Zambia's copper belt reels as price falls

The legacy of copper mining on Kitwe, a small but bustling city in the heart of Zambia's Copperbelt province, is indisputable.

On the city's edge, a huge blackish-grey slag heap that dates back to the 1930s dominates the skyline, an ugly reminder of the industry's long history. Nearby, the hulking structures of Mopani mine, operated by Glencore, tower over a residential area. And a shopping mall, decked out with South African retailers and banks, acts as a symbol of the boom years the region has enjoyed for much of the last decade.

But now foreign and local businesses - from corporate giants such as Glencore to small Zambian companies and individual Chinese traders who moved there to take advantage of the boom - have been left reeling by a sliding copper price. This month, it hit five-and-a-half-year lows of about $5,353 a tonne, below the estimated marginal cost of production of $5,500, though this is higher at many Zambian mines, which are old, deep and expensive to operate.

"We are having to sacrifice margins . . . we hope it's temporary," says Chibuta Mumba, finance director at Turbo Agencies, a mining services company. "We started to notice the impact eight to 12 months ago. It's been gradual but it's harder now."

As Chinese growth slows, the slump in commodity prices - from iron ore to crude oil - is being felt across Africa. In particular, it is hurting sub-Saharan Africa's eight oil exporters - including Nigeria and Angola - which account for about 50 per cent of the region's gross domestic product.

This is largely why the International Monetary Fund last week revised downwards its forecast for sub-Saharan African growth in 2015 from 5.8 per cent to 4.9 per cent. But other commodity producers are also feeling the pinch. Zambia, Africa's second biggest copper producer, is a prime example. China accounts for 45 per cent of the metal's global consumption.

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But as copper's price has weakened so too has the country's currency, with the kwacha depreciating to record lows against the US dollar. The slump in copper's value is also complicating the government's efforts to narrow a wide budget deficit amid slowing growth. The IMF estimates Zambia's economy expanded by 5.5 per cent last year - its lowest level since 2002.

"The impact is quite significant and it's worrying," says Jackson Sikamo, general manager of the Metorex, a Chinese-owned mine, and president of the Chamber of Mines.

He does not expect mines to close, but says there are likely to be cutbacks. During the last trough in the copper price in 2008, all but one Zambian mine restructured, causing "thousands" of job losses, he adds.

"The first thing they [mines] will do is look at operations and evaluate all their costs," Mr Sikamo says. "They will be looking at only [retaining] those costs that relate to safety and production; everything else they will start shedding."

Mining companies say their problems are exacerbated by a government decision to scrap corporate tax and raise mining royalties, with the royalty on open pit mining increasing from 6 per cent to 20 per cent. Barrick Gold blames the changes for its decision to begin mothballing its Lumwana mine, which employs 4,000 people. The government insists the changes were needed to ensure companies - some of which it suspects of tax evasion - pay their dues. Last year, only two of 11 mines paid taxes as most claimed not to be turning a profit.

Last week's presidential by-election was narrowly won by Edgar Lungu, the candidate of the ruling Patriotic Front that introduced the tax changes. Mr Lungu, who will govern until general elections in 2016, has said he would be open to discussions with mining companies about their concerns.

<>Still, the changes have added to the pressures on the industry. At Turbo Agencies, Mr Mumba says they are receiving fewer daily inquiries and more clients want their fees reduced.

"If the price goes lower then we start worrying about mines laying off," he says. "If you put 10 people out of employment what you are doing is putting 40 people out of food because that is the responsibility miners have."

Hundreds of Chinese people moved to Zambia during the boom years to work in the copper trade. In a nearby office in Kitwe Jack Sun, who sells gloves and helmets to Chinese mining houses, says six of his friends - whom he describes as copper "traders" - have returned to China. "It's not nice," says Mr Sun. "Some Chinese right now are leaving because the price has come down."

Mineworkers, meanwhile, complain that they have to endure the pain when prices dip, but do not see any upside when prices rise.

"We don't feel it when it goes up," says Kelvin Temba, a miner. "But when prices go down companies use it as an excuse to reduce our increments."

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