Weaker Chinese demand and power supply problems darken the outlook
For much of the past decade, Zambia’s vast copper mines have posted bumper profits, spurred by a steady electricity supply and surging Chinese demand. Now both those growth engines are sputtering, plunging Zambia’s once-golden copper sector into its most challenging business environment for a decade.
“Most operations are in distress” Jackson Sikamo, a board member of Zambia Chamber of Mines, said on Thursday. “Low prices are putting more pressure on the already stretched margins.”
A steady climb in copper prices since the mid-2000s and until recently one of Africa’s most reliable electricity supplies helped power the dramatic expansion of Zambia’s mining sector from 7% of gross domestic product in 2008 to 12% in 2015, according to the finance ministry.
But this year, a toxic combination of factors conspired to reverse the outlook: Severe drought lowered water levels at the main hydro power plants this year, cutting electricity output in half. The freak weather impact was aggravated by tumbling prices; an increasingly stifling fiscal environment has put additional pressure on balance sheets.
This week, China’s NFCA Mining, the largest Chinese-owned mine operation in the country, slashed output by 40% citing power outages. The company has also put hundreds of its miners on forced leave.
NFCA’s peers are also struggling to keep operations afloat. London-listed Vedanta Resources PLC on Friday laid off 133 miners at its Zambian unit, Konkola Copper Mines citing a “worsening” business environment. Glencore PLC halted underground mining operations late Thursday after a power outage trapped nearly 300 miners for several hours underground.
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