Cablegate: Zambian Copper Belt Blooms, but Challenges Remain

DE RUEHLS #0744/01 2000603
R 180603Z JUL 08




E.O. 12958: N/A


LUSAKA 00000744 001.2 OF 006

1. (U) This cable represents the fourth in a series of reports
stemming from an innovative resource-reporting and commercial
advocacy collaboration between Embassies Pretoria, Kinshasa, and
Lusaka (reftels A and C and septel pending from Kinshasa). This
cable summarizes mines visited in Zambia.

2. (SBU) SUMMARY: Copper and cobalt supply shortage and price
escalation have provided the incentive for international mining
companies to invest in new exploration and mega-projects in the
Central African Copperbelt. The Copperbelt straddles the DRC/Zambia
border and represents the world's second greatest source of copper,
after Chile. Investment has flowed into the region, despite
significant lack of skills and infrastructure, and an increasingly
uncertain power supply. In Zambia, recent tax legislation and
changes to existing development agreements between mines and the
Zambian government have introduced uncertainties for investors,
which could have major negative implications for new investment.
Nevertheless, companies intend to continue with short-term and major
commitments because of the huge costs already incurred and long-term
confidence in the geology.

3. (SBU) Earlier interpretations of the geology of the
"traditional" Copperbelt envisaged a simple sedimentary-hosted
copper deposit. More recent work has shown that the geology and
mineral associations are much more complex, particularly in newer
remote mines, and that mineralization differs from mine to mine.
Much research is being concentrated on the remoter areas of the
Lufilian Arc, which has opened up a whole new vista of exploration
targets. The industry target for copper production in Zambia in
2009 is 750,000 tons, which will raise it to levels last achieved in
the 1960s and 1970s when the Zambian Copperbelt consistently
produced more than 700,000 tons of copper per year. End Summary.

Mine Visits

4. (SBU) The collective Embassies' mining team visited the
following mines and facilities in Zambia:

-- Kansanshi open pit copper/gold mine owned by First
Quantum Minerals Limited (FQ) of Australia/Canada (80 percent) and
parastatal ZCCM (20 percent); capex $360 Million;
-- Lumwana open pit copper/uranium project owned by
Equinox Minerals of Australia (94.45 percent) and ZCCM (5.55
percent); capex $784 million;
-- Bwana Mkubwe metallurgical plant processing oxide ore from
Lonshi mine in the DRC and owned by First Quantum (100 percent);
capex $55 million; and
-- Chibuluma underground copper/cobalt mine owned by
Metorex of South Africa (85 percent) and ZCCM (15 percent); capex
$97 million.

5. (SBU) The mining team also drove by the Chinese Chambesi, Indian
Vedanta Konkola, and Swiss Glencore/J&W Investments Mopani mines,
where the team's formal requests for visits were not answered. The
tour was greatly facilitated by First Quantum Minerals Limited (FQ)
DRC Country Manager Jeffery Ovian who arranged the FQ mine visits,
air and road transport, and accommodation at the company's guest
house in Ndola, Zambia.

Kansanshi Copper/Gold Mine

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6. (SBU) Zambia's Kansanshi mine, located off the conventional
Copperbelt, has ramped up copper production to become Zambia's
largest producer, but it will be eclipsed by the more remote
Lumwana mine under development (Ref B). FQ generously facilitated
transfer of the embassy team from the DRC to Kansanshi, which is
located in Zambia's northwestern province 10 kilometers north of the
town of Solwezi. Mine Manager Russell Alley and his geologist
hosted the tour of the mine facilities on May 15. Kansanshi was
first mined in the fourth century AD and has been intermittently
mined since. FQ bought the mining rights from Cyprus Amax Minerals
in 2001 and began commercial production in April 2005. Kansanshi
has a 25-year mining license and an estimated 30-year mine life.

7. (SBU) The Kansanshi deposit lies within the core of Lufilian
Arc, but does not represent "conventional" Copperbelt geology or
mineralogy. Mineralization is complex and occurs in the upper zone
of the Copperbelt sequence, containing copper and gold, but no
cobalt. Oxide ore occurs as a cap on and replaces sulfide ore in
and below the sulfide zone where structural movements exposed ore to
oxygen and water. The sulfide ore occurs both in and between
steeply dipping, quartz-carbonate veins and vein swarms, and along
bedding planes within the rocks of the mine formation. The ore body
is shaped like a Christmas tree in section. Kansanshi's total ore
reserve and resource estimate is 433 million tons (50 million tons
of oxide cap), grading 1.16 percent copper (11 billion pounds) and
0.16 grams of gold per ton (2.2 million ounces). During phase one,
or the first eleven years of the project, the grade will be higher
at 1.74 percent copper and 0.27 grams of gold per ton. During phase
two, the total ore reserve is expected to decrease to a mineable
resource of 197 million tons grading 1.16 percent copper and 0.12
grams of gold per ton.

8. (SBU) Ore is produced from two shallow pits using conventional
truck and excavator methods to produce oxide, sulfide and mixed ore
streams. Plant capacity is 6 million tons of oxide ore and 8
million tons of sulfide ore per year, with overall recoveries of 80
percent. A third sulfide circuit is being built that will increase
throughput to 12 million tons per year. Sulfide ore is treated in a
conventional crushing-milling-floatation circuit to produce copper
concentrate that is trucked to existing smelters on the Copperbelt.
The oxide ore is treated in a conventional acid-leach/solvent
extraction/electro-winning (SX/EW) circuit to produce pure 99.95
percent cathode copper. Monthly output before expansion was 6,300
tons of copper in concentrate and 6,000 tons of cathode copper.
Current monthly output is estimated at 6,250 tons of concentrate and
8,750 tons of cathodes. Some 105,000 tons per year of cathodes are
exported via South Africa (80 percent) and Tanzania (20 percent) and
this will increase to 140,000 tons when expansion is complete.
Total copper output and future production estimates are:

Year 2005 2006 2007 2008 2009+
Copper (tons) 70,000 127,000 164,000 181,000 220,000

9. (SBU) A proportion of Kansanshi concentrate is being treated in
a pressure oxidation process known as High Pressure Leach (HPL) that
converts sulfide ore into an acid-leachable product amenable to the
SX/EW process. This route eliminates the need for a smelter and
allows for on-site production of a high-grade copper cathode. It
also generates much of the sulfuric acid required for oxide
leaching, currently at 400 tons per year, which will increase to 850
tons once expansions are completed this year. However, valuable
by-products are lost in the HPL process and there could be an
increase in energy consumption. The economics of the HPL process
are being evaluated. The mine currently needs 80 megawatts of
electricity (15 megawatts for the SX/EW plant) but is restricted to
75 megawatts due to power shortages. It has 20 megawatts of its own
diesel capacity.

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Lumwana Copper/Uranium Mine Project

10. (SBU) The mining team visited the ambitious Lumwana Mine
project in northwest Zambia on May 19 (Ref A). Lumwana is owned (94
percent) and operated by Equinox Minerals of Australia. Managing
Director Harry Michael hosted the team and took great pride in
showing off his $165-million mining fleet of gigantic trucks,
excavators and shovels. Most of the facilities visited have still
to be completed, but the team was shown the $408 million processing
plant that will contain the largest grinding mills in the world, the
new village to house 1,200 employees, the school for 2,000 children,
and the shopping center that will normalize family life. The
remoteness of the mine requires that Lumwana town provide most
amenities in order to attract qualified people and families.

11. (SBU) Lumwana is noteworthy because of its very large -- but
low grade -- copper resources, its high uranium content, and its
lack of cobalt. The deposit lies in the middle of the Lufilian Arc
some 220 kilometers west of Chingola and 80 kilometers west of
Kansanshi mine. Two deposits are being developed for open pit
mining and will use conventional open pit methods. Uranium occurs
as younger, discrete deposits associated with copper.
Three-quarters of the uranium occurs within the planned pit limits
and will be selectively mined and stockpiled until a uranium plant
is completed in mid-2010. The deposits copper/uranium association
is fairly unique and comparable with Shinkolobwe in the DRC and
Olympic Dam in Australia. The mine is currently in the final stages
of development and September should see the first output of copper
concentrate. Reserves and resources are:

Million Grade percent
Copper Reserves (at $1.20/lb) 321 0.73
U3O8 In-pit Resources (at $11/lb) 7.2 0.083
Associated Copper 7.2 1.04
Total U3O8 Resources 9.5 0.093

12. (SBU) Lumwana will be the biggest surface operation and
copper-producer in Africa when in full production next year (but
will be over-taken eventually by Tenke Fungurume Mine in the DRC).
Lumwana will also be the twentieth-largest copper producer in the
world, and will add 35 percent to Zambia's copper output. The mine
will deliver 169,000 tons of copper in concentrate per year for the
first six years. The pits also contain a limited quantity of oxide
ore that is being stockpiled for future processing. The total
estimated capital cost of the project is about $780 million, which
is the largest investment ever made in Zambia. Mine life is
estimated to be 37 years, but known mineralization is extensive and
production could continue far beyond that time. (Note: Because of
the low grades and lack of cobalt in the ore, there has been no
artisanal mining in the area. End Note.)

13. (SBU) All mining equipment is on site including twenty-seven
240-ton Hitachi/Euclid trucks, each costing $4 million and requiring
2 megawatts of power, and seven Hitachi shovel/excavators, each
capable of moving 700 tons per hour. Trucks are powered by
diesel-electric motors, which allow for driving in the pit on diesel
and connecting to overhead electric trolley cables (trolley assist)
when hauling ore out of the pit. Ore from the pit will be hauled to
a primary crusher at the top of the ramp and subsequently conveyed
4.5-kilometer to the milling circuit.

14. (SBU) Lumwana's process plant employs a conventional floatation
circuit and should have been commissioned at the end of June, with
first concentrate (30-40 percent copper) production taking place in
September 2008. Unfortunately, fire damage to an electricity

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on June 7 has delayed commissioning to an undetermined date. Some
forty trucks per day will carry 1,200-1,400 tons of concentrate to
two smelters on the Copper belt, on five-year off-take contracts.
The plant boasts a number of superlatives, namely the world's
biggest semi-autonomous grinding mill (SAG mill) and a similarly
rated ball mill. Both are driven by concentric gearless electric
motors (similar to an electric generator), which draw 18 and 16
megawatts of power, respectively. Each drive unit weighs in at more
than 300 tons and the fully loaded SAG mill weighs 6,000 tons and
rests on a base comprising 60,000 tons of concrete.

Bwana Mkubwa Oxide Copper Processing Plant

14. (SBU) The embassies mining team visited the Bwana Mkubwa (BM)
copper oxide processing plant on May 16. BM is located on the
eastern edge of the "traditional" Copperbelt on the Zambian side of
the border. The plant was the first major investment on the Copper
belt following privatization of the mines in 1997 and is 100 percent
owned by FQ. BM is a conventional oxide leach/solvent
extraction/electro-winning (SX/EW) facility and was built in 1998 to
process tailings from the old BM mine. The plant has produced
cathode copper and sulfuric acid since 1998 for FQ company use and
for sale in the region.

15. (SBU) FQ conducted exploration in the area to secure additional
feed for the BM plant and discovered the Lonshi high-grade (8-10
percent copper) oxide deposit in the DRC, some 35 kilometers east of
the plant across the border. The plant expanded its SX/EW capacity
in 2002 to take an increased blended feed of Lonshi ore and BM mine
tailings. BM produced 51,000 tons of cathode copper (99.95 percent
fine) from 520,000 tons of ore grading 10.3 percent copper and 18.8
million tons of tailings in 2006, at a total cost of $1.04 per
pound. Production of copper cathodes was down nearly 50 percent to
25,400 tons in 2007, due to closure of the border to ore exports by
DRC authorities who want ore beneficiated locally. Border closures
and pending cessation of production at Lonshi are expected to
further reduce BM output to only 12,000 tons in 2008. Thereafter,
FQ will need to find other sources of oxide copper ore, convert the
plant to process sulfide ores, or close the plant. BM had only one
working SX/EW circuit at the time of the visit. Total cathode
copper production is:

Year 2003 2004 2005 2006 2007 2008(est)
Copper(tons) 38,000 43,000 41,000 51,000 25,400 12,000

--------------------------------------------- ---
Chibuluma (South) Underground Copper/Cobalt Mine
--------------------------------------------- ---

16. (SBU) The embassies mining team visited South African Metorex's
Chibuluma (West) Mine on the Copperbelt on May 20. General Manager
Ed Mounsey met and introduced the team to Mine Manager Jan Trouw who
organized the mine and plant visit. Chibuluma South was discovered
in 1969, nationalized by the GRZ in 1982, and was the first mine to
be privatized in October 1997 when a Metorex consortium bought an 85
percent share from ZCCM, the government-owned mining company. It
was also the first new underground mine to open on the Zambian
Copperbelt in 30 years. The mine hosts a more conventional
Copperbelt-type, high-grade primary sulfide orebody. It ranges in
thickness from 10 to 40 meters, with an average 15 meters, has a
strike length of 400 meters, and extends to a known depth of 600
meters. Ore reserves consist of 7-8 million tons grading 3.6
percent copper and 0.3 percent cobalt, with a production life that
extends to about 2016. It also contains a small percentage of oxide
in the upper levels that is stockpiled for later processing.

17. (SBU) the mine's primary ore is thought to be sedimentary in

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origin with later quartz vein enrichment. Access to the mine is via
a decline spiral ramp from the surface that allows motorized
vehicles, equipment and personnel to drive into and out of the mine.
Some 40,000 to 50,000 tons of ore is mined and processed per month.
Chibuluma employs a fairly conventional cut-and-fill mining method,
with rib and buttress pillars to support the hanging roof, stabilize
the mine, and prevent dilution from upper levels and the worked-out
open pit. Mining voids are filled using prepared tailings from the
process plant, which are then pumped into cleaned open stopes. It
may be possible in the future to recover high-grade ore contain in
the supporting pillars.

18. (SBU) The Chibuluma South metallurgical plant was designed as a
conventional, three-stage crushing, milling and flotation process
with separate circuits for oxide and sulfide ores. When oxide ore
was mined in the open pit, a mix of copper and cobalt was recovered
and the oxide ore was "sulfurized" to render it amenable to
floatation and concentration. Cobalt-hydrate concentrate was also
produced and sent to Metorex's Sable refinery, north of Lusaka.
Current processing of deeper sulfide ore produces a 40 percent
copper concentrate that is sent to the Chingola smelter for casting
into copper anodes containing 99.5 percent copper. The oxide
treatment plant is currently idle but is maintained for future
processing of 60,000 tons of stockpiled ore grading 2.5 percent
copper, oxide ore to be mined at Memorex's Chifupu development, and
stockpiles at other mines without the requisite processing
facilities. Total ore, concentrate and copper production is:

Production: 2005 2006 2007 2008(est)
Ore(est. tons/mo) 14,000 25,000 45,000 48,000
Conc(tons/mo) 850 1,500 2,900 3,100
Copper in Conc(tons/yr) 4,400 7,700 15,400 15,000

Social Commitments - a License to Mine

19. (SBU) All mines on the Copperbelt, and especially in the remote
areas, are committed to programs of social development and
upliftment on the mines and in the surrounding communities. This
has become a worldwide requirement as most mines are in poor and
underdeveloped rural areas. The mines would lose their "social
license to mine" and encounter labor and community unrest without
such programs. All mines visited have programs in place, generally
tailored to the particular needs of the local communities.
Provisions include mine housing, medical care, educational, power,
water, road and rail, social infrastructure, nutrition schemes,
recreational facilities, subsidizing salaries for teachers and
medical staff, and subsidizing small business projects by providing
the facilities, materials and markets for products such as
brick-making, vegetables-growing, Jatropha-growing for bio-fuels,
and briquette-making using Jatropha residues. A major feature of
the social programs is the great effort being put into training
locals, who in most instances have limited exposure to the
techno-industrial world. Companies have committed to training and
hiring locals to fill most of their mining positions.

Challenges Facing Copper Mines

20. (SBU) The mining industry faces numerous challenges in Zambia,
but industry appears to have considered the risk surmountable
because of the size, abundance and quality of the copper/cobalt
resource-base and the international price of these commodities.
Unfortunately, the investor-friendly image projected by Zambia since
privatization in 1997 has been tarnished by the GRZ's recent
unilateral implementation of its new tax regime and mining code.
Industry leaders liken this to "nationalization by taxation" in that

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they calculate that the government take is likely to far exceed
returns to investors. They also complain that industry no longer
has any say or input into government policy-making. This has
resulted in a wait-and-see investment slow-down. Anecdotally, a
number of projects have been put on watch and exploration has been
put on hold pending the eventual outcome of government-industry

21. (SBU) The remoteness of some mines and their potential long
life have necessitated that management take a long-term view of the
need for skills, social amenities, infrastructure and utilities. As
a result, Kansanshi has built housing and Lumwana is building a new
town with recreation and shopping facilities, housing, schooling,
and extensive training opportunities for local employees, most of
whom have no mining or industrial experience. The key challenges
include: lack of skills and training requirements; overcoming
cultural differences and tribal xenophobia; obtaining permits to
import specialist skills; remoteness of mines and the lack of
adequate, reliable infrastructure; cost of operations; delays in
obtaining operating licenses and permits; government expectations
beyond mine social development; DRC/Zambia cross-border
restrictions; lack of smelting capacity in the Copperbelt; and
supply logistics, and infrastructure to attract skilled workers.


22. (SBU) Mines are the most significant development nodes in
Zambia and the increase in mining activity since privatization is
evident in the relatively better quality of life in mining towns.
Road, rail, smelter and power infrastructure and skills availability
are generally inadequate, but the mines cope by investing themselves
in new facilities, undertaking maintenance and repair, building
social capacity, and supporting massive skills training programs. A
new Chinese smelter is also being built at Chambesi on the Copper
belt and, together with expansions to three others, Zambia will have
a total annual smelting capacity of nearly 300,000 tons of blister
and anode copper by about 2009 (almost half of Zambia's estimated
copper concentrate production).

23. (SBU) The recent upsurge in apparent Zambian "resource
nationalism" has led to what appears to be a poorly thought-out and,
according to operators, overly onerous fiscal regime and mining
code. This has introduced a higher level of uncertainty and risk,
which could slow private investment. Companies take a longer-term
view of this as a cyclical phenomena resulting from high commodity
demand and prices. Mining companies are likely to continue to
invest in exploration and development of new mines in Zambia, as
long as the ample geological potential favors long-term good
returns, and short of outright nationalism.


© Scoop Media

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