annually in recent years, but that is not going to repeat itself. We have to lower our expectations because that base number is already very high. Having said that, I’m cautiously optimistic about the medium to long term.”
How does Zambia fit into the global picture?
William Lu, a manager at China Minmetals Corporation, commented on the firm’s interest in investing in Zambia, including its recent bid for Barrick Gold’s Lumwana mine in Copperbelt Province. “Zambia has a very good relationship with China — that’s why we want to invest more in Zambia’s mines.”
But Chinese mining companies do generally have a bigger appetite for risk.
China is the country with the greatest demand for copper in the world, he pointed out, and a large appetite for copper goes hand in hand with a large appetite for risk.
What particular risks do you associate with investing in Zambia?
“For us, I think the first one is uncertainty — uncertainty regarding taxation and royalties. The second one is the lack of stable infrastructure for mining — water, power, etc,” said Lu.
“I see that Zambia has been reconsidering certain [taxation] policies — and that is certainly always challenging for investors,” said Juan Carlos Guajardo, former Executive Director of the Center for Copper and Mining Studies (Cesco), who runs his own consultancy, Plus Mining.
“What I’m going to say is not new, but these kinds of reviews of policies tend to happen [in African countries] every certain number of years. And that’s definitely creating uncertainties,” he asserted.
“Our impression is that, in terms of its geological potential, Africa certainly has a large amount — and also a high quality — of resources. So, there is big potential. But, in terms of the mining risks, it is also true that we see certain developments that don’t make mining investment easy.
The situation is also difficult in other parts of the world, though. For example, in Latin America, the situation is getting much more challenging from a country risk point of view. In Asia, policies towards mining are also changing, and becoming more nationalistic.”
Zambia’s policy uncertainty is its major risk, said Guajardo. “But the geological potential is there.”
How bright is the future?
“I see a bright future for copper,” said Fernandes, who was echoed by a handful of other industry leaders. But “bright” for whom?
During the last decade, the red metal’s unmatched conductivity, resistance to corrosion, and strength have made it the material of choice for new technologies, including solar energy — and, of course, Electric Vehicles (EVs), which require twice as much copper as their combustion engine counterparts.
Unsurprisingly, the world’s largest consumer of copper is responsible for a large proportion of growth in the EV manufacturing industry. China is also investing hugely in increasing its smelting capacity to fuel its continued economic rise. By reducing its reliance on smelters abroad (including Zambia), China can prevent delays between acquiring raw copper, and having it refined and put to use.
Instead of ramping up production in order to secure a spot as a leading supplier for a copper-hungry future, Zambia’s production has fallen significantly this year due to a drying up of investor capital needed to sustain operations. This trend will continue in 2020 and beyond.
But it’s not just production levels that are falling; the government’s tax revenues are, too. Governments receive more tax revenue from mines’ increased production than from overtaxing existing production. Zambia’s tax rate has risen beyond the point at which revenue is maximised and is, instead, causing both production and tax revenues to fall.
Can Zambia re-establish itself on the global copper map?
Not under the current taxation regime. In fact, Zambia is extremely likely to drop off the global ‘top ten’ copper producers list by next year. Our troubled neighbour, the DRC, has already overtaken and far surpassed us, with expected production of 1.2 million tonnes this year. Without changes to the current tax regime, the Chamber of Mines anticipates a further 100,000-tonne production drop in 2020.
Adopting a growth mindset is the only way for Zambia to avoid falling off the world’s copper map entirely, only to be replaced by competitors who can keep up with this promising global growth trajectory.
Only through growth can we deliver more.