• Power shortages may also threaten production at mines
  • Zambia's copper production rose marginally last year

Copper output in Zambia, Africa’s second-biggest producer, will probably stay at the same level or shrink this year because of weaker metal prices and a power crisis, according to CRU Group.

Even First Quantum Minerals Ltd.’s new mine won’t help boost the country’s production beyond last year’s 711,515 metric tons, Piotr Ortonowski, an analyst at the consultancy, said by phone from London on Thursday. A ramp up to full production at First Quantum’s Sentinel mine since it opened in February last year has been affected by reduced electricity supplies. If copper prices drop further, it could be one of the operations that cuts output, he said.

“The big unknown is Sentinel,” he said. “Power problems will more than likely prevail into 2016. It’s very difficult to quantify the production impact.”

Copper prices have slumped to six-year-lows, adding to difficulties for miners including Barrick Gold Corp., Glencore Plc and Vedanta Resources Plc as the southern African nation faces its worst power crisis from plunging water levels at hydro-electric dams amid a drought.

Tax Changes

Copper producers have also had to deal with changes to the tax system. Zambia increased mining royalties to much as 20 percent in replacement of a profit tax, before reversing the decision after miners threatened to idle operations.

Already Glencore and Vedanta have cut output, and more operations could follow suit this year, according to the Zambia Chamber of Mines, an industry lobby group. Copper output barely rose last year, increasing by 0.5 percent, buoyed by the start of production at Sentinel.

“The situation is dire,” Nathan Chishimba, president of the chamber, said by phone on Thursday. “If the copper price sinks any lower than it is, and we get buffeted by the power shortage and we don’t get any movement on what we see as a challenging tax regime,” more operations may halt output.

First Quantum forecast as much as 40,000 tons of copper from Sentinel last year, well below its 300,000-ton a year capacity. Power constraints have curbed output and the company said Jan. 26 that it’s receiving enough electricity to run the operation normally at "periods."

Further Cutbacks

Low copper prices could have a significant impact on Zambia because its older mines have high-cost production. “There is a lot of scope for prices to fall further,” below CRU’s forecast of London cash prices averaging $4,603 a ton this year, Ortonowski said.

Should copper drop below $4,000 a ton, it may prompt further cutbacks at operations including Barrick Gold’s Lumwana mine, Vedanta’s Konkola Copper Mines, Jinchuan’s Chibuluma and Sentinel, he said.

Copper for delivery in three months dropped 1.3 percent to settle at $4,530 a ton on the London Metal Exchange on Thursday.

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