VZCZCXRO9315
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHLS #0744/01 2000603
ZNR UUUUU ZZH
R 180603Z JUL 08
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC 6070
INFO RUEHKI/AMEMBASSY KINSHASA 0514
RUEHSA/AMEMBASSY PRETORIA 4929
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 0131
RUEHBY/AMEMBASSY CANBERRA 0040
RUEHLO/AMEMBASSY LONDON 0350
RUEHMO/AMEMBASSY MOSCOW 0282
RUEHFR/AMEMBASSY PARIS 0153
RUEHOT/AMEMBASSY OTTAWA 0088
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 06 LUSAKA 000744 
 
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: ZAMBIAN COPPER BELT BLOOMS, BUT CHALLENGES REMAIN 
 
REF: A) LUSAKA 666 
B) LUSAKA 376 
C) KINSHASA 515 
 
LUSAKA 00000744  001.2 OF 006 
 
 
¶1.  (U) This cable represents the fourth in a series of reports 
stemming from an innovative resource-reporting and commercial 
advocacy collaboration between Embassies Pretoria, Kinshasa, and 
Lusaka (reftels A and C and septel pending from Kinshasa).  This 
cable summarizes mines visited in Zambia. 
 
¶2.  (SBU) SUMMARY: Copper and cobalt supply shortage and price 
escalation have provided the incentive for international mining 
companies to invest in new exploration and mega-projects in the 
Central African Copperbelt.  The Copperbelt straddles the DRC/Zambia 
border and represents the world's second greatest source of copper, 
after Chile.  Investment has flowed into the region, despite 
significant lack of skills and infrastructure, and an increasingly 
uncertain power supply.  In Zambia, recent tax legislation and 
changes to existing development agreements between mines and the 
Zambian government have introduced uncertainties for investors, 
which could have major negative implications for new investment. 
Nevertheless, companies intend to continue with short-term and major 
commitments because of the huge costs already incurred and long-term 
confidence in the geology. 
 
¶3.  (SBU) Earlier interpretations of the geology of the 
"traditional" Copperbelt envisaged a simple sedimentary-hosted 
copper deposit.  More recent work has shown that the geology and 
mineral associations are much more complex, particularly in newer 
remote mines, and that mineralization differs from mine to mine. 
Much research is being concentrated on the remoter areas of the 
Lufilian Arc, which has opened up a whole new vista of exploration 
targets.  The industry target for copper production in Zambia in 
2009 is 750,000 tons, which will raise it to levels last achieved in 
the 1960s and 1970s when the Zambian Copperbelt consistently 
produced more than 700,000 tons of copper per year.   End Summary. 
 
 
----------- 
Mine Visits 
----------- 
 
¶4.  (SBU) The collective Embassies' mining team visited the 
following mines and facilities in Zambia: 
 
-- Kansanshi open pit copper/gold mine owned by First 
Quantum Minerals Limited (FQ) of Australia/Canada (80 percent) and 
parastatal ZCCM (20 percent); capex $360 Million; 
-- Lumwana open pit copper/uranium project owned by 
Equinox Minerals of Australia (94.45 percent) and ZCCM (5.55 
percent); capex $784 million; 
-- Bwana Mkubwe metallurgical plant processing oxide ore  from 
Lonshi mine in the DRC and owned by First Quantum (100 percent); 
capex $55 million; and 
-- Chibuluma underground copper/cobalt mine owned by 
Metorex of South Africa (85 percent) and ZCCM (15 percent); capex 
$97 million. 
 
¶5.  (SBU) The mining team also drove by the Chinese Chambesi, Indian 
Vedanta Konkola, and Swiss Glencore/J&W Investments Mopani mines, 
where the team's formal requests for visits were not answered.  The 
tour was greatly facilitated by First Quantum Minerals Limited (FQ) 
DRC Country Manager Jeffery Ovian who arranged the FQ mine visits, 
air and road transport, and accommodation at the company's guest 
house in Ndola, Zambia. 
 
-------------------------- 
Kansanshi Copper/Gold Mine 
-------------------------- 
 
LUSAKA 00000744  002.2 OF 006 
 
 
 
¶6.  (SBU) Zambia's Kansanshi mine, located off the conventional 
Copperbelt, has ramped up copper production to become Zambia's 
largest producer, but it will  be eclipsed by the more remote 
Lumwana mine under development (Ref B).  FQ generously facilitated 
transfer of the embassy team from the DRC to Kansanshi, which is 
located in Zambia's northwestern province 10 kilometers north of the 
town of Solwezi.  Mine Manager Russell Alley and his geologist 
hosted the tour of the mine facilities on May 15.  Kansanshi was 
first mined in the fourth century AD and has been intermittently 
mined since.  FQ bought the mining rights from Cyprus Amax Minerals 
in 2001 and began commercial production in April 2005.  Kansanshi 
has a 25-year mining license and an estimated 30-year mine life. 
 
¶7.  (SBU) The Kansanshi deposit lies within the core of Lufilian 
Arc, but does not represent "conventional" Copperbelt geology or 
mineralogy.  Mineralization is complex and occurs in the upper zone 
of the Copperbelt sequence, containing copper and gold, but no 
cobalt.  Oxide ore occurs as a cap on and replaces sulfide ore in 
and below the sulfide zone where structural movements exposed ore to 
oxygen and water.  The sulfide ore occurs both in and between 
steeply dipping, quartz-carbonate veins and vein swarms, and along 
bedding planes within the rocks of the mine formation.  The ore body 
is shaped like a Christmas tree in section.  Kansanshi's total ore 
reserve and resource estimate is 433 million tons (50 million tons 
of oxide cap), grading 1.16 percent copper (11 billion pounds) and 
0.16 grams of gold per ton (2.2 million ounces).  During phase one, 
or the first eleven years of the project, the grade will be higher 
at 1.74 percent copper and 0.27 grams of gold per ton.  During phase 
two, the total ore reserve is expected to decrease to a mineable 
resource of 197 million tons grading 1.16 percent copper and 0.12 
grams of gold per ton. 
 
¶8.  (SBU) Ore is produced from two shallow pits using conventional 
truck and excavator methods to produce oxide, sulfide and mixed ore 
streams.  Plant capacity is 6 million tons of oxide ore and 8 
million tons of sulfide ore per year, with overall recoveries of 80 
percent.  A third sulfide circuit is being built that will increase 
throughput to 12 million tons per year.  Sulfide ore is treated in a 
conventional crushing-milling-floatation circuit to produce copper 
concentrate that is trucked to existing smelters on the Copperbelt. 
The oxide ore is treated in a conventional acid-leach/solvent 
extraction/electro-winning (SX/EW) circuit to produce pure 99.95 
percent cathode copper.  Monthly output before expansion was 6,300 
tons of copper in concentrate and 6,000 tons of cathode copper. 
Current monthly output is estimated at 6,250 tons of concentrate and 
8,750 tons of cathodes.  Some 105,000 tons per year of cathodes are 
exported via South Africa (80 percent) and Tanzania (20 percent) and 
this will increase to 140,000 tons when expansion is complete. 
Total copper output and future production estimates are: 
 
Year          2005    2006     2007     2008     2009+ 
Copper (tons) 70,000  127,000  164,000  181,000  220,000 
 
¶9.  (SBU) A proportion of Kansanshi concentrate is being treated in 
a pressure oxidation process known as High Pressure Leach (HPL) that 
converts sulfide ore into an acid-leachable product amenable to the 
SX/EW process.  This route eliminates the need for a smelter and 
allows for on-site production of a high-grade copper cathode.  It 
also generates much of the sulfuric acid required for oxide 
leaching, currently at 400 tons per year, which will increase to 850 
tons once expansions are completed this year.  However, valuable 
by-products are lost in the HPL process and there could be an 
increase in energy consumption.  The economics of the HPL process 
are being evaluated.  The mine currently needs 80 megawatts of 
electricity (15 megawatts for the SX/EW plant) but is restricted to 
75 megawatts due to power shortages.  It has 20 megawatts of its own 
diesel capacity. 
 
 
LUSAKA 00000744  003.2 OF 006 
 
 
----------------------------------- 
Lumwana Copper/Uranium Mine Project 
----------------------------------- 
 
¶10.  (SBU) The mining team visited the ambitious Lumwana Mine 
project in northwest Zambia on May 19 (Ref A).  Lumwana is owned (94 
percent) and operated by Equinox Minerals of Australia.  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 have still 
to be completed, but the team was shown the $408 million processing 
plant that will contain 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 qualified people and families. 
 
¶11.  (SBU) Lumwana is noteworthy because of its very large -- but 
low grade -- copper resources, its high uranium content, and its 
lack of cobalt.  The deposit lies in the middle of the Lufilian Arc 
some 220 kilometers west of Chingola and 80 kilometers west of 
Kansanshi mine.  Two deposits are being developed for open pit 
mining and will use conventional open pit methods.  Uranium occurs 
as younger, discrete deposits associated with copper. 
Three-quarters of the uranium occurs within the planned pit limits 
and will be selectively mined and stockpiled until a uranium plant 
is completed in mid-2010.  The deposits copper/uranium association 
is fairly unique and comparable with Shinkolobwe in the DRC and 
Olympic Dam in Australia.  The mine is currently in the final stages 
of development and September should see the first output of copper 
concentrate.  Reserves and resources are: 
 
                                  Million   Grade percent 
                                  (Tons) 
Copper Reserves (at $1.20/lb)       321      0.73 
U3O8 In-pit Resources (at $11/lb)   7.2      0.083 
  Associated Copper                 7.2      1.04 
Total U3O8 Resources                9.5      0.093 
 
¶12.  (SBU) Lumwana will be the biggest surface operation and 
copper-producer in Africa when in full production next year (but 
will be over-taken eventually by Tenke Fungurume Mine in the DRC). 
Lumwana will also be the twentieth-largest copper producer in the 
world, and will add 35 percent to Zambia's copper output.  The mine 
will deliver 169,000 tons of copper in concentrate per year for the 
first six years.  The pits also contain a limited quantity of oxide 
ore that is being stockpiled for future processing.  The total 
estimated capital cost of the project is about $780 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.  (Note:  Because of 
the low grades and lack of cobalt in the ore, there has been no 
artisanal mining in the area.  End Note.) 
 
¶13.  (SBU) All mining equipment is on site including twenty-seven 
240-ton Hitachi/Euclid trucks, each costing $4 million and requiring 
2 megawatts of power, and seven Hitachi shovel/excavators, each 
capable of moving 700 tons per hour.  Trucks are powered by 
diesel-electric motors, which allow for driving in the pit on diesel 
and 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 and subsequently conveyed 
4.5-kilometer to the milling circuit. 
 
¶14.  (SBU) Lumwana's process plant employs a conventional floatation 
circuit and should have been commissioned at the end of June, with 
first concentrate (30-40 percent copper) production taking place in 
September 2008.  Unfortunately, fire damage to an electricity 
transformer 
 
LUSAKA 00000744  004.2 OF 006 
 
 
on June 7 has delayed commissioning to an undetermined date.  Some 
forty trucks per day will carry 1,200-1,400 tons of concentrate to 
two smelters on the Copper belt, on five-year off-take contracts. 
The plant 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. 
 
------------------------------------------ 
Bwana Mkubwa Oxide Copper Processing Plant 
------------------------------------------ 
 
¶14.  (SBU) The embassies mining team visited the Bwana Mkubwa (BM) 
copper oxide processing plant on May 16.  BM is located on the 
eastern edge of the "traditional" Copperbelt on the Zambian side of 
the border.  The plant was the first major investment on the Copper 
belt following privatization of the mines in 1997 and is 100 percent 
owned by FQ.  BM is a conventional oxide leach/solvent 
extraction/electro-winning (SX/EW) facility and was built in 1998 to 
process tailings from the old BM mine.  The plant has produced 
cathode copper and sulfuric acid since 1998 for FQ company use and 
for sale in the region. 
 
¶15.  (SBU) FQ conducted exploration in the area to secure additional 
feed for the BM plant and discovered the Lonshi high-grade (8-10 
percent copper) oxide deposit in the DRC, some 35 kilometers east of 
the plant across the border.  The plant expanded its SX/EW capacity 
in 2002 to take an increased blended feed of Lonshi ore and BM mine 
tailings.  BM produced 51,000 tons of cathode copper (99.95 percent 
fine) from 520,000 tons of ore grading 10.3 percent copper and 18.8 
million tons of tailings in 2006, at a total cost of $1.04 per 
pound.  Production of copper cathodes was down nearly 50 percent to 
25,400 tons in 2007, due to closure of the border to ore exports by 
DRC authorities who want ore beneficiated locally.  Border closures 
and pending cessation of production at Lonshi are expected to 
further reduce BM output to only 12,000 tons in 2008.  Thereafter, 
FQ will need to find other sources of oxide copper ore, convert the 
plant to process sulfide ores, or close the plant.  BM had only one 
working SX/EW circuit at the time of the visit.  Total cathode 
copper production is: 
 
Year         2003   2004   2005   2006   2007   2008(est) 
Copper(tons) 38,000 43,000 41,000 51,000 25,400 12,000 
 
--------------------------------------------- --- 
Chibuluma (South) Underground Copper/Cobalt Mine 
--------------------------------------------- --- 
 
¶16.  (SBU) The embassies mining team visited South African Metorex's 
Chibuluma (West) Mine on the Copperbelt on May 20.  General Manager 
Ed Mounsey met and introduced the team to Mine Manager Jan Trouw who 
organized the mine and plant visit.  Chibuluma South was discovered 
in 1969, nationalized by the GRZ in 1982, and was the first mine to 
be privatized in October 1997 when a Metorex consortium bought an 85 
percent share from ZCCM, the government-owned mining company.  It 
was also the first new underground mine to open on the Zambian 
Copperbelt in 30 years.  The mine hosts a more conventional 
Copperbelt-type, high-grade primary sulfide orebody.  It ranges in 
thickness from 10 to 40 meters, with an average 15 meters, has a 
strike length of 400 meters, and extends to a known depth of 600 
meters.  Ore reserves consist of 7-8 million tons grading 3.6 
percent copper and 0.3 percent cobalt, with a production life that 
extends to about 2016.  It also contains a small percentage of oxide 
in the upper levels that is stockpiled for later processing. 
 
¶17.  (SBU) the mine's primary ore is thought to be sedimentary in 
 
LUSAKA 00000744  005.2 OF 006 
 
 
origin with later quartz vein enrichment.  Access to the mine is via 
a decline spiral ramp from the surface that allows motorized 
vehicles, equipment and personnel to drive into and out of the mine. 
 Some 40,000 to 50,000 tons of ore is mined and processed per month. 
 Chibuluma employs a fairly conventional cut-and-fill mining method, 
with rib and buttress pillars to support the hanging roof, stabilize 
the mine, and prevent dilution from upper levels and the worked-out 
open pit.  Mining voids are filled using prepared tailings from the 
process plant, which are then pumped into cleaned open stopes.  It 
may be possible in the future to recover high-grade ore contain in 
the supporting pillars. 
 
¶18.  (SBU) The Chibuluma South metallurgical plant was designed as a 
conventional, three-stage crushing, milling and flotation process 
with separate circuits for oxide and sulfide ores.  When oxide ore 
was mined in the open pit, a mix of copper and cobalt was recovered 
and the oxide ore was "sulfurized" to render it amenable to 
floatation and concentration.  Cobalt-hydrate concentrate was also 
produced and sent to Metorex's Sable refinery, north of Lusaka. 
Current processing of deeper sulfide ore produces a 40 percent 
copper concentrate that is sent to the Chingola smelter for casting 
into copper anodes containing 99.5 percent copper.  The oxide 
treatment plant is currently idle but is maintained for future 
processing of 60,000 tons of stockpiled ore grading 2.5 percent 
copper, oxide ore to be mined at Memorex's Chifupu development, and 
stockpiles at other mines without the requisite processing 
facilities.  Total ore, concentrate and copper production is: 
 
Production:            2005    2006    2007    2008(est) 
Ore(est. tons/mo)      14,000  25,000  45,000  48,000 
Conc(tons/mo)             850   1,500   2,900   3,100 
Copper in Conc(tons/yr) 4,400   7,700  15,400  15,000 
 
-------------------------------------- 
Social Commitments - a License to Mine 
-------------------------------------- 
 
¶19.  (SBU) All mines on the Copperbelt, and especially in the remote 
areas, are committed to programs of social development and 
upliftment on the mines and in the surrounding communities.  This 
has become a worldwide requirement as most mines are in poor and 
underdeveloped rural areas.  The mines would lose their "social 
license to mine" and encounter labor and community unrest without 
such programs.  All mines visited have programs in place, generally 
tailored to the particular needs of the local communities. 
Provisions include mine housing, medical care, educational, power, 
water, road and rail, social infrastructure, nutrition schemes, 
recreational facilities, subsidizing salaries for teachers and 
medical staff, and subsidizing small business projects by providing 
the facilities, materials and markets for products such as 
brick-making, vegetables-growing, Jatropha-growing for bio-fuels, 
and briquette-making using Jatropha residues.  A major feature of 
the social programs is the great effort being put into training 
locals, who in most instances have limited exposure to the 
techno-industrial world.  Companies have committed to training and 
hiring locals to fill most of their mining positions. 
 
------------------------------ 
Challenges Facing Copper Mines 
------------------------------ 
 
¶20.  (SBU) The mining industry faces numerous challenges in Zambia, 
but industry appears to have considered the risk surmountable 
because of the size, abundance and quality of the copper/cobalt 
resource-base and the international price of these commodities. 
Unfortunately, the investor-friendly image projected by Zambia since 
privatization in 1997 has been tarnished by the GRZ's recent 
unilateral implementation of its new tax regime and mining code. 
Industry leaders liken this to "nationalization by taxation" in that 
 
LUSAKA 00000744  006.2 OF 006 
 
 
they calculate that the government take is likely to far exceed 
returns to investors.  They also complain that industry no longer 
has any say or input into government policy-making.  This has 
resulted in a wait-and-see investment slow-down.  Anecdotally, a 
number of projects have been put on watch and exploration has been 
put on hold pending the eventual outcome of government-industry 
negotiations. 
 
¶21.  (SBU) The remoteness of some mines and their potential long 
life have necessitated that management take a long-term view of the 
need for skills, social amenities, infrastructure and utilities.  As 
a result, Kansanshi has built housing and Lumwana is building a new 
town with recreation and shopping facilities, housing, schooling, 
and extensive training opportunities for local employees, most of 
whom have no mining or industrial experience.  The key challenges 
include: lack of skills and training requirements; overcoming 
cultural differences and tribal xenophobia; obtaining permits to 
import specialist skills; remoteness of mines and the lack of 
adequate, reliable infrastructure; cost of operations; delays in 
obtaining operating licenses and permits; government expectations 
beyond mine social development; DRC/Zambia cross-border 
restrictions; lack of smelting capacity in the Copperbelt; and 
supply logistics, and infrastructure to attract skilled workers. 
 
------- 
Comment 
------- 
 
¶22.  (SBU) Mines are the most significant development nodes in 
Zambia and the increase in mining activity since privatization is 
evident in the relatively better quality of life in mining towns. 
Road, rail, smelter and power infrastructure and skills availability 
are generally inadequate, but the mines cope by investing themselves 
in new facilities, undertaking maintenance and repair, building 
social capacity, and supporting massive skills training programs.  A 
new Chinese smelter is also being built at Chambesi on the Copper 
belt and, together with expansions to three others, Zambia will have 
a total annual smelting capacity of nearly 300,000 tons of blister 
and anode copper by about 2009 (almost half of Zambia's estimated 
copper concentrate production). 
 
¶23.  (SBU)  The recent upsurge in apparent Zambian "resource 
nationalism" has led to what appears to be a poorly thought-out and, 
according to operators, overly onerous fiscal regime and mining 
code.  This has introduced a higher level of uncertainty and risk, 
which could slow private investment.  Companies take a longer-term 
view of this as a cyclical phenomena resulting from high commodity 
demand and prices.  Mining companies are likely to continue to 
invest in exploration and development of new mines in Zambia, as 
long as the ample geological potential favors long-term good 
returns, and short of outright nationalism. 
 
Martinez