The African Review: 20th October 2021

20th October 2021

 

 

Today, let’s have a look at Zambia.  There has been good news for miners with their eye on the country’s natural resources, particularly copper and cobalt, since the August election of Hakainde Hichilema, who defeated incumbent Edgar Lungu with a smidge over 59% of the national vote.  Lungu had had an adversarial relationship with the mining industry, to say the least, after he assumed office in 2015 as the result of a by-election triggered by the previous President’s death.

New President Hichilema
New President Hichilema

Miners strongly resented policies like Lungu’s December 2020 announcement that the state would seek majority stakes in Zambia’s largest mines to gain “leverage” over the proceeds, which came in response to a sovereign default in November last year.  This resulted in the country taking on $1.5 billion in additional debt to buy the unprofitable Mopani Copper Mines from Glencore, for which there is yet no new investor.  There are also issues like the protracted dispute between the government and Vedanta Resources over Konkola Copper Mines licenses in the Copperbelt province, which saw the administration hand control of the licenses to a liquidator in 2019 and an ensuing court battle that is still ongoing.  Zambia’s recent default happened on a coupon payment on dollar bonds and was triggered by the COVID-19 pandemic rattling mining revenues, the largest source of foreign currency in the country, but the bigger issue was Zambia’s debt, which represents around 140% of its GDP.  Zambia’s government entered talks with the IMF after the default to restructure the debt and hash out fiscal reforms, but creditors including China and Eurobonds issuers have reportedly been at each other’s throats.

The previous administration denied rumours of the shuttering of Konkola earlier this year
The previous administration denied rumours of the shuttering of Konkola earlier this year

So what has changed since the elections?  Well, firstly, it must be acknowledged that any fresh face at the helm in Zambia will be a relief for the mining industry that has felt beleaguered by the Lungu administration for years.  But the specific face of long-time opposition leader and now President Hichilema is a particularly welcome one for the sector.  He appointed Paul Kabuswe as Mines Minister in September, and Kabuswe has got right on the job.  He immediately sought to allay fears of royalty hikes, and promised to work hard to root out corruption in the industry.  He seems realistic, acknowledging that the situation would not be entirely rectified before the next budget, but assured the industry he would restore “sanity” before the next elections in 2026.  He explicitly told a press briefing that policies would be constructed to please investors and bring stability to the economy, and earlier this month he announced that the government was consulting with stakeholders to review mining tax policies with the goals of introducing a framework that was “stable, predictable and competitive.”

The mine head at one of Mopani's mines
The mine head at one of Mopani's mines

But as mining investors know, words are cheap.  However, there was a very concrete sign that things are looking up for Zambian mining when it was reported in August that investors were ready with up to $2 billion for expansion projects once an royalty agreement with the new administration had been reached. Companies want to be able to deduct mineral royalties from profit taxes, and for a sliding-scale pay-as-you-earn tax system to be implemented in place of the current mess.  President Hichilema seems motivated to reach a deal, assuring Zambians in August that he wants a system that will enable mines to grow and pay their fair share of taxes for the benefit of the population.

Mining is the powerhouse of the Zambian economy, with the government keeping the loss-making and under-invested Mopani operations running largely because of the jobs it creates in the cash-starved economy.  There is real potential in resources there; in 2010 Zambia mined almost twice as much copper as the current largest African producer, neighbouring DR Congo, but has lagged behind since then due in significant part from a lack of confidence from investors.  But, if all goes to plan, things should turn around for Zambia soon.  Copper is a hot commodity right now, with many mines in more established jurisdictions reaching peak production and demand soaring thanks to green energy investment.  Zambia’s other major resource, cobalt, is also crucial for the exploding battery market.  And there are plenty of signs that investors are turning to less-established producers to feed their hunger for metals.  The Chillerton Group is looking to Zambia for copper, and the appetite of major miners for investment in riskier African jurisdictions is growing.  But with a new administration that seems determined to foster the industry in Zambia, perhaps that appetite for risk won’t be needed for too long, and Zambia’s bountiful resources can finally benefit its citizens and the global markets as they should.

Around the Traps

Another African jurisdiction looking to deal with debt problems is Chad.  It reached a deal with the IMF to restructure state debt in January, but that agreement depends on the nation reaching comparable terms with private and bilateral creditors.  Glencore holds over 98% of Chad’s private debt, most of which comes from oil-for-cash exchanges when the country was cut off from international credit markets.  Glencore and a consortium of banks opened talks with the government last week.

Chad says negotiations with Glencore have started in good faith
Chad says negotiations with Glencore have started in good faith

Catoca diamond mine in Angola has pushed back against claims that a July tailings leak killed 12 people downstream in the DR Congo, saying that the leak did not contain toxic metals but only sand and clay.  Either way, the spill caused mass fish die-offs and affected the ability of an estimated 950,000 people to fish and drink from the Tshikapa river, leading the UN to issue warnings about an increase in acute child malnutrition in the area.

Still on diamonds, the recent flood of super-large stones continues, with Gem Diamonds (LSE:GEMD) announcing that it had recovered one 245-carat and one 102-carat stone from its Letšeng mine in Lesotho in the same day.  Both are high quality, Type II diamonds.  Lovely!

The 245 carat stone from Lesotho
The 245 carat stone from Lesotho

That’s all for this African Review, I’ll be in touch on Friday with Spotlight’s weekly Round-Up!

 

Jane Lockwood

View posts by Jane Lockwood
Jane Lockwood is an Australian geoscientist living and working in Germany. She holds a Master's of Earth Science (Advanced) from the Australian National University and has spent several years reporting on the junior mining industry for Spotlight Mining, as well as conducting social media management for junior mining companies.