SG:Zambia copper growth likely to ride out power costs
The Globe and Mail reported that a recent sharp increase in power costs for Zambian miners will dent their profitability but not stop them developing the projects needed to feed the world’s voracious appetite for copper.
Zambia, Africa’s top copper producer has huge potential with its vast high grade reserves of the metal used in power and construction. Its output is already expected to more than double to around 2.0 million tonnes by 2015.
Analysts said that more electricity tariff rises were also likely to help fund new power plants and investments in distribution infrastructure and would not discourage miners as copper supply deficits were expected to keep prices high for years to come.
Ms Eleni Joannides a copper analyst at industry consultants CRU Group said that “Profitability will suffer and higher-cost producers may reassess what they’re going to do with some of their older technology. But with copper prices above USD 8,000 per tonne they still have a sufficient cushion and with the market likely to remain tight at least until 2015 there’s support in the system for prices not to fall.
Benchmark copper reached record highs above USD 10,000 per tonne in mid February, propelled by persistent predictions of a long term lack of mines due to a combination of project delays, natural disasters and technical problems. Despite a retreat, prices at just below USD 9,000 per tonne are still high historically and outgoings for even the highest cost producers are estimated at less than half that level.
Another analyst said that thirty per cent is a swingeing increase but with copper prices as high as they are, I would have thought they could live with that. But it does mean that you would begin to see cutbacks there sooner when the price falls. That day may be some way off with tight supplies expected to continue to underpin prices for several years yet.
Miners likely would have been aware of the prospect of rising electricity prices before embarking on projects. If the country did not invest in new power plants to feed their rapidly growing needs, miners would have to build their own. That would probably prove more costly.
Mr Ernest Mupwaya MD of state owned Zesco Limited said that we are on a path to systematically increase tariffs to cost-reflective levels and as such further increases in the cost of electricity should be expected. This was echoed by Mr Neil Croucher MD for operations at Copperbelt Energy Company the main supplier of power to Zambia’s mines.
He said that the mining companies should be able to absorb this cost. It is a necessary cost and there couldn’t be a better time than now when the price of copper is at an all time high to increase the cost of electricity for the mines.
