In the labyrinth of debt strains, Africa’s second largest copper producer Zambia, is on the cusp of not only a fiscal but a mining faculty breakthrough. A plethora of sentiment drivers such as attaining an International Monetary Fund financing deal by June 2022 cheered markets a few weeks ago but not as hyped as this week when a brace of mining news hit the air after First Quantum Minerals (FQM), the Southern African nation’s largest tax earner committing to invest $1.25 billion in expansion while the controversy around Vedanta and the Zambia government is fading with greater commitment from the miner to invest circa $1.0 billion in the copper producer.
The pronouncements are very strategic and do coincide with the ongoing mining indaba in Cape Town themed, “Evolution of African Mining: Investing in the Energy Transition, ESG, and the Economies.” The copper price boom continues to be fueled by a global decarbonization drive as the world readies to preserve natural resource capital through cutting fuel emissions drastically by 2050. The electric car era has fueled a boom in base metals that has kept red metal prices reverberating between $9,500 to $11,000 a metric ton as supply constraints and demand build ups, scale prices higher. The FQM announcement comes at a critical time for Zambia that is on a new political page with greater will from its authorities that have demonstrated greater commitment towards transparency, predictability (in tax regime), fighting corruption and opening up for private sector investment.
“We are delighted with First Quantum Minerals announcement of two landmark investments in Zambia. A $1.25 billion investment to expand production and extend the life of Kansanshi, and $100 million investment in the new enterprise Nickel mine. Together these projects will help create and safeguard thousands of jobs, generate additional revenues and stimulate wider economic activities. This is an example of our commitment to easing the process of doing business while maximizing the tangible benefits for citizens through consultation and collaboration. We hope these investments will be first of many and invite those gathered here today to open up similar discussions with us and join us in delivering a new dawn for mining in Zambia,” Zambia’s Republican President Hakainde Hichilema said in his speech.
“It gives me great pleasure as my first act as First Quantum Mining Chief Executive Officer to announce an investment that represents FQMs recommitment to the country. Zambia is back and the government has a plan for how the sector can serve as a flywheel for growth,” FQM Chief Executive Officer – Tristan Pascall said in his speech at the indaba.
Zambia’s President Hakainde Hichilema shares a moment with First Quantum Minerals Chief Executive Officer Tristan Pascall at the mining Indaba in Cape Town.
As for Vedanta, the commitment letter came as a shocker for many given the legal battle in litigation and arbitration both locally and globally. This quagmire did dent the mining risk outlook to some extent for Zambia. It is about a dry point of construction that prior decisions could have been politically engineered but post August 2021 Zambia has seen greater will to stimulate private sector growth across the sectors with mining being low hanging fruit towards rekindling constrained growth. Vedanta’s investment commitment will still require monitoring for actualization because the Copperbelt province of Zambia has immense expectations of this turnaround. The $1.0 billion investment pledge is one that is expected to support more local businesses in the value chain which were earlier concerns before liquidation proceedings commenced.
On the positive Vedanta’s commitment to liquidating $220 million in suppliers dues spells good news for energy players like the Copperbelt Energy Corporation Plc that is owed $160 million for power supply which impaired its profitability to some extent in the last 2-3 years. This news is good for the CEC stock that should take a positive cue from the development.
Copperbelt Energy Corporation CEC Plc Head Office in Nkana East of Kitwe, on the Copperbelt of Africa.
One thing that most analysts overlook is that the commodity boom is to some extent an autopsy of the war in eastern Europe where copper has just joined the list of safe haven assets. Traditionally, markets see soaring appetite for dollar denominated assets such as US treasuries or gold in times of uncertainty. But with an evolving risk landscape supported by a strong global decarbonization drive, greater odds of interest rate hikes in the West to cure excessive inflation, demand for red and battery metals has abnormally scaled up and is driving greater investments in exploration and expansions especially around the Copperbelt of Africa.
The Chamber of Mines still believe Zambia has greater latitude to make exploration investment even more attractive especially at a time when global chaos is driving interesting pattern which the Southern African nation could leverage off to drive more investment traffic to its advantage.
The Kwacha Arbitrageur
