VZCZCXRO6455
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #1647/01 3391107
ZNR UUUUU ZZH
P 051107Z DEC 06
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 3604
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY

UNCLAS SECTION 01 OF 02 LUSAKA 001647 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EMIN ECON EINV ZA
SUBJECT: MINES 2006 PROMOTES INVESTMENTS IN SADC MINING PROJECTS 
 
¶1. (U) Summary and introduction: Mines 2006, a regional mining 
conference held in Lusaka, highlighted project opportunities and 
matched potential investors and partners with capital and technical 
know-how with projects in Southern African Development Community 
member countries.  In opening presentations at the three-day event 
(November 29 to December 1), speakers noted the challenges and 
opportunities in mining in the SADC region, and profiled a success 
story in Zambia's copper sector.  Extensive information and reports, 
including country profiles, developed for the conference are 
available at the Mines 2006 website: www.mines2006.com; when 
required, the password to access information is "Zambezi."  The 
event was hosted by the Zambian government and sponsored by the 
European Union and Southern African Development Community.  End 
summary and introduction. 
 
//Mixed GRZ messages on fiscal perks to mining// 
 
¶2. (SBU) Zambian Minister of Mines and Mineral Development Kalombo 
Mwansa highlighted the GRZ's tax exemptions and other financial 
incentives for mining investments in his welcoming remarks to the 
300-plus audience at Mines 2006, held in Lusaka from November 29 to 
December 1.  At a subsequent briefing with local media he delivered 
a strikingly different message, which was carried in local papers on 
November 30.  Under questioning, Mwansa said that the GRZ would 
announce a higher mineral royalty tax in early 2007, because the 
current 0.6 percent level was unrealistic in light of profits that 
the mining companies were making, thanks to higher copper prices and 
strong demand.  Note: Since early 2006, senior Zambian officials 
have indicated that an upward adjustment of mining royalties was 
under serious consideration, to enable the people of Zambia to 
benefit more from the copper boom; privatization and concession 
deals with several mining investors had been struck at a time of 
very low global prices.  The Finance Minister also reportedly said 
that the GRZ would review other tax exemptions and benefits granted 
to mining investors.  End note. 
 
//Sectoral analysis notes risks and challenges // 
 
¶3. (U) Opening day sessions also featured the presentation of a 
"sectoral study" by its author, Victor Kelly.  Kelly noted that the 
constant price of copper had fallen between 1880 and 2006, thanks to 
technological developments in mining.  He surveyed the various risks 
involved in developing mining projects, including: unfavorable 
political conditions; uncertainty around global prices, which tend 
to follow boom/bust cycles; and long lead times (10 years or more) 
to develop projects.  He noted the importance of following a 
competitive investment framework (CIF) and commented that government 
ownership requirements by some SADC member countries make them less 
competitive destinations for mining investment. 
 
¶4. (U) To attract more investment in mining, Kelly encouraged SADC 
countries to ensure good governance, equitable social policies, 
environmental guardianship, mining regulations that are in line with 
international norms, and increasing cooperation of the scientific 
and geological agencies both within SADC and with international 
counterparts.  Kelly summed up the key challenges facing the mining 
sector in the SADC region as: 1) funding for regional infrastructure 
and network integration, particularly for transportation and energy; 
2) ensuring beneficiation, both in terms of adding value to minerals 
and building greater capacity in the SADC countries; and 3) 
addressing social and environmental responsibility. 
 
//Zambia's Lumwana Success Story// 
 
¶5. (U) Michael Richard, chief geologist, and Harry Michael, chief 
operating officer of Canada-based Equinox Minerals, gave an overview 
of the massive Lumwana mining venture in northwestern Zambia (near 
Solwezi).  The executives noted that many past prospecting, 
exploration, and feasibility studies at the site did not translate 
into a full-blown project due to low copper prices and other timing 
factors.  One key for the recent success so far has been the timing 
of the rise in copper prices, when a banking feasibility study was 
being finalized in 2003, followed by a definitive feasibility study 
in 2005.  Higher copper prices also made financing easier to 
arrange, though not less complicated: 12 international banks are 
involved in several different financing arrangements for the 
venture.  Equinox has raised USD 250 million in equity and is 
finalizing USD 574 million in financing for the Lumwana project. 
The executives also underscored the long lead times required for the 
project: 8 years to construction and 10 years to commissioning the 
mine operation, in 2008.  The lifespan of the mine is estimated at 
37 years, and Equinox expects to produce a total of 6.3 million tons 
of copper. 
 
¶6. (U) Equinox continues exploration of various prospects in the 
Lumwana concession, and results continue to be encouraging.  It 
hopes to see the amount of proved and probable copper ore reserves 
(currently 321 million tons, at two sites: Chimiwungo and Malundwe) 
increase.  The grade of the copper ore is low: one-third of that 
typically found in Zambia's Copperbelt region, and one-tenth that 
found in the Democratic Republic of Congo.  Lumwana also has an 
"indicated and inferred" uranium resource of 21.8 million pounds. 
 
LUSAKA 00001647  002 OF 002 
 
 
 
¶7. (U) The GRZ has been very supportive of the project, and 
President Mwanawasa attended an August 2006 groundbreaking ceremony. 
 The Equinox executives noted the company enjoyed good relations 
with the Zambian national, provincial and local governments, 
including tribal leaders.  The GRZ promised to maintain roads that 
connect the mine to rail lines.  Equinox negotiated affordable 
electric power rates with national electric utility ZESCO for a 
long-term supply of power (15 years).  ZESCO also will construct a 
65-km power line extension to Lumwana.  Equinox is entering into 
deals with smelters in Zambia and in the region. 
 
¶8. (SBU) Comment: Although other mine operators, including Canada's 
First Quantum Minerals and South Africa's Metorex, have voiced 
concern about the legality of a possible increase in royalties, 
Equinox has not made any public comment.  It is not clear how big an 
impact a higher royalty rate would have on Equinox's bottom line, or 
on Zambia's ability to attract more investment in the sector. 
Continued strong demand and high prices for copper are probably more 
decisive factors for investors in the sector. 
 
MARTINEZ