Futureproofing Zambia's mining companies
Futureproofing Zambia's mining companies:
What needs to be done?
The country's policies are heading in the right direction, and the outlook is positive. How can mining companies lock in this advantage?
Two years ago, when President Hakainde Hichilema took office, Zambia's business community surged with optimism. This included its mining industry. Within a year the sector saw renewed investor interest from international players. First Quantum Minerals announced it would invest $1.35 billion in new projects; Anglo American declared its intention to upscale copper exploration activities; California-based Kobold Metals announced it was raising $200 million to explore its newly-acquired copper reserves in the country. The wider context is that President Hichilema's government has succeeded in restructuring its $6 billion international debt, paving the way for new loans from the International Monetary Fund. Balancing acts are involved here, because the country's low tax collection rate - around half that of developed countries - hinders the government's ability to boost infrastructure development and to stimulate and modernise the economy. Woven within this dilemma is the long-running issue of mining taxes - a system which has changed roughly ten times in as many years. The government's 2023 budget, however, announced a shift to a smoothed, sliding scale of taxation. Finance minister Situmbeko Musokotwane, while expressing annoyance that the sector "doesn't ride the wave well" during phases of high metals prices, admitted that government must do more to anchor the mining industry in the broader economy. To the question 'quo vadis?', then, the current mood and setting for the industry is sound. President Hichilema's stated goal of increasing Zambia's annual copper production from 800,000 tonnes to three million tonnes by 2026 cannot be achieved without the kind of government-business cooperation that has been unfolding on his watch. The country now has a stable and sensible framework - "a lot more policy certainty than South Africa", for example, according to, many industry analysts. However, miners should pause to consider a parallel issue: how can they futureproof their operations independently of government? Or, put differently, with a more positive outlook for the country, the economy and the sector's regulatory framework, what should they be doing to capitalise and prepare for the future?
-------------------------------------1 South Africa's regulatory framework for the mining industry is the subject of frequent criticism in general and specialist media such as, respectively, Business Day and Mining Weekly. This specific quote is from Peter Leon of international law firm Herbert Smith Freehills, as featured in The 2023 Mining Yearbook published by Miningmx (Pty) Ltd, which can be found here.
Global metals markets
Because copper is the core of Zambia's mining exploration and output, the global demand for the metal is the driver of the domestic industry's flows and fortunes. Staying abreast of demand forecasts and pricing trends, and modelling these into the future, is key. Today, this cannot be done without data and cutting-edge analytics.
The good news is that the global green transition is likely to boost demand for copper. The metal is fundamental to many green technologies and, although substitution is always a risk, scientific consensus appears to be that it remains the most effective and efficient material in a range of electric-based technologies. As such, the next decade could see demand increase by as much as 30%.
To capitalise, mining companies should be factoring this into their strategies so as to scale up appropriately. Although there is no clearcut answer as to whether to ramp up exploration or invest further in current locations - and if so, when to start doing this - scenario planning is mandatory for futureproofing, because it enables the timeous implementation of levers such as capital injections, recruitment, new equipment, and technology upgrades.
A related point is the question of diversification.
What opportunities does the company have in markets other than copper? Together with cobalt, it is the Zambian industry's bedrock mining resource, but there are also proven pockets of gold, uranium and - possibly of huge significance given the world's transitioning economy - lithium and other rare earth elements. The country's mining enterprises should be assessing these for scalable growth opportunities.
Embracing innovation is paramount
Only miners that invest in technology and research and development, and foster a culture of creative thinking and experimentation, are truly futureproofing. Advanced machine learning and Artificial intelligence (AI) are already unlocking improvements across the mining value chain, from geological exploration to safety improvements, from predictive maintenance to better and faster decision-making insights. Zambian miners must embrace the potential of these and other AI applications in order to keep pace and remain competitive on a global basis.
Legacy issues
An insights document published nearly 20 years ago by Southern Africa Resource Watch, asks, "Copper Boom in Zambia: Boom for Whom?" Today, looking 20 years or so ahead, while it is promising and exciting that global demand for copper and cobalt is expected to grow respectively threefold and twenty-fold by 2040, what will this mean on the ground, so to speak - will socioeconomic improvements happen for all Zambians? Inclusive growth benefits everyone, and a good place for mining enterprises to kickstart growth in parallel to the eagerly anticipated commodities boom is by considering the gains and opportunities of beneficiation.
Mining has an enormous value chain. But Zambia's mining value chain happens predominantly upstream - and of the industry's approximate $2.5 billion expenditure on enabling its local operations, the World Bank in 2016 calculated that 95% represented imports or foreign procurement. Imagine if this were different: side-stream spend projects which created infrastructure; downstream links to other local economic sectors which input into the mining operation directly or - better still - beneficiated its outputs into intermediate goods or end-user products. Images of copper sheets produced by the Mopani mine in Mufulira, ready for export - "to be trucked to ports such as Dar es Salaam, Tanzania and Durban", says one such photograph's caption - begs the observation: how much greater gain would Zambia's localised, regional and national economies reap if the raw copper sheets were manufactured, in Zambia, into electric vehicle battery components, wiring, and construction materials?
This is integral to the concept of futureproofing the country's mines. If the average mine has a 50-year lifespan, the company's leaders should be thinking past their own short C-Suite tenures, beyond the next predicted commodities boom, even beyond the 10-year strategy. At issue, rather, is, whether the mine is contributing towards the creation of a robust, sustainable local socioeconomic framework.
This requires stakeholder involvement and community engagement. Further, it is impossible to consider futureproofing without recognising the importance of sustainability in a broader sense. Industries, and the companies they comprise, may do well in the short term by disrespecting the spirit of regulatory frameworks and licensing conditions, or disregarding the community in which they operate or are based. But only a genuine and participatory environmental, social and corporate governance (ESG) policy will allow individual organisations and the industry to thrive in the medium to longer term. Stepping up the company's ESG commitments - involving local communities in decision-making, providing economic opportunities, contributing to development initiatives - is an important bridge to futureproofing.Towards this goal, too, collaboration and liaison with government must continue. Compliance is non-negotiable. Individual policymakers come and go, but establishing trust and building bridges to regulatory bodies will help to ensure longer-term stability for Zambia's mining industry, and hence investor confidence.
Staying alert, focused and ahead of the curve
Lastly, a shot across the bow of the optimism underpinning this article. Sentiment can change rapidly, and Black Swan events are no longer extraordinary. (More appropriate as an African analogy or symbol are Grey Rhino events - those that are easily identified, but biases and lack of judgement prevent proper mitigation. The impacts of climate change are an obvious Grey Rhino.) So, what are the company's contingency plans to ensure business continuity in the face of the unforeseen? Is there a rigourous approach to the identification and mitigation of risks?
The rapidly changing nature of 21st-century business, the complexities and unique risks of the industry, its high cost of capital: these are well known and acknowledged. But positioning a mining company, and the entire industry in Zambia, for sustained success requires diligent planning and even more careful actions - strategic foresight balanced with a culture of operational agility. Zambia's mining enterprises have an opportunity to get this balance right. If they do, they will reap rewards well into the future.
Have any thoughts on this article, or wish to share how you are futureproofing your enterprise? Contact me at lafras@iafrica.com