Grim times loom
Mining-based economy struggles as copper price hits six-year low and currency falls
he falling copper price is starting to take a heavy toll in Zambia. Several mining companies are saying they will have to lay off workers and close some mines to remain viable.
The cost of such actions will be dire, as copper makes up more than 70% of Zambia’s total exports. Copper prices hit a sixyear low in August and again in September, sliding below US$5 000/t.
Declining income from copper exports has meant reduced inflow of foreign exchange, which has caused the kwacha to depreciate by 46% in 2015. On September 28, the kwacha fell more than 17% — its biggest one-day fall so far.
More than 200 000 Zambians are mineworkers, most of them employed by the big four companies: Konkola Copper Mines, owned by Vedanta Resources; Mopani Copper Mines, owned by Glencore; Lumwana Copper Mines, owned by Barrick Gold Corp; and Kansanshi Copper Mines, owned by First Quantum Minerals.
The price is not high enough to keep some mines profitable. Glencore is suspending production at the Mopani mines for 18 months as part of its debt reduction plan.
Mopani plans to lay off 3 800 people. It is one of Zambia’s biggest copper producers, with output of more than 200 000 t/year, and employs more than 20 000 Zambians (making it the biggest employer after government).
The falling copper price is not the only issue hurting the sector. Zambia also faces a 560 MW power deficit.
Zesco, Zambia’s power company, is implementing load-shedding to conserve water in its hydroelectric dams and to avoid a shutdown of the generating plants.
Zesco’s biggest customer, Copperbelt Energy Corp, which buys power in bulk and
Tsupplies it to the mines, plans to cut supply by 30%. As a result, some mining companies are closing their operations. China NonFerrous Metal Mining (CNMC) Luanshya has put its Baluba Copper Mines on care and maintenance, citing the reduction in power supply. More than 1 600 workers have been sent home, a decision government wants rescinded.
“Some of the reasons being advanced by mining companies are not genuine,” says government spokesman Chishimba Kambwili. “For example, government has spoken to Copperbelt Energy to give CNMC Luanshya Copper Mines back the 30% that they wanted to cut from them, and so there is no reason to continue to have the 1 600 workers on recess.”
Kambwili insists that the continued closure of the Baluba mine is illegal as the company did not get written consent from the director of mines, the only government official who can allow or disallow putting a mine under care and maintenance.
“If they don’t follow procedure, we shall invoke the provisions of the law and suspend their operations,” says Kambwili.
Government, however, has also been keen to allay some concerns over the impact of the low copper price. To assure investors of his commitment to maintaining a liberalised foreign exchange market, President Edgar Lungu urged the business community not to panic, as government “does not intend to revert to foreign exchange controls to shore up the currency and as a measure to cure the speculative distortions”.
Government is also talking to mining CEOs to “find win-win situations”. Meetings such as these were helpful in keeping companies operational amid threats of closures early this year, when Zambia raised royalty taxes from 6% to 8% and 20%, for underground and open-pit mining respectively.
These new taxes were strongly resisted by mining companies, which said they would discourage investments in capital projects and would result in the loss of 12 000 jobs. Government held meetings with mining companies, which resulted in the reduction of taxes and preservation of jobs.
Even so, there are fears in Luanshya, the town in which the Baluba mine is situated. It went through a similar experience in 2008 during the global financial crisis, practically becoming a ghost town when the then owners put the mine under care and maintenance. Kambwili says people survived by eating wild fruits and sweet potatoes. “We cannot allow that situation to happen in Zambia [again],” he says.