discourage mining ," says John Meyer , analyst and partner at SP Angel . Meyer says that the royalty rate hike was speci cally aimed at stopping Vedanta , and possibly Glencore , from taking advantage of transfer pricing , but the unintended consequence was for an unsustainable rise in taxes for all miners , even though the government claimed some miners might be better off . With the issue now resolved , he says that they do not expect to see any further radical changes over the next few years . " Zambia is a sensible economy ," he says . It is a sentiment broadly echoed by Jeremy Wrathall , head of Global Natural Resources London , and mining team leader at Investec Bank . " �e Zambian Government have always shown themselves to be pragmatic - that ' s always been their way - and certainly since privatisation in 2001 they have tried to impose ridiculous taxes . �ey haven ' t worked , and they ' ve responded to the industry ." Wrathall does not think that there is anything to suggest that they will stop listening in future .
Underpowered Unfortunately , no amount of political pragmatism is a match for the vagaries of nature , and with water levels at the country ' s hydro electric plants perilously low a�er drought , the country ' s miners have been forced to confront the prospect of restrictions of supply . It has already seen the power allocations to First Quantum Minerals ' Kansanshi and Sentinel operations cut by almost a quarter , leaving both operating at reduced capacities and facing signi cant potential cuts to production . �e immediacy of the situation should , of course , be remedied once the rains come , but it highlights a more persistent legacy of decades of underinvestment by the stater u n Z a m b i a E l e c t r i c i t y S u p p l y Corporation that has le� capacity insufficient , transmission losses high and reliability low . Now , however , there are major moves afoot to combat the shortages and improve and extend the network infrastructure , with a number of new power stations being developed and a range of projects planned , including a 2,300km interconnector to bring energy from Kenya to Zambia . While there is clearly still some way to go - transmission and distribution losses currently amount to over 16 % and are not predicted to fall below 13 % until 2024 - BMI take the view that " the outlook for Zambia ' s power sector is generally positive " which , by extension , is good for mining too .
Future prospects �ere will , nevertheless , be some changes for the industry . Wrathall feels that the copper prices we are seeing now will be here to stay for at least the next three years , and that this will put pressure on grade , rendering some of the particularly lowgrade ore bodies effectively uneconomic . He thinks that with many of the existing operators curtailing exploration , and the nancial climate unfavourable for another Sentinel or Konkola deep to be developed , the focus will be on smaller deposits . �is will , he suggests , be the pattern the world over , and it will have major implications for copper mining in general and for Zambia in particular , since he believes that it will be the making of the next cycle . " �e copper market is probably oversupplied for the next couple of years , but not massively , and nothing like the same as iron ore or coking coal or aluminium or nickel . Copper ' s fundamentals are pretty attractive still and if you get companies pulling in their horns , not pre-stripping , and cutting cap-ex , and not building these mega-projects , then the copper market will become under-supplied quite quickly [ by ] 2019 / 20 . So it starts to look very attractive and the market will start to think about that in 2016 / 17 ," Wrathall predicts .
Investment potential So what does that mean for future investment ? Jackson Sikamo , country manager at Chibuluma Mines , is upbeat on that question . " Foreign direct investments will continue to play a major role in the mining industry ," Sikamo says . Looking beyond today ' s commodity price and power supply problems , he believes that the medium to long-term prospects are bright . Wrathall agrees . He says that when people start looking to invest in new copper mines , they will look to Zambia . “ In my view , it still remains one of the most attractive places to do business , because the government is sensible ; they ' re accommodating . It ' s a very , very safe country to work in . It ' s still geologically prospective . So yes , I think it ' s still a great destination , probably one of the best destinations in Africa , if not the best for base metals ."
FMDZ | May - June 2016 | Page11