An assessment of Zambia’s copper production is likely to slow down from 2022, following a resource nationalistic rhetoric that will be a key deterrent for investment into copper mines going forward, according to Fitch Solutions.
Based on Fitch Solutions analysis, Zambia’s copper production is expected to grow by 4.0 per cent year-on-year in 2021, with production reaching a six-year high of 863kt. Over the long term, however, annual copper mine production growth will average 2.2 per cent during 2012 to 2030.
As such, this will be mainly due to ramp ups of output at large scale mines including First Quantum Minerals’ (FQM) subsidiary Kalumbila Minerals’ Kasanshi mine. On the other hand, there will also be increasing output at small scale mines as a result of higher processing capacities and the stabilization of power supply to plants, Fitch Solutions argues.
Nonetheless, Zambia faces some significant issues which will ultimately deter investment into its copper sector and see a slowdown in production from 2022.
Fitch Solutions further argues that resource nationalism will play a key deterrent for investment into Zambia’s copper sector. In recent times, the government has increased its tough stance on the mining sector.
For an example is the Zambian government’s decision to prevent Glencore from placing its mines under care and maintenance in July 2020. Also, is the liquidation of Konkola Copper Mine, subsidiary of Vendata Resources, for failure to pay taxes in May 2019.
Most recently in March 2021, Glencore completed the sale of its 73.0 per cent stake in Mopani Copper Mines, one of Zambia’s largest copper mines, to state controlled ZCCM Investment Holdings. This has caused reputational damage to Zambia which has now lost a major mining company as an investor, as fears of resource nationalism grow.
Risks to mining policy
Furthermore, there are high risks of mining policy uncertainty as the elections are nearing this month. Fitch Solutions expect the Zambian government to continue monetizing its resource sector in the coming years, and the extent of this could be far-fetching.
This is especially the case considering that the Zambian economy has not fared well recently. Zambia experienced a real GDP contraction of 4.9 per cent year-on-year in 2020 after previously growing by 4.0 per cent in 2018 and 1.9 per cent in 2019.
The country also experienced a steep inflation rise of 17.4 per cent in 2020 following the outbreak of Covid-19, and inflation is expected to remain above the target range of 6.0 per ent-8.0 per cent in 2021.
In November 2020, Zambia became the first African country to default on its debt in light of Covid-19. As a result, Zambia’s mining tax regulations have remained stringent to provide the country financial relief.
Furthermore, this has prevented both its government and international investors from fully benefiting from the extraction of copper. Fitch Solutions note that taxes in Zambia’s mining sector had already increased in January 2019 with the introduction of its new mining tax regime.
In May 2021 Zambian President Edgar Lungu informed miners that he would reform the country’s mining tax.
However, with elections looming, rising copper prices and uncertainty around whether the country will receive a US$ 13 billion bailout from the International Monetary Fund, Fitch Solutions expect that any upcoming tax changes will be delayed.
