Glencore Mine Halt ‘To Hurt Zambia’.
Good for copper prices, not so good for Zambia, which is already under pressure from depressed commodities prices.
When Glencore, the mining giant and commodities trader, announced that it was halting production at two of its African copper mines for 18 months, the price of the red metal enjoyed a healthy bump, as the suspensions will remove 400,000 tonnes of copper from the market.
While the news was good for rival copper mines – lifting the share prices of groups such as KAZ Minerals and Antofagasta – the suspension will cause a considerable headache for Zambia, according to rating agency Moody’s, which last year relied on Glencore’s operations for more than a quarter of its total copper output.
Glencore’s announcement that it would suspend production at its Mopani copper mine in Zambia followed shortly after a decision by China’s Launshya Copper Mines to suspend production at one of its mines in Zambia, Moody’s notes. The effect of both companies’ decisions will put further pressure on Zambia’s “increasingly precarious fiscal and external positions” as it will depress growth and proceeds from exports, Moody’s says in a bleak report issued on 14 September 2015.
Moody’s Further reports:
Zambia’s growth prospects already face challenges from subdued global copper demand, depressed copper prices, which we expect to persist, and drought-induced electricity shortages. Just a week before Glencore’s announcement, Zambia’s Ministry of Finance reduced its 2015 real GDP growth forecast to 5.0% from the 7.2% growth expectation in the October 2015 budget.
The suspension of some mining operations now introduces downside risk to these revised growth projections. Zambia’s growth, which averaged at more than 7% per year over the past decade, is now at risk of falling to the Sub-Saharan Africa Median.
Copper production accounts for more than two thirds of Zambia’s export revenues and a fifth of tax revenues.
Zambia’s currency, the kwacha, has slumped 37 % against the US dollar over the last 12 months amid fears over the Zambian government’s deteriorating finances and its dependence on falling copper prices.