Richard (Rick) Mills
Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information
The Republic of Zambia (plus 12 million people) is a landlocked country in Southern Africa covering 752, 600 square km of the central African plateau from the River Zambezi in the south-west to the tip of Lake Tanganyika in the north-east. The neighboring countries are the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana, and Namibia to the south, and Angola to the west. The capital city is Lusaka, located in the south-central part of the country.
Zambia was occupied by the British as a protectorate of Northern Rhodesia towards the end of the nineteenth century.
On 24 October 1964 the protectorate gained independence with the new name of Zambia (named after the Zambezi river which flows through the country). Zambia was governed by the socialist United National Independence Party from 1964 until 1991.
Zambia's industrial base, the Copperbelt (the Zambian Copperbelt accounts for approximately 46 percent of the production and reserves of the Central African Copperbelt, the largest and highest grade sediment-hosted stratiform copper province known on Earth), is centered around the towns of Ndola, Kitwe, Chingola, Luanshya and Mufulira - a string of towns on Zambia’s northern border with Congo.
Map from geographicguide.com
During the socialists rule the copper mines fell under the control of the mostly state owned Zambia Consolidated Copper Mines (ZCCM). Profitable mines subsidized those that ran at a loss. The idea was to keep everyone working - the perfect socialist nirvana built on natural resource extraction. And it worked… for a while, until copper prices fell.
Pressure from the World Bank and International Monetary Fund forced the Zambian government to privatize the copper mines. All the mines were snapped up (Anglo American grabbed the Konkola copper mines, Glencore and First Quantum joint ventured to buy the Mopani copper mines, the Copperbelt’s second largest producer) by international investors - the profitable mines were kept and the uneconomic ones closed.
Today the Copperbelt is one of the richest sources of copper in the world and the area's production of copper and cobalt are of global importance. The Zambian Copperbelt is unusual among sediment-hosted stratiform copper districts in having abundant Cobalt (Co) and low Silver (Ag), Zinc (Zn) and Lead (Pb).
Copper accounts for 80 per percent of Zambia's foreign exchange earnings and has, since 2003, been the main driver of an annual economic growth rate of five percent. Most developing countries depend heavily on exporting just a few products as their means of earning foreign exchange but Zambia is an extreme case - the country depends on the production and export of a single product, copper.
Global copper production has been plagued year after year by supply shortages due to falling ore grades, lower volumes, higher costs and scarce new resources. Copper exploration/development companies looking for or trying to develop deposits already found and copper miners looking to expand their production capacity are all facing some serious challenges:
- Falling ore grades
- Country risk
- Water supply
- Labor problems, strikes
- Shortage of skilled labor
- Cost of capital for project finance
- Capital cost overruns
- Tax and sharing initiatives
- Energy costs
- Inadequate exploration funding - The Metals Economics Group estimates that exploration spending plummeted 42 percent to $7.7 billion in 2009.
- A lack of new discoveries
- Currency fluctuations
Credit Suisse Group AG said in a recent report that mining companies are missing analysts’ output forecasts because of lower-quality ore - Xstrata posted a 3 percent fall in first half copper output. The miner said copper output fell due to reduced volumes and lower grades at their Mount Isa and Ernest Henry mines.
“Spectacular” was used by UBS to describe western world copper demand growth in the first half of this year. Global copper inventory levels have been on a steady decline. Bloomberg recently reported stockpiles on the London Metal Exchange (LME) have fallen 20% since mid-February. According to the International Copper Study Group world refined copper consumption exceeded production by 67,000 tonnes between January and April this year, against a surplus of 74,000 tonnes in the same period one year ago.
The declining rate of production at the world's largest copper mine, Escondida. BHP Billiton forecasts a 5 to 10 percent production cut at the mine this year due to lower ore grades.
Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto, said this could take as much as 80,000 to 100,000 tonnes of copper out of the market.
- U.S. copper mine production had been expected to increase by more than 200,000 tons last year, instead production declined by 120,000 tons
- Rio Tinto and Freeport McMoRan both saw their output drop in the first six months of this year
- A lack of investment in new mining capability because of recent low prices
- The growth in demand from China, India and other emerging markets
- Consistent declines in warehouse inventories are underpinning the price of copper
- A low interest rate environment bodes well for the whole resource sector
- The overall weakness in the U.S. dollar translates into support for dollar denominated metal prices
- The potential for a drop in production from Australia - the world's fifth largest copper producer - as a result of a resource tax the government might implement
- China has set a goal of 65 percent of urbanization rate in 2050. Over the coming 40 years that means 20 percentage points of urban growth per year, that translates into 300 million rural residents becoming urban residents over this time period
- Over the next two decades China will build 20,000 to 50,000 new skyscrapers
- By 2025, 40 billion square meters of floor space will have been built
- 221 Chinese cities will, by 2025, have one million people
- More than 170 cities will need mass transit systems by 2025
- India's power production needs to rise by 15 to 20 percent annually which means, according to the International Energy Agency (NASDAQ:IEA), India needs to invest $1.25 trillion by 2030 into its energy infrastructure. Because of this investment into new infrastructure India's annual copper demand is expected to more than double to nearly 1.5 million tonnes by 2012 - up from a current 600,000 tonnes. India usually exports between 100 and 150,000 tonnes a year, Indian copper exports are likely to cease and indeed Indians might become large copper buyers
“The vision of a lower carbon transportation system, delivered by affordable, hybrid and electric vehicles, connected to smart grids, along with high-speed rail networks, requires copper. A hybrid passenger car contains 50 kg of copper for the electric motor, energy storage and transfer system. Each high-speed train requires 10 tonnes of copper components, plus 10 tonnes in the power and communication cables per kilometer of track. Low carbon electricity sources, such as renewables, and the distributed electricity systems required to incorporate and manage them, need four to ten times the copper content of electricity produced via centralised, fossil fuel generation.” Manifesto for a Competitive European Copper Industry European Copper Institute
"Our preferred commodities over the short to medium term are thermal coal, copper, zinc and gold. We still like copper and met-coal longer term." UBS Investment Research Analysts Julien Garran, Tom Price and Edel Tully
Zambia sees bright future for copper mining
"The outlook for copper mining is very bright. Copper will continue to be sought because it is ideal for construction and is a very good conductor of electricity which cannot easily be substituted. We need to invest in exploration activities and that will require a lot of investment.” Mines minister Maxwell Mwale
Last year Zambian copper output reached 697,860 tonnes of finished copper cathodes from 17 privately-owned mines. With copper production rising by 16 percent in the first half of 2010 - first-half output equals 393,089 tonnes - the country is on course to hit its forecast 2010 target of 750,000 tonnes (a level last seen in 1973). Zambia continues to attract new mining investments (Zambia’s Chamber of Mines of Zambia said investments in the mining sector have peaked at $5 billion in the last eight years) and the country should achieve the targeted 1 million tonnes output forecast for 2012.
“The extractive industries are the key drivers of African economies in general. Here in Zambia, mining has become the mainstay of Zambia’s economy and therefore it is in the interest of government to see that investment in the mining sector is increased. This will reverse the negative effects of the global economic crisis on the nation.” Mines minister Maxwell Mwale,
Zambia’s government said that it expects a strong performance by the mines over the long-term due to rising metals prices and has urged mineworkers' unions to support new investors.
Zambia's mineral royalty is three percent which compares very favorably to other jurisdictions of around five percent. Corporate tax is charged at 25 percent with a proposed profit variable tax at 15 percent - if after paying their 25 percent corporate tax companies still have a profit greater than eight percent of their overall income than these profits will be taxed at 15 percent - this tax is designed to transfer a fair share of the windfall value of copper to the Zambian government.
Do not confuse Zambia with the Democratic Republic of the Congo. Although both countries have immeasurable resource riches there is a vast difference between them, namely political risk.
Mukuba Resources Ltd. TSX.V – MKU
Issued and Outstanding: 55,384,054
Fully Diluted: 75,022,116
Cash: $4 million
Mukuba is a Canadian mining company focused on the exploration and development of the Northcore Project, which is located in the highly prospective Central African Copperbelt region of Central Zambia. This geological phenomenon is one of the most important metallogenic provinces in
the world, containing massive reserves of copper-cobalt, as well as gold,
uranium, nickel, lead-zinc, iron and manganese.
Northcore Project - licensed for copper and cobalt - encompasses approximately 2,274 square kilometres of geologically prospective ground in the Domes Region of the Zambian Copperbelt - over 95% of the known Zambian copper reserves occur in rocks of the Lower Roan Group, or in the adjacent basement complex. The Northcore Project area contains roughly 2,000 km2 of the Lower Roan Group.
Geological mapping, soil sampling and investigation of the historical showings as well as ground-truthing of the geophysical survey results have confirmed historical geological anomalies and identified new anomalies - Approximately half of the Northcore Project area has been surveyed using aeromag/VTEM in the 2008 exploration program, with the remainder of the property completed by the end of the 2009 season using radiometrics and aeromag. The Company’s 2009 exploration program included drilling several of these anomalies and confirmed the presence of copper mineralization.
In June MKU started its 2010 drill program – on the Northcore Project, located southwest of Ndola, Zambia - of up to 10,000 metres in approximately 55 boreholes and it's anticipated to be completed by November 2010. A test Induced-Polarization (NYSE:IP) geophysical survey completed across selected lines at Target 18 outlined several chargeable anomalies. A selected number of these targets will be tested by the drilling program.
“This drilling program will test the numerous prospective targets identified in the 2008 and 2009 exploration seasons and we look forward to reporting drill and exploration results over the next 6 months.” Trevor Richardson, Mukuba’s President and CEO
Mukuba has recently mobilized a second diamond drill rig to test various high priority targets within the Target 17 area (Northcore Project) where coincident soil geochemical and VTEM, electromagnetic conductors will be tested.
Regional soil sampling across various new target areas is ongoing. It is anticipated that additional drill targets will be identified and selected based on the level of coincidence between the new soil geochemical survey and airborne geophysical results.
Recently published drill results are encouraging:
“The results are very promising since they correlate well with our previous work and represent the first eight holes of a larger planned program. In addition to confirming the presence of copper mineralization they provide the data to better understand the geological structure at Northcore and further support our belief in the highly prospective nature of the overall project area. Our technical team will continue to interpret the geological structure and mineralization style to refine drill locations for the remainder of the 2010 drilling program.” Trevor Richardson, President and CEO
Mukuba recently obtained the right to acquire an 85% interest in the exploration license rights to the Nyimba Project near the town of Nyimba, approximately 300 km east of Lusaka, Zambia. Historic exploration records indicate there are five defined areas of mineralization within the 500 square kilometre license area. The most prospective area appears to be Chipirinyuma, where soil sampling by Minex and Rio Tinto defined a surface anomaly measuring 3.5 km by 1.2 km.
These polymetallic deposits host zinc, with copper, lead, molybdenum, silver, and gold, and were systematically explored and partially drilled by Minex (Mindeco) - a Zambian government department - in the late 1970s and early 1980s. The Nyimba Project rights were acquired by Rio Tinto-Zinc Corporation in 1994. RZC carried out EM, magnetic and radiometric surveys as well as initial RC drilling. Exploration work on the property ceased in 1997 when Rio Tinto, along with most other mining companies, withdrew from Zambia.
Mukuba expects to mobilize a diamond drilling rig in October of this year.
“The addition of the Nyimba Project is an exciting opportunity for Mukuba and fits well into our African exploration strategy. We remain committed to the exploration and development of the Northcore Copper Project, which is our primary focus. The Company’s current cash position will allow us the flexibility to explore and develop both properties and to increase shareholder value. The Nyimba Project is well advanced and substantial exploration work has been completed to date.” Trevor Richardson, President and CEO Mukuba
Could a junior take part in a possible Zambian Copperbelt Boom? Could a fully cashed up, early stage greenfields exploration company with good solid management, having two large projects with excellent addresses find the “goods” and participate in a Copperbelt revival? Only time will tell.
The Zambian Copperbelt and Mukuba Resources TSX.V - MKU should be on every copper/cobalt and zinc/polymetallic resource investors radar screen.
Are they on yours?
Richard (Rick) Mills
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Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Resource Investor, Calgary Herald and Financial Sense.
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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard Mills does not own shares in any company mentioned in this article
Mukuba Resources TSX.V – MKU is an advertiser on aheadoftheherd.com
Disclosure: no position