COMMENT: Low prices, power cuts not the only concern for Zambian miners

Low copper prices are causing problems for miners all over the globe, but for producers in Zambia, the latest drop in prices is just one concern among many.

With copper prices near six-year lows, copper miners everywhere are under pressure to cut costs, but the strain is particularly acute in Zambia, as miners there contend with the full spectrum of operational, commercial, fiscal, social and environmental issues affecting the mining industry globally.

Low copper prices are causing problems for miners all over the globe, but for producers in Zambia, the latest drop in prices is just one concern among many.

Last week, power availability emerged as a major problem for Zambian miners, after the state electricity supplier cut supply to First Quantum by 24% in response to a prolonged drought that has hobbled its hydroelectric power output.

The power cuts prompted First Quantum to shut down its copper smelter and refinery at Sentinel in order to divert power to the Kansanshi mine, which will be able to use the constrained power supply more profitably.

At the end of last week, other miners in the country, including Vedanta’s Konkola Copper Mines and Glencore’s Mopani Copper Mines, were reportedly still receiving their full power allocation, but the risk that the droughts would lead to further plant closures remains high.

And that is far from the only risk to Zambian supply, as another drop in copper prices would undoubtedly force some miners to cut jobs or mothball operations entirely, despite the fierce political and social backlash that would ensue.

Barrick’s move to close Lumwana earlier this year in response to an increase in royalties highlighted how vital copper mining is to the government and to the Zambian people employed in the industry.

But while the government’s decision to revise the royalty rates will ease the fiscal strain on miners and help to keep workers in employment, recent events show that the industry’s relations with the Zambian population remain under strain, as concerns about the human and environmental costs of mining in the country rise.

In recent weeks, local residents and workers have expressed fierce opposition to Konkola Copper Mines’ plans to import and process high-arsenic copper concentrates, and scrutiny of the company’s environmental controls looks set to increase after The Observer revealed evidence of “constant contamination” at the miner’s operations in Chingola.

The miner is now facing legal action in UK courts, and, as the British paper noted over the weekend, the claimants expect that the case could take three years to resolve.

Glencore faced similarly high-profile scrutiny around the time of its initial public offering, following investigations into dangerous sulphur emissions levels at the Mopani Copper Mines smelter in Mufulira.

Responding to the backlash, Glencore fast-tracked a $200 million project to install gas handling equipment and a sulphuric acid plant to bring sulphur capture levels from about 50% to 95%.

But despite Glencore’s progress in improving MCM’s environmental and social record in recent years, the company is again facing scrutiny after an underground incident at Mopani on July 20 that led to the deaths of four MCM workers.

As Glencore states in its sustainability report, improving safety is the top priority “at every level of the group”, and in the days and weeks ahead, it will be solely focused on demonstrating that commitment.

In the context of the tragedy, the challenges posed by low copper prices and constrained power supply are trivial. Regrettably, miners in Zambia have more pressing issues to address.

Mark Burton
Editor, Copper Price Briefing
Twitter: @mburtonmb

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