COPPER MINING: WHAT THE FIGURES TELL US
IN 1964, the new nation of Zambia set out on an economic path, driven largely by a well-established mining industry, with copper as its major export. It got off to a good start, with the country’s economy comfortably competing with nations like Chile, which had similar abundant copper reserves.
However, the boom years for Zambia’s copper industry did not last long; the years following were filled with mixed fortunes, with sweeping economic reforms passing ownership of the mines, first from private hands through nationalisation in the early 1970s to public ownership, and then back into private hands through privatisation starting in 1997 into the new millennium.
Copper production fell drastically following nationalisation, with output falling from 750,000 metric tonnes (mt) to 200,000mt. This was largely attributed to poor management of the mining assets by the state conglomerate, the Zambia Consolidated Copper Mines (ZCCM), which also became the government’s cash cow to drive social development.
The plummeting real price of copper in the late 1970s only compounded the situation and dampened the country’s hopes of reaping immense benefits from its mineral wealth. Nearly six decades after independence, the country’s economy remains anchored on mining with copper still dominating the exports earnings.
There is no doubt the copper industry can turn the fortunes of the country around, neither is there doubt that the future of Zambia still depends, to a very large extent, on copper production.
In fact, the current economic challenges the country is facing, compounded by its debt burden, are largely due to its economic model which relies heavily on copper sales.
A reduction in copper production directly affects export earnings. Latest data shows that in 2023, production of the red metal hit a low of about 698,566mt. This ‘sneeze’ caused the economy to suffer from a flu it is yet to recover from. The dip in the country’s export earnings, had a ripple effect in the economy, directly affecting the exchange rate.
Given this scenario, it goes without saying that the country’s economic recovery, as well as its future, will largely depend on the production of copper, hence the push by Government to ramp up production to three million tonnes per year in the next eight years. There is a divided opinion on this subject, with many technocrats and those commenting purely from a political lens firmly dismissing this as a pipe dream and unachievable. Political arguments aside, there is justification in the arguments technocrats make, in that Zambia has lagged behind in mapping its territory to facilitate mineral exploration.
While successive governments since independence have all anchored the country’s economic development on Copper Mining, little attention has been paid to growth and sustainability of the industry. What was needed since 1964 is enhanced geological mapping which is a first step in assessing Zambia’s prospectivity. While mapping in itself does not discover new deposits, it must still be done. New high grade copper discoveries are likely to be deep (like Mingomba) or low grade. What this means is that the whole process, from discovery to Mine development is a difficulty one, time consuming and very expensive. Very few organisations have the skills, tenacity and cash to undertake such exploration.
It must be emphasized here that Zambia is not capable of doing this without attracting such expertise, skills and cash. This calls for fiscal and legislative stability. Governments are the last institutions which should undertake exploration, bearing in mind poorly managed exploration is one of the greatest destroyers of wealth devised by mankind.
That said, it is not too late.The country needs to cross the one million tonnes of copper per annum production mark. Fast tracking production at Konkola Copper Mines (KCM) and Mopani Copper Mine (MCM) is imperative and the drive by the current administration to raise national production means that everything must be done to crank up production at the two old giants of the Copperbelt. Accounting for production from every copper mine in this country is critical in order to get the correct production and a truer picture of taxes from copper mining.
So, what do the above figures tell us about mining in Zambia?
The production data tells us that the mining fortunes have been falling in the past few years. According to a report by PricewaterhouseCoopers (PWC) on mining, contribution by the sector as a percentage of Zambia’s GDP has broadly increased since 2010, rising from 11 percent in 2010 to 17 percent in 2021. However, this figure fell to 13 percent the following year, largely due to reduced production at the country’s major mines that were facing operational challenges and lower copper ore grades.w
But we must still consider the significance of the copper mining industry in terms of its contribution to the country’s coffers, and economic development, now and in the future.
Even with efforts by the New Dawn Government to push other sectors such as manufacturing, agriculture and tourism to the front row of our economic development, mining still remains the most significant contributor to government revenue through taxes and export earnings.
In 2022, tax payments from the mining sector as a whole rose by 11 percent, to K43.3 billion.
This is according to the recent independently audited report from the Zambia Extractive Industries Transparency Initiative (ZEITI).
FQM’s Kansanshi Mining subsidiary was the largest contributor, paying K15 billion in tax, while FQM Trident made contributions of K8.6 billion.
The report also states that revenue generated from the extractive sector totaled K44.4 billion, up from K38.98 billion recorded in 2021.
The top three copper producers in 2022 accounted for 67 percent of the country’s total copper production. These were Kansanshi, FQM Trident and Lumwana.
In the same year – 2022 - core mining taxes, which include mining company tax, mineral royalties and export duty on mineral concentrates, accounted for 25.3 percent of total tax revenue. This compares to 30.2 percent in 2021. Mineral royalties as a percentage of total taxes reduced from 15 percent in 2021 to 12 percent in 2022.
The drop in tax revenue from the mining sector was attributed to reduced copper production at certain mines, low grade ore, capital constraints, a fall in international copper prices, and the appreciation of the Kwacha against the US dollar for much of the year.
Mining companies have also been making significant contributions to revenue collected by local authorities in various districts where they operate. This is in the form of property rates and other business-related fees and licenses. In 2022, according to ZEITI, mining companies paid K326 million to 14 local authorities. Solwezi Municipal Council got the largest share of K64 million, a significant amount by any standards. The second highest payment of K63 million was made to Kalumbila Town Council, one of the newest districts in the country. This is double the amount of money (K30.8 million) allocated to the Constituency Development Fund (CDF), per constituency in the 2024 National Budget.
The significance of this is that local authorities get direct benefits of hostingthese investments. If well-utilised, these funds can better the lives of people living in these mineral-rich districts, and relieve of some burden of taking basic development to these areas from Government.
That it is still key in the development of our country, and that if well-harnessed, this industry can transform our nation and change the fortunes of our children, and children’s children.
That we must ensure that we play the cards right, with policies and legislation that favour a win-win situation for investors and citizens at large.
Looking ahead, we must hold our breath at what the prospects the development of the resource at Mingomba, which had been known for decades to exist, but for its depth, was always sidelined in favour of technically easier projects will mean for our country. We understand that KoBold Metals plans to invest US$2 billion in the underground copper mine within the next decade. Although the benefits from these investments are long term, it still gives hope that copper production levels will gradually recover.
What is gratifying is that there is likely going to be sustained demand of the red metal with the advent of the electric car and a push for decarbonisation by many countries around the globe, coupled with high prices for the commodity.
Although not obvious at present, the copper mining industry is experiencing a renaissance with expansions underway at Kansanshi, Lumwana and Chambishi for example, and still offers good prospects for economies like Zambia. While the focus is on the (visible) large producers, we must not neglect the production that leaves Zambia unaccounted for. This hurts the economy as there is no money collected into the treasury. This should be a concern of every Zambian. There is no chargeable tax which is too small to pay.
According to latest data from the Zambia Statistics Agency (ZamStats), export earnings from refined January increased by 2.2 percent, to K14.2 billion, up from K13.9 billion in December 2023. This is despite export volumes under the same period decreasing by 4.1 percent, to 65,500mt, down from 68,400mt.