Mining Closures

The closure of Mopani Copper mine, albeit for 18 months to allow for redevelopment, has both economic and political implications.

Economic; because Glencore the Swiss based mining giant wants to stem financial hemorrhage, occasioned by the very sharp decline in copper prices. It intends to make very pragmatic economic decision by suspending operations and putting in place modernization programmes that will increase output and therefore improve profitability by increasing yields.

The company intends to spend US$500 million to develop three new shafts and thereby raise mine output by more than 140,000 tonnes per annum while at the same time reducing production costs.

However, there is a political cost.

The loss of any job is anathema. Both   government and unions are loathe to countenance any hint of job loss..  Already opposition politicians have made capital of mine closures with some opposition leaders blaming government for ineptitude and failure to manage the industry.

The reality however, is that Zambia which the World Bank had classified as middle income country and in the process attracting some major mining houses such as Barrick Gold Corporation, First Quantum Minerals limited and indeed Glencore itself has fallen on hard times because it is a mono-economy.

The overdependence on commodity prices means that the slightest shift in prices will affect the carefully balanced fortunes of some economic partners whose balance sheets may be heavily loaded with liabilities.

It is for this reason that Glencore has chosen to shut down operations in Congo DR and Zambia to introduce mining techniques that will reduce cost and therefore ensure that with higher output profitability will be restored, in spite of the low prices.

To achieve this however,  Zambia may have to sacrifice  3800 jobs  albeit temporarily but nonetheless still a factor with political, social and economic impact because each job supports extended families and any loss will reverberate within the extended family  economy.

The government may indeed seek to maintain jobs while Glencore will insist on forced suspension of operations in order to change its costs structure and ensure future profitability.

Both sides have arguable points considering that at Mopani, Glencore intends to invest over US$500 million for the next18 months while also spending US$900million at its Katanga mines to develop and modernize the mine while raising output to about 280,000 tonnes per annum and cutting costs in the process and ensuring profitability within the short term.

No doubt therefore that declining copper prices, power problems and general weakening of the Kwacha will have far reaching effects on inflation by making most of the essential commodities more expensive.

The answers however, lie within our means to launch meaningful diversification programmes that will more than supplement copper as a cash cow of the economy.

This will require pragmatic, systematic and well planned programmes, which Indeco and other development agencies must begin to implement as a matter of outmost urgency.


Categorized | Editorial

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