Central Africa To Drive Copper Output Growth
BMI View: We forecast Africa to undergo the fastest regional growth in copper production over the period to 2016. The copperbelt areas of Zambia and the DR Congo will account for much of this marginal output. We expect this region to continue receiving substantial investment interest as our forecast for lower prices will ensure the countries' high grade reserves become increasingly attractive.
The copperbelt regions of Zambia and the DR Congo are set to be one of the key drivers of global mined copper production in the coming years and make Africa the fastest growing continent in terms of copper output. At present Africa is the smallest copper producing continent, with output reaching 1.4mnt in 2011, 8.4% of global production. We expect the continent to add another 700ktpa (thousand tonnes per annum) of copper by 2016, the fastest rate of growth out of all the major continents.
|Latin America To Remain In Front|
|Global - Copper Output By Continent (million tonnes)|
Zambia and the DR Congo will be the main drivers of Africa's copper production growth as the continent's main copper area, the copperbelt, sees substantial investment. We expect Zambia to record the fastest growth rate in copper output out of the ten largest copper producers and forecast output increasing by almost 50% from the 2011 level of 784kt to 1.1mnt in 2016, when it will be the fifth largest producer in the world. Much of the growth in Zambia will be driven by First Quantum and Vedanta, and we expect further investment to come in given the region's high grade reserves. The DR Congo will record faster growth, albeit from lower production levels. We forecast copper output in the country will grow at an annual average rate of 12.0%, reaching 775kt (kt) in 2016 from 440kt in 2011. Aside from these two countries we expect the start of copper mining in Botswana as the government seeks to move away from its dependence on diamonds.
|Africa To Drive Output Growth|
|Global - Average Annual Growth Rate In Copper Production, 2012-2016 (% Chg y-o-y)|
High Grade Deposits Give Further Attraction
Zambia and the DR Congo boast some of the largest high-grade deposits due to come online in the next five years. The Konkola and Kamoto mines are estimated to contain grades above 3.0%, which is significantly higher than the global average of 0.6%. This will be an increasingly important issue as some of the world's largest mines, such as Antamina in Peru, Escondida in Chile and Grasberg in Indonesia, have experienced falling ore grades and thus higher extraction costs. Indeed, as we expect oil prices to stay elevated for the foreseeable future, we anticipate margins will remain relatively tight and thus the attractiveness of high-grade, low cost mines in DRC and Zambia will increase. Furthermore, given our below consensus view on copper prices, forecasting an average of US$7,800/tonne in 2012 and US$7,200/tonne in 2013, we expect miners to be increasing concerned about cash costs as margins are squeezed.
|Copperbelt To Drive Growth|
|Select Countries - Copper Production Forecasts (kt)|
Risks To Outlook
The key risk to out bullish forecast for copper production for these countries is their reliance of metal demand from China. Around three-quarters of Africa's copper output is destined for China. In line with our below consensus view on the Chinese economy, the country's copper demand could fall below expectations and thus Zambia and DR Congo may need to diversify demand away from China.
In addition, the Zambian government announced its intention to increase electricity tariffs, which will increase costs for mining operations and could have a negative impact on output. Finally, while not our core view, if President Sata pursues a more punitive line against miners, such as the re-introduction of a windfall tax on mining companies' profits, then we may see companies look elsewhere for investment opportunities.
|Source: BMI, Company Reports|
|Botswana||Discovery Metal||Boseto||36ktpa in 2012||na|
|Botswana||Hana Mining||Ghanzi||Reserves: 500kt, due to come online in 2013||na|
|DR Congo||Katanga Mining||Kamoto||145ktpa||2012|
|Zambia||Glencore International||Mopani||Increase from 150 to 215ktpa||2013|
|Zambia||Vedanta||Konkola||Double to 400ktpa||2015|
|Zambia||First Quantum||Kansanshi||Increase from 300 to 400ktpa||2015|