VZCZCXRO3826
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHLS #0666/01 1720543
ZNR UUUUU ZZH
R 200543Z JUN 08
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC 5983
RUEHKI/AMEMBASSY KINSHASA 0508
RUEHSA/AMEMBASSY PRETORIA 4915
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DOE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEHBJ/AMEMBASSY BEIJING 0123
RUEHBY/AMEMBASSY CANBERRA 0034
RUEHLO/AMEMBASSY LONDON 0341
RUEHMO/AMEMBASSY MOSCOW 0276
RUEHFR/AMEMBASSY PARIS 0143
RUEHOT/AMEMBASSY OTTAWA 0082
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 06 LUSAKA 000666 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
 
E.O.   12958: N/A 
TAGS: EMIN ENRG EINV EIND ETRD ELAB CG ZA SF
SUBJECT: DRC/ZAMBIA COPPER BELT - EQUINOX'S GIANT LUMWANA 
COPPER/URANIUM PROJECT 
 
REF: A) LUSAKA 344 
B) LUSAKA 349 
C) LUSAKA 376 
 
¶1. (U) This cable represents one of a series of DRC/Zambian 
copperbelt mine-specific reports emanating from a ground-breaking 
resource-reporting and commercial advocacy collaboration between 
Embassies Pretoria, Kinshasa, and Lusaka. 
 
¶2. (SBU) SUMMARY:  North-western Zambia's Lumwana Mine is noteworthy 
because of its remoteness from the "traditional" Copperbelt with its 
high grade copper and cobalt ores, and for its very large but 
low-grade copper reserves and resource base.  Discrete younger 
deposits of uranium are intimately associated with the copper and 
will be selectively mined and stockpiled until the uranium plant is 
completed in mid-2010.  This mineral association is fairly unique 
and comparable with Shinkolobwe in the DRC (source of the "Manhattan 
Project") and Olympic Dam in Australia.  The mine is currently in 
the final stages of development and first production of first copper 
concentrate is targeted for September 2008.  This schedule has not 
been significantly affected by the power cut-offs and shortages 
plaguing Zambia.  When in full production next year, Lumwana will be 
the biggest surface operation and copper-producer in Africa, 
twentieth largest copper producer in the world, and will add 35 
percent to Zambia's copper output.  Total estimated capital cost of 
the project is about $800 million, which is the largest investment 
ever made in Zambia.  Mine life is estimated to be 37 years, but 
known mineralization is extensive and production could continue far 
beyond that time.  Lumwana is wholly owned and operated by Equinox 
Minerals of Australia, which is listed on both the Australian and 
Toronto stock exchanges. 
 
¶3. (SBU) The remoteness of the mine and its potential long life have 
necessitated that management take a long-term view of its need for 
skills, social amenities, and the provision of infrastructure and 
utilities.  As such, a wholly new town is being constructed with 
recreation and shopping facilities, housing, schooling, and 
extensive training opportunities for local employees, most of whom 
have no mining or industrial experience.  Five-year off-take 
contracts are in place with two local smelters for the mine's total 
output of copper concentrate.  In April the Zambian government 
unilaterally imposed a new tax regime that could have negative 
repercussions on new investment decisions.  Lumwana management is 
confident that the project will continue as planned and that the GRZ 
will take cognizance of the unintended consequences of the new tax 
and concerns expressed by the mining industry.  End Summary. 
 
¶4.  (SBU) Embassy Pretoria Mining/Energy Officer and Specialist 
visited mines on both sides of the DRC/Zambia copper belt May 12-23 
to assess developments in the sector, covering six mines in the DRC 
and four in Zambia.  Septel provides an executive summary of 
developments on both sides of the border of the copper-cobalt belt. 
Supplementary septels on other mines and issues will follow. 
Companies were helpful in supporting the well-received visits. 
Embassy Pretoria Mining/Energy Officer and Specialist and Lusaka 
Commercial Specialist visited Equinox's Lumwana Mine in north-west 
Zambia on May 19.  Managing Director Harry Michael hosted the team 
and took great pride in showing off his $165-million mining fleet of 
gigantic trucks, excavators, and shovels.  Most of the facilities 
visited are still under construction, but the team was shown the 
$408-million processing plant that will include the largest grinding 
mills in the world, the new village to house 1,200 employees, the 
school for 2,000 children, and the shopping center that will 
normalize family life.  The remoteness of the mine requires that 
Lumwana town provide most amenities in order to attract experienced 
people and families. 
 
--------------------------------------------- ---- 
 
LUSAKA 00000666  002 OF 006 
 
 
The Central African Copperbelt - a Treasure Trove 
--------------------------------------------- ---- 
 
¶5. (SBU) The Zambian/DRC copperbelt and extensions (known as the 
Central African Copperbelt) is the richest copper-cobalt mineral 
province in the world, comparable with South Africa's Witwatersrand 
gold field and platinum-bearing Bushveld Complex.  Deposits occur in 
a geological feature known as the Lufilian Arc that stretches some 
500 kilometers from east to west and is about 150 kilometers wide. 
The Lumwana copper/uranium deposits lie in the middle of the arc and 
are 220 kilometers from the mines in Chingola and about 100 
kilometers south of those in Kolwezi in the DRC.  On the map Lumwana 
appears remote from "traditional" copperbelt geology.  However, 
researchers have correlated Lumwana's geology with that of the 
copperbelt, despite the rocks being highly deformed and altered. 
During Lufilian geological times, minerals were remobilized and new 
minerals introduced, giving rise to significant mineralization of 
copper, cobalt, uranium, gold, silver, and minor metals.  The 
geology of the Lufilian Arc has been extensively reviewed and new 
interpretations have significantly increased the potential for new 
discoveries. 
 
-------------------------------------- 
Lumwana Mine - a Long Life Superlative 
-------------------------------------- 
 
¶6. (SBU) Two substantial deposits on the Lumwana lease are being 
developed for surface mining.  The Malundwe and Chimiwungo pits have 
a combined proved and probable sulfide ore reserve of 321 million 
tons at 0.73 percent copper and an inferred resource of 417 million 
tons at 0.60 percent copper.  These test the low end of economic 
grades, but Lumwana's economics are based on the massive scale of 
the reserves and project.  The pits also contain a limited quantity 
of oxide ore that is being stockpiled for future processing. 
Sulfide and oxide ores require different metallurgical processes and 
are stored and treated separately.  Mine feasibility was determined 
at a copper price of $1.20-$1.50 per pound (copper is currently 
$3.50 to $4.00 per pound).  In total, Lumwana hosts an in-situ 
resource of 14 billion pounds or 6.4 million tons of copper, as well 
as the uranium.  Because of the low grades of mineralization, there 
has been no artisanal mining in the area. 
 
--------------------------------------- 
Mining Operations at the Starting Block 
--------------------------------------- 
 
¶7. (SBU) Mining operations started in April 2007 at the smaller 
Malundwe pit and reached primary sulfide ore at a depth of 20 
meters.  Current plans are to mine two pits over a 37-year life of 
mine at a rate of 20 million tons of ore per year, starting in 
September 2008.  The first six years will yield 500,000 tons of 
concentrate equal to 170,000 tons of copper metal.  All mining 
equipment is on site and the team was able to climb into the driver 
cabin of one of the 240-ton ore-load trucks.  These Hitachi/Euclid 
trucks are massive and each weighs 200 tons, costs $4 million and 
requires 2 megawatts of power.  The giant tires have an external 
diameter of some three meters and cost $65,000 each.  Trucks are 
powered by diesel-electric motors, which allow for driving in the 
pit on diesel and for connecting to overhead electric trolley cables 
(trolley assist) when hauling ore out of the pit.  Ore from the pit 
will be hauled to a primary crusher at the top of the ramp, reduced 
to minus 400 mm size in the crusher, and transported to the milling 
circuit on a 4.5-kilometer overland conveyor belt. 
 
--------------------------------------- 
Processing - the Heart of the Operation 
--------------------------------------- 
 
 
LUSAKA 00000666  003 OF 006 
 
 
¶8. (SBU) Lumwana will produce a final copper concentrate product 
containing 30 percent to 40 percent copper metal.  The plant employs 
conventional processes that entail the reduction of mine ore to a 
size that will expose sulfide minerals to recovery agents.  Lumwana 
has a five-year take-and-pay off-take agreement with the Chinese 
Chambishi smelter (55 percent) and the Glencore Mopani smelter (45 
percent), both located in the traditional Zambian cCpperbelt.  Both 
the smelters are currently under construction but the contract 
allows Lumwana to deliver and be paid as soon as production starts 
and concentrate is delivered to the smelters.  Forty trucks per day 
will carry 1,200-1,400 tons of concentrate containing 32-40 percent 
metal to the smelters for conversion to metal.  (Comment.  Industry 
sources say that Mopani may have slowed/stopped construction on the 
smelter pending clarification of the impact of the new tax regime. 
End Comment.). 
 
¶9. (SBU) Lumwana's process plant should be commissioned at the end 
of June, with first concentrate in September 2008.  The estimated 
cost of the plant is $408 million and it boasts a number of 
superlatives, namely the world's biggest semi-autonomous grinding 
mill (SAG mill) and a similarly rated ball mill.  Both are driven by 
concentric gearless electric motors (similar to an electric 
generator), which draw 18 and 16 megawatts of power, respectively. 
Each drive unit weighs in at more than 300 tons and the fully loaded 
SAG mill weighs 6,000 tons and rests on a base comprising 60,000 
tons of concrete. 
 
------------------ 
Uranium Adds Value 
------------------ 
 
¶10. (SBU) Equinox has completed feasibility and environmental 
assessment studies for the on-site treatment of discrete high-grade 
uranium orebodies.  These occur in the footwall and hanging wall of 
the copper formation partially within the copper deposit pit limits. 
 The study confirmed the viability of producing 2-million pounds of 
U3O8 concentrate or "yellow cake" per year for eight years at a 
plant cost of $200 million and operating cost of $16 per pound. 
Once the GRZ -- which has yet to implement a new national uranium 
mining policy --approves the license to process and export uranium, 
and negotiations are completed for uranium off-take consistent with 
IAEA and NPT guidelines, Board approval for the project is expected 
by the end of September and production for mid-2010.  The uranium 
process will also produce 15,000 tons per year of copper concentrate 
containing 50 percent metal.  Credits from the sale of the copper 
should reduce uranium costs to $11 per pound.  The current price of 
U3O8 is $59 a pound.  (Comment.  Harry Michael compared the Lumwana 
copper-uranium deposit to Shinkolobwe in the DRC and Olympic Dam in 
Australia.  Shinkolobwe provided the material for the Manhattan 
project that produced the first atomic bomb.  End Comment.). 
 
------------------------------------ 
Skills Training - a Local Imperative 
------------------------------------ 
 
¶11. (SBU) Zambia suffers from a chronic shortage of skilled and 
experienced mining personnel.  The long life projected for Lumwana 
convinced management of the need to employ and train people from 
local communities in order to sustain a stable and productive work 
force.  This was a difficult task because of the general lack of 
skills in nearby villages.  Despite this, Michael stated that they 
now have a team of ten trainers, three each from Zambia and 
Tanzania, two from Ghana, and only two expatriates.  He also said 
that the major percentage of future operators and artisans would be 
local hires and be trained locally and overseas.  Trainee drivers 
from the villages are given three months intensive training, 
including 40-50 hours in the truck simulator.  Michael said that 
with on-going experience, his drivers would equal operators anywhere 
 
LUSAKA 00000666  004 OF 006 
 
 
in the world. 
 
----------------------------------- 
Social Programs - a License to Mine 
----------------------------------- 
 
¶12. (SBU) Most new mining ventures in Africa are expected to provide 
needed services and facilities to communities surrounding the 
operation.  Generally these include direct and indirect involvement 
in and funding of projects such as the rehabilitation and building 
of roads, rail lines, power lines and plants, schools, clinics, 
community centers and sports fields.  Mines are also required to 
provide and/or subsidize the services of doctors, nurses and 
teachers.  These activities provide community (and government) 
acceptance and the so-called "social license to mine".  Lumwana mine 
is building a whole new town with all expected facilities and 
amenities for employees and their families, and will also provide 
services to neighboring communities that source labor. 
 
--------------------------------------------- ------ 
Government and Policy - Nationalization by Taxation 
--------------------------------------------- ------ 
 
¶13. (SBU) The 1996 mining code and subsequent Development Agreements 
(DA) signed between the mines and the GRZ made Zambia a good country 
for exploration and investment.  In view of booming copper-cobalt 
prices the government naturally wished to increase their share of 
these "windfall" earnings and notified industry of their intention 
to renegotiate fiscal conditions.  Despite this, the government 
unilaterally and without consulting industry (management claims) 
introduced two changes this year: a new tax regime for mining 
activities that supersede the terms in the DAs, and a new mining and 
minerals act that effectively nullifies the existing DAs.  Mining 
sources have said they are "waiting to see" what the statutory 
instruments that implement the new law look like as they have not 
yet been introduced.  The launch of the new mining taxation code on 
April 1 was based on bad advice from the World Bank and the EU 
(companies claim), without industry consultation. 
 
¶14. (SBU) The move is anticipated to earn the country a further $415 
to $650 million in 2008 and more if the copper price continues 
upward.  The new tax regime has imposed increases in royalties, new 
windfall, profits, and export levies, and prolonged the amortization 
of capital.  One common comment by all Zambian mine management 
visited was that the legislation had created "unintended 
consequences", including the increase in mine taxes to over 60 
percent of profits, compared to the 47 percent allegedly targeted by 
government.  The severity of the new taxes and levies is dependent 
on the circumstances of each mine.  Michael said that the poorly 
thought out structure of the system penalizes less profitable mines 
and that the new taxes could decrease Lumwana's life from 37 to 22 
years and put a constraint on future investment. 
 
--------------------------------------------- ------- 
Plans/Ideas for the Future - Pending Taxation Review 
--------------------------------------------- ------- 
 
¶15. (SBU) Equinox and other mining companies have expressed concern 
about the implications of the new fiscal regime on future mine 
investment and expansion plans.  Mine management is talking to 
government and Michael believes that the GRZ will adopt a pragmatic 
approach and modify the more severe aspects of the legislation. 
Lumwana's plans remain in place for the present.  These include 
expanding exploration around the Lumwana lease area and elsewhere on 
the Copperbelt, implementing opportunities to increase mine output, 
improving transport logistics, and in the longer term considering 
on-site production of refined copper metal and U3O8 concentrate. 
Proposals include: 
 
LUSAKA 00000666  005 OF 006 
 
 
-- constructing a hydro-metallurgical plant to recover copper metal 
(add value and eliminate the need for a smelter) 
-- increasing mine production from the planned 20 million tons of 
ore per year (170,000 tons metal) to 35 million tons ore (300,000 
tons metal) in five years 
-- evaluating a slurry pipeline versus a rail line to transport 
concentrate to Chambishi and Mopani smelters 
-- considering contributing to the construction of a rail line from 
Kitwe/Ndola via Kansanshi and Lumwana to the DRC and link with the 
Angola rail system. 
 
------- 
Comment 
------- 
 
¶16. (SBU) The significance of the Lumwana copper deposit is its 
location in a remote under-developed and under-explored region of 
Zambia close to the Angolan border.  This successful green-field 
project proves the extent of mineralization in the Lufilian Arc and 
should serve to attract and open up this previously neglected area 
to further high-tech exploration and investment in infrastructure 
and services.  Sixty-five kilometers to the east is First Quantum's 
Kansanshi mine, which also occurs in the Arc and hosts a 
substantial, relatively low-grade and complex copper/gold orebody. 
The two mines are gearing up to annually produce 240,000 tons of 
copper between them by mid-2009, and nearly 500,000 tons in the next 
five years.  Their combined activity could serve as a hub for 
economic growth and transport in the region. 
 
-------- 
Appendix 
-------- 
 
¶17. (SBU) APPENDIX - Lumwana Resources 
 
Copper Ore Reserves and Resources: 
 
Sulfide Ore: 
Mining Pits          Million Tons        percent Copper 
Malundwe Reserves    121                 0.89 
         Resource    4.2                 0.77 
Chimiwunga Reserves  200                 0.62 
           Resource  413                 0.60 
Total Reserves       321                 0.73 
      Resource       417                 0.60 
 
Oxide Ore: 
Reserves             9.6                 0.69 
Resource             3.6                 0.42 
 
In total, Lumwana hosts an in-situ resource of 14 billion pounds or 
6.4 million tons of copper. 
 
Major Mining Fleet Items: 
 
-- 27 X 200-ton hybrid diesel-electric Hitachi Euclid trucks each 
capable of carrying a 240-ton payload 
-- 7 X 518-ton Hitachi excavators/shovels with 27 cubic meter 
buckets capable of loading 4,000 tons of ore per hour 
-- 1 X 400 ton crane, which Michael said is the biggest in Africa 
-- 1 X truck simulator for driver training. 
 
Final Pit Dimensions: 
 
-- Malundwe 4.5 X 1.2 km to a depth of 250 meters and a stripping 
ratio of 7/1 (ratio of waste to ore mined) 
-- Chimiwango 6.0 X 4.5 km to a depth of 650 meters and a stripping 
ratio of 5/1. 
 
LUSAKA 00000666  006 OF 006 
 
 
 
Uranium Resources and Reserves: 
 
                Ore(Mt) U3O8 percent  U3O8(Mlbs) Cu percent  Cu(Mt) 
Total Lumwana   11.4    0.07   16.5        -    - 
In pit           5.7    0.10   12.5       0.9  55.1 
 
 
Lumwana Major Capital Items ($millions) 
 
Mining fleet          $165 
Copper plant          $408 
Uranium plant         $200 
Total                 $773 
 
Martinez