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Zambian mining industry set for steady growth between 2018 and 2026

By Oscar Nkala

The Zambian mining industry is expected to expand steadily between 2018 and 2026 due to enabling factors that include rising prices of key minerals and a favourable regulatory environment.

In its latest analysis of growth prospects for the Zambian mining industry, Business Monitor International (BMI) said the enabling environment will drive mining activity and investment, leading to the possible revival of previously mothballed projects.

However, there are concerns that the steady growth trajectory may be hobbled by the shortage of electricity.

“However, the ongoing problem of power shortages will continue to hinder growth opportunities moving forward,” BMI said. The group noted that increased thermal power production from Maamba Collieries Limited (MCL) would help reduce the negative impacts of shortages in the interim, as Zambia expands thermal power production.

Although labour unrest remains an issue following the January 2017 strikes and mass demonstrations at the Chinese-owned Luanshya and Konkola copper mines, it does not threaten to the stability or growth of the Zambian mining industry.

Crackdown on the mining sector

BMI noted efforts by the Zambian government to clamp down on tax evasion and illicit financial flows, allegedly involving some mining companies.

“In January 2017, the Zambia Revenue Authority (ZRA) announced it would begin undertaking forensic audits to establish whether large mining companies have been complying with the latest tax legislation introduced by the authority.

“Analysis by the Financial Intelligence Centre identified that the ZRA was losing US$3 billion each year through illicit financial flows, the majority of which were being perpetrated in the minerals and mining sub-sector through tax evasion and other forms of malpractice,” BMI noted.

However, the credibility of Zambia’s crackdown may have been dented in July 2017 when President Edgar Lungu directly influenced a state-owned company (ZZCM Investment Holdings) to drop, without going to court, a fraud case against (First Quantam Minerals) an international mining conglomerate that has vast interests in the country.

The ZRA crackdown is ongoing and presently, the authority is investigating First Quantum Minerals (FQM) on allegations of tax fraud involving US$8.4 billion in unpaid taxes for goods allegedly imported under the classification of mining machinery, which attracts no duty.

In a statement issued on March 20, 2018, FQM President G. Clive Newall said the company “unequivocally refutes” the allegations raised by the Zambia Revenue Authority.

“The company confirms that it is in possession of a letter from the ZRA, dated March 19, 2018, noting an assessment for import duties, penalties and an interest on consumables and spares parts of K76.5 billion (Zambian Kwacha).

“The company unequivocally refutes this assessment, which does not appear to have any discernible basis of calculation, and will continue working with the ZRA, as it normally does, to resolve the issue,” Newall said.

Driving growth

According to BMI, there are copper and coal projects among those expected to enter the productive stage in the period between 2018 and 2026.

In March 2017, Vedanta Resources announced that it will invest USD1bn in Konkola Copper Mines, in which it holds a majority stake. We expect growth in Zambia’s copper output to resume in 2017 following three consecutive years of contraction as a number of previously side-lined mining projects come back into operation.

“We forecast total output to grow by 7% in 2017 to 792 thousand tonnes (kt), which will be driven largely by base effects and improving prices. The pace of growth will slow somewhat in the coming years, reaching 1.1mnt in 2026. Growth in output will track a tentative recovery in global copper prices. We forecast copper prices to increase to US$7,000/tonne by 2021,” BMI said.

In the same period, thermal coal is expected to rise and become a vital as a source of power supply in Zambia moves to deal with the national power crisis. Thermal power demand is expected to drive a steady rise in coal production, with new projects and mine expansions between 2018 and 2026.

Enforcing the regulations

Zambia’s push to reap more from the mining sector has led to a tightening of the regulatory environment, with an eye on plugging mineral revenue leakages, since the beginning of the year.

Early in March, the Ministry of Mines and Minerals Development ordered all companies that do not hold valid Zambian mining licences, mineral processing and trading permits to cease operations with effect from March 15, 2018.

The Zambian government has also announced that it will repossess over 2 500 mining claims which have not been developed. The claims will be re-allocated to deserving local and foreign investors.

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