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The Republic of Zambia (plus 12 million people) is a landlocked country in Southern Africa covering 752, 600 square km of the central African plateau from the River Zambezi in the south-west to the tip of Lake Tanganyika in the north-east. The neighboring countries are the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana, and Namibia to the south, and Angola to the west. The capital city is Lusaka, located in the south-central part of the country.
Zambia was occupied by the British as a protectorate of Northern Rhodesia towards the end of the nineteenth century.
On 24 October 1964 the protectorate gained independence with the new name of Zambia (named after the Zambezi river which flows through the country). Zambia was governed by the socialist United National Independence Party from 1964 until 1991.
Zambia's industrial base, the Copper belt (the Zambian Copper belt accounts for approximately 46 percent of the production and reserves of the Central African Copper belt, the largest and highest grade sediment-hosted stratiform copper province known on Earth), is centered around the towns of Ndola, Kitwe, Chingola, Luanshya and Mufulira - a string of towns on Zambia’s northern border with Congo.
Map from geographicguide.com
During the socialists rule the copper mines fell under the control of the mostly state owned Zambia Consolidated Copper Mines (ZCCM). Profitable mines subsidized those that ran at a loss. The idea was to keep everyone working - the perfect socialist nirvana built on natural resource extraction. And it worked… for a while, until copper prices fell.
Pressure from the World Bank and International Monetary Fund forced the Zambian government to privatize the copper mines. All the mines were snapped up (Anglo American Plc. (OTO:AAUKF, Stock Forum) grabbed the Konkola copper mines, Glencore and First Quantum Minerals Ltd. (TSX: T.FM, Stock Forum) joint ventured to buy the Mopani copper mines, the Copper belt’s second largest producer) by international investors - the profitable mines were kept and the uneconomic ones closed.
Today the Copper belt is one of the richest sources of copper in the world and the area's production of copper and cobalt are of global importance. The Zambian Copper belt is unusual among sediment-hosted stratiform copper districts in having abundant Cobalt (Co) and low Silver (Ag), Zinc (Zn) and Lead (Pb).
Copper accounts for 80 per percent of Zambia's foreign exchange earnings and has, since 2003, been the main driver of an annual economic growth rate of five percent. Most developing countries depend heavily on exporting just a few products as their means of earning foreign exchange but Zambia is an extreme case - the country depends on the production and export of a single product, copper.
Copper
Global copper production has been plagued year after year by supply shortages due to falling ore grades, lower volumes, higher costs and scarce new resources. Copper exploration/development companies looking for or trying to develop deposits already found and copper miners looking to expand their production capacity are all facing some serious challenges:
- Falling ore grades
- Country risk
- Water supply
- Labor problems, strikes
- Shortage of skilled labor
- Cost of capital for project finance
- Capital cost overruns
- Tax and sharing initiatives
- Energy costs
- Inadequate exploration funding - The Metals Economics Group estimates that exploration spending plummeted 42 percent to $7.7 billion in 2009.
- A lack of new discoveries
- Currency fluctuations
Credit Suisse Group AG said in a recent report that mining companies are missing analysts’ output forecasts because of lower-quality ore - Xstrata posted a 3 percent fall in first half copper output. The miner said copper output fell due to reduced volumes and lower grades at their Mount Isa and Ernest Henry mines.
“Spectacular” was used by UBS to describe western world copper demand growth in the first half of this year. Global copper inventory levels have been on a steady decline. Bloomberg recently reported stockpiles on the London Metal Exchange (LME) have fallen 20% since mid-February. According to the International Copper Study Group world refined copper consumption exceeded production by 67,000 tonnes between January and April this year, against a surplus of 74,000 tonnes in the same period one year ago.
Consider:
The declining rate of production at the world's largest copper mine, Escondida. BHP Billiton Ltd. (NYSE: BHP, Stock Forum) forecasts a 5 to 10 percent production cut at the mine this year due to lower ore grades. Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto, said this could take as much as 80,000 to 100,000 tonnes of copper out of the market.
Zambia sees bright future for copper mining
Last year Zambian copper output reached 697,860 tonnes of finished copper cathodes from 17 privately-owned mines. With copper production rising by 16 percent in the first half of 2010 - first-half output equals 393,089 tonnes - the country is on course to hit its forecast 2010 target of 750,000 tonnes (a level last seen in 1973). Zambia continues to attract new mining investments (Zambia’s Chamber of Mines of Zambia said investments in the mining sector have peaked at $5 billion in the last eight years) and the country should achieve the targeted 1 million tonnes output forecast for 2012.
Zambia’s government said that it expects a strong performance by the mines over the long-term due to rising metals prices and has urged mineworkers' unions to support new investors.
Zambia's mineral royalty is three percent which compares very favorably to other jurisdictions of around five percent. Corporate tax is charged at 25 percent with a proposed profit variable tax at 15 percent - if after paying their 25 percent corporate tax companies still have a profit greater than eight percent of their overall income than these profits will be taxed at 15 percent - this tax is designed to transfer a fair share of the windfall value of copper to the Zambian government.
Do not confuse Zambia with the Democratic Republic of the Congo. Although both countries have immeasurable resource riches there is a vast difference between them, namely political risk.
Mukuba Resources Ltd. (TSX:V.MKU, Stock Forum) is a Canadian mining company focused on the exploration and development of the Northcore Project, which is located in the highly prospective Central African Copper belt region of Central Zambia. This geological phenomenon is one of the most important metallogenic provinces in the world, containing massive reserves of copper-cobalt, as well as gold, uranium, nickel, lead-zinc, iron and manganese.
Northcore Project - licensed for copper and cobalt - encompasses approximately 2,274 square kilometres of geologically prospective ground in the Domes Region of the Zambian Copperbelt - over 95% of the known Zambian copper reserves occur in rocks of the Lower Roan Group, or in the adjacent basement complex. The Northcore Project area contains roughly 2,000 km2 of the Lower Roan Group.
Geological mapping, soil sampling and investigation of the historical showings as well as ground-truthing of the geophysical survey results have confirmed historical geological anomalies and identified new anomalies - Approximately half of the Northcore Project area has been surveyed using aeromag/VTEM in the 2008 exploration program, with the remainder of the property completed by the end of the 2009 season using radiometrics and aeromag. The Company’s 2009 exploration program included drilling several of these anomalies and confirmed the presence of copper mineralization.
In June MKU started its 2010 drill program – on the Northcore Project, located southwest of Ndola, Zambia - of up to 10,000 metres in approximately 55 boreholes and it's anticipated to be completed by November 2010. A test Induced-Polarization (IP) geophysical survey completed across selected lines at Target 18 outlined several chargeable anomalies. A selected number of these targets will be tested by the drilling program.
“This drilling program will test the numerous prospective targets identified in the 2008 and 2009 exploration seasons and we look forward to reporting drill and exploration results over the next 6 months.” Trevor Richardson, Mukuba’s President and CEO
Mukuba has recently mobilized a second diamond drill rig to test various high priority targets within the Target 17 area (Northcore Project) where coincident soil geochemical and VTEM, electromagnetic conductors will be tested.
Regional soil sampling across various new target areas is ongoing. It is anticipated that additional drill targets will be identified and selected based on the level of coincidence between the new soil geochemical survey and airborne geophysical results.
Mukuba recently obtained the right to acquire an 85% interest in the exploration license rights to the Nyimba Project near the town of Nyimba, approximately 300 km east of Lusaka, Zambia. Historic exploration records indicate there are five defined areas of mineralization within the 500 square kilometre license area. The most prospective area appears to be Chipirinyuma, where soil sampling by Minex and Rio Tinto defined a surface anomaly measuring 3.5 km by 1.2 km.
These polymetallic deposits host zinc, with copper, lead, molybdenum, silver, and gold, and were systematically explored and partially drilled by Minex (Mindeco) - a Zambian government department - in the late 1970s and early 1980s. The Nyimba Project rights were acquired by Rio Tinto-Zinc Corporation in 1994. RZC carried out EM, magnetic and radiometric surveys as well as initial RC drilling. Exploration work on the property ceased in 1997 when Rio Tinto Plc (NYSE: RTP, Stock Forum), along with most other mining companies, withdrew from Zambia.
Mukuba expects to mobilize a diamond drilling rig in October of this year.
Could a junior take part in a possible Zambian Copper belt Boom? Could a fully cashed up, early stage greenfields exploration company with good solid management, having two large projects with excellent addresses find the “goods” and participate in a Copper belt revival? Only time will tell.
The Zambian Copper belt and Mukuba Resources should be on every copper/cobalt and zinc/polymetallic resource investors radar screen.
Are they on yours?
Richard (Rick) Mills