According to UNCTAD's 2020 World Investment Report, FDI flows in Zambia increased from USD 408 million in 2018 to USD 753 million in 2019. In the same year, the total FDI stock was estimated at USD 19 billion. FDI remains dominated by large mining investments from Canada, Australia, United Kingdom, China and the United States, in addition to large infrastructure and other projects performed almost entirely by Chinese companies. Zambia's infrastructure, whose poor quality is a barrier to investment, should be strengthened by investments in the road network, railways and the construction of power plants. The company Sinohydro Corporation should for example finalize the construction of the Kafue Gorge Lower hydroelectric power station (project valued at USD 2 billion) by the end of 2020. The megaproject to build a 2.4 GW hydroelectric power station on the Zambezi River (Batoka Gorge) was awarded in 2019 to the consortium formed by General Electric and Power Construction Corporation.As the country largely depends on the mining sector, the government is seeking to diversify the economy and to become less dependent towards copper. To this extent, several tax incentives are granted to foreign investors (for more info, consult the Investment Guide to Zambia by the Zambia Development Agency, ZDA). Generally, Zambian law does not restrict foreign investors in any sector of the economy, although there are some limitations (especially regarding land ownership, as there is no private land in the country, and specific sectors of national interest). However, the increase in taxes on mining companies, the plan to reduce tax deductions on investment expenses in 2020, the uncertainties concerning the tax framework (a revision of the mining code is underway), the high level of rates Interest and the disputed judicial liquidation of the Konkola mine could create an economic climate unfavorable to foreign investors in the years to come. The regulatory environment does not favor entrepreneurial activity, the requirements for commercial licenses being long and costly, and the application of regulations not being uniform. In addition, the protection of property rights and the enforcement of contracts are still weak by international standards. Zambia nevertheless ranks 85th out of 190 countries in the Doing Business 2020 report published by the World Bank, gaining two places compared to the previous edition.
Investors who invest at least USD250,000 in any sector or product not provided for as a priority sector or product, is entitled to non-fiscal incentives such as investment guarantees and protection against state nationalization and protection against non-commercial risks (Zambia is a signatory of Multilateral Investment Guarantee Agency).
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Members of the Foreign Affairs Committee of the Danish Parliament and officials from their Zambian embassy are dwarfed by giant 300-tonne Komatsu dump truck on their recent visit to the Chingola Open Pits operations of Konkola Copper Mines.
Zambia Development Agency (ZDA) Research, Planning and Policy Director Florence Mumba says out of the total earnings of about $2.8 billion (KR 14.2 billion) the mining sector raked in investment of more than $1.7 billion (about KR8 billion).
Ms Mumba attributed FDI inflows in mining to sound economic policies by the government and also the investor confidence in the Kalimbila project which is to become Zambias largest single mine with production capacity of more than 300,000 tonnes of copper outturn.
She revealed that Energy and manufacturing sectors also generated substantial earnings from the FDIs with energy raking in $700 million (about KR 3.5 billion) and manufacturing bringing in $92 million (KR 460 million) and job pledges being 115 and 754 respectively.
And Ms Mumba has said ZDA has identified several sectors for the year 2013 likely to continue attracting FDIs among them infrastructure, tourism, agriculture, agro processing, manufacturing, and energy, stating that the latter was the cornerstone for all development.
Good statistics but whose forex? When i drive through chirundu post my heart bleeds at the high number of plant and equipment headed for the copperbelt.When the PF came to power i was hopeful that Govt would increase its share in the mines and entities like Zambian Breweries, Zambia suger and so on.Even the winful tax is dead. My president what has happened to you? i still have hope table the wasting assets industry issue once again this is robbery gonig on,botswana its 50% govt and the rest the owners, lets get even 20% from mines. Please
Totally agree. In developed countries, citizens have money to buy shares and therefore can benefit from billions generated through a thriving economy. In zambia 8% growth and yet majority Zambians wallow in abject poverty because there is no way for most Zambia to take part in this economy. Bystanders at their own bountiful table how painful! Increasing govt equity in mines means Zambians will benefit in many more ways pls twapapata!
God is not happy when we damage His earth through mining activities like Open Pits. His original plan was that the earth be like Garden of Eden, not like Chingola open pits and dumping sites. We shall be punished indeed.
Thanks, the mines. But please lets be environmentally friendly. How about planting indigenous trees in areas and the peripherals of the mines. Have we harmonized the metal exports data at BoZ, ZRA and the mines to see if the figures tally? By the way, lets save those dollars. We might need them If rebasing hits a snag with the possible consequences of going the Zimbabwe way . As things stand, rebasing has really tested and stretched our arithematic skills as Zambians. Kaya, uko! Unga seka monga vya wama!
u r saying that the mine is contributing more than 63%.. why kcm wants to reduce labour .this month (january 2013) kcm is scheduled to prune more miners and employ more indians. why ..kcm has indian contractors who are bringing their fellow indians nd to make matters worse they dont have silicosis certificates which is a requirement for one to be employed. my brothers with valid silicosis certificates are just loitering in the streets. this is unfair to all zambians .. Why are they bringing Grindermen,welders, gas cutters as expertriates.. why why whymy fellow zambians are not being employed because of the same.. me i cannot agree with you that the mines is providing employment .. from which album. what is mr sata doing about this? .You promised
thats what happens when you sale companies the owners do what pleases their countrymen,Only solution Govt should buy back up to 30% shares, then they can have a say unlike relaying on KCMs good well.My heart bleeds. Mr president we are still hopeful.
i have been wondering why we seem not to know how much copper leaves the country. just from where the minerals are mined, we have our own tally men, we have our own men who watch weightometers in the concentators, smelters and refineries. its our men who load the finished products, its our men who are managing the weighbridges as the copper is being transported away from the mines. and we still claim we dont know how much leaves the country. all the senior guys in mining receive daily reports of what is being mined. we should avoid pretending that we dont know what is happening and want to pass the back to someone else. we can also follow the prices of metals on the LME.
The expectation from Zambians was that following the liberalization of the economy and the unprecedented privatization of the 1990s through to the dawn of the 21st century, the country would have started reaping the benefits by now from foreign direct investment (FDI). Alas, ordinary Zambians have not benefited in terms of raising their standards of living with improved education, health, social benefits and other economic benefits. While the shareholders of foreign companies have become richer, the custodians of copper and other mineral resources and land are wallowing in poverty.
In 1990, Zambia had an estimated FDI of $2.655 billion. By 2017, the quantum of FDI had reached an estimated $16.973 billion which is an increase of 539 % or an average annual increase of 20% per year. Zambias FDI is dominated by large mining investments from Canada, Australia, United Kingdom, Switzerland, USA and China mainly by large infrastructure projects.
The evidence of the fact that Zambia has not benefited is there for all to see based on the current dire economic statistics of the country, mismanagement not withstanding. The total estimated all inclusive public debt as recently announced by the ministry of finance is about $16 billion with about $9.4billion in foreign debt. The economic growth for 2018 is projected at 4.5%, unemployment is at an all time, foreign reserves are in precarious position of $1.8 billion, Zambians are likely to be subjected to over 17 taxes and levies in total moving forward, the latest fiscal deficit is about 7.6% .This clearly shows that FDI has not trickled down into the domestic economy directly and indirectly through multiplier effects.
In order to understand properly how Zambia has not benefited from FDI, it is important that the FDI analysis is divided into the two main categories: private foreign direct investment which is mainly dominated by companies from Western countries, and the Chinese Government, through its State Owned Enterprises. Both types of foreign direct investments have not sufficiently benefited ordinary Zambians nor sufficiently impacted the economy in a positive way.
Foreign direct investments from Western countries in Zambia are concentrated in mining. According to the World Bank, mining accounts for 12% of Zambias GDP and 70% of total export value and it constitutes 62% of foreign direct investment and so the analysis takes mines as representative of other private foreign investors in terms of impact on the economy. Zambia has not benefited sufficiently in four main areas: job creation, foreign exchange, tax revenue and promotion of supply chain industries. This view is not only supported by the writer, but also government, civil society, donor agencies and the World Bank.
Mining Foreign direct investment has not brought much benefit through job creation thus contributing to the high poverty levels in Zambia. There are a number of factors that have contributed to this. First and foremost, mining technology has advanced in the 21st Century such that most of the tasks that were done by humans are now being done by machines reducing the need for workers in certain areas.
Secondly, unlike in the 20th Century when the old Zambian mining houses like ZCCM used local suppliers located on the Copperbelt towns like Kitwe and Ndola, the current ones import millions worth spares parts and other supplies from outside. Mining companies have not been interested in the growth of indigenous firms that might supply them with products and services for production but instead have opted to import these goods and services from overseas affiliates thus exporting jobs to foreign countries. In addition, there have not been any forward linkages in terms of industries developed to add value to copper which could have created additional jobs.
Thirdly, there is suspected widespread corruption in the issuing of work and resident permits as evidenced by some foreign workers who have permits and doing jobs that can be done by Zambians. The Zambian immigration and labour laws are not being enforced due to suspected widespread corruption in these departments, thereby denying citizens jobs.
Foreign direct Investment in mining which accounts for 62% of total investment FDI in Zambia has not benefited ordinary Zambians as far as revenue generation through taxation is concerned. It is generally agreed that Mining houses are not paying sufficient taxes to cater for social needs such as health, education, water and sanitation and for development projects. This low revenue contribution by mines and other foreign investors, has partly contributed to the $16 billion public debt and a myriad of taxes levied on ordinary Zambians to cover for the revenue shortfall.
In order to put mining contribution to the Zambian treasury in perspective, it is vital to compare Zambia with two neighbouring countries. In Namibia, mining revenue contribution to government revenue is about 25%, whereas Botswana mining contribution to government revenue is 45% .On the other hand, Zambias mining contribution to Government revenue is estimated at a paltry 4% of GDP.
There is no doubt that the mining sector has not been paying its fair share of taxes and have been involved in sophisticated tax avoidance schemes using highly skilled accountants and lawyers. There are mines that have been here for over twenty years and have never paid any income tax as they declare tax losses all the time but in the meantime their shareholders abroad do receive dividends. The former Minister of finance, Mr. Alexander Chikwanda alluded to this in his speech to Parliament in 2015, when he bemoaned the lack of benefits from mining.
Sir, despite Zambia being endowed with vast mineral resources, the country has not realised maximum benefits from the sectors potential to support growth and enhanced socio economic development. The House may wish to note further that the contribution of the mining sector revenue as a percentage of GDP remains low at 4 percent. Similarly, the contribution of the mining sector to the national budget has remained minimal even after the Government doubled the mineral royalty rate from 3 to 6 percent. Further, provisions on capital allowances and carry forward of losses eliminated potential taxable profits. Mr. Speaker, the tax structure was simply illusory as only two mining companies were paying Company Income Tax as most of them claimed that they were not in tax-paying positions.
The Zambian governments attempts to extract sufficient benefits from mining through taxation have all miserably failed. The following are four taxes that government has attempted to impose but later reversed, after mines black mailed government: 5 % Windfall tax, Mineral royalty tax of 20%, VAT rule 18 revision and 7.5% copper concentrate import tax. All the reversals were done 100% without extracting any concessions from the mines. The negotiation strategy was poor on the part of government because of not engaging experts to negotiate deals. How do you move from 25% maximum Windfall tax to zero, 7.5% Copper concentrate tax to zero, 20% Open pit Royalty tax to 9% without getting anything in return. These were bad deals, period.
In theory, copper mining contributes 70% to Zambias export earnings. This figure is misleading as very little comes back in the country as it is retained by the mines. This is due to the lop sided development agreements, whose renegotiation is long overdue. If sufficient export earnings were to come back in the country, the kwacha could have been stronger. And as a country dependent on imports, the cost of living to ordinary Zambians will be much lower than it is now due to cheaper imports.
Care is needed with the interpretation of the export shock in the case of Zambia. Given that not all the copper export proceeds return to the country because most mines are foreign owned. Staff estimates that at least 40% of exports do not return to the country. The IMF report noted.
Last year, Zambia exported US$8.1 billion worth of goods around the globe. Of this figure, copper contributed US$6.1 billion, accounting to 75.7% of total exports. You will note that the mining sector contributed more than US$6 billion. Ask me how much of that money hit the accounts in Zambia and you will be shocked, less than a billion hit the accounts here at home, he said.
Zambia has not benefited from the FDI from the mines as the sector is not contributing to the development of backward and forward linkages through the mining supply chain. Mines have not actively promoted the establishment or expansion of indigenous firms that might supply them with intermediate products but instead opt to import these goods from overseas even from affiliates.
In 2016, the World Bank Mining Investment and Governance (MInGov) Study, observed the following: Throughout the survey, key stakeholders noted the need for the mining industry to more effectively use local products and services. Currently there is no national supplier development policy for the industry. Consequently, 95% of goods and services used by the mining industry are imported.
On the other hand, there has also not been any forward linkages through the establishment of manufacturing and processing industries to add value to the raw material copper- which could have resulted in not only creating jobs but to transfer various technologies to Zambia.
In regard to Chinese State Owned Enterprises (SOE) investments in infrastructure projects, despite the contracts being in billions of dollars, the impact on Zambian in terms of benefits in the short to medium term is very little as the 4Ms- money, material, men and machinery-involved in the projects, benefit the Chinese economy by and large with little multiplier effect in Zambia. Chinese investment in Zambia is approximately $4billion.
The money from Chinese loans does not come to Zambia but remains in China to purchase materials and machinery. In addition, Chinese Contractors on infrastructure projects, in large measure, use their own skilled and unskilled labour. Zambians employed on these projects are mainly those doing low skilled, low paying jobs like digging trenches, and in the process there is very little skills transfer to locals.
In addition, the fact that there are no joint ventures formed between Chinese and Zambian companies like China requires all foreign investors investing in China, there is no technology transfer to Zambian companies so as to build capacity for Zambians to enable them build their own roads, power stations, airports etc in future like the Chinese do at home. Although the Zambian government requires all Chinese companies doing infrastructure projects in Zambia to sub-contract 20% of their work to Zambians, this requirement is not complied with by Chinese SOEs.
The net effect of all this is that ,there are no sufficient jobs, no foreign exchange, no skills transfer, no technology transfer and no linkages to other sectors linked to the so called construction boom by Chinese infrastructure projects which is apparent in the Zambian economy.
In general, for Zambia to benefit from foreign direct investment, two broad strategies are required. First, there is need for a Mining Sector Development Strategy. Zambia has a national development plan, but no mining sector development plan. The mining development strategy should address the issues raised in this article. Secondly, there is also a need for a Chinese Cooperation Strategy which should address the issues raised in this article and my last article How China is slowly colonizing Zambian economy.
In the writers experience with a successful African country, as a Private Sector Development expert, these strategies ought to be preceded by carrying out in-depth studies. The resulting Consultancy reports should subsequently be subjected to wide consultations with major stakeholders. The practice of most organized and economically successful countries is to ensure that major policy initiatives are preceded by detailed studies which should form the basis of rational decision making in order to avoid embarrassing policy reversals. In the short term, some of the actions that government can do are outlined below.
In conjunction with the mining houses and other stakeholders, government should develop a local supply strategy. The need for such a strategy is supported by the World Bank Study, Mining Investment and Governance (Min Gov).Foreign suppliers to mines are captive companies and if Zambia was smart, as part of negotiations to reduce, for example, the Royalty tax from 20% to 6% or other mining tax concessions, Government could have demanded, as part of bargaining, that mining houses compel or persuade their suppliers to relocate their industries to Zambia and thus provide jobs and transfer skills to Zambians as themselves are no longer creating many jobs due to automation. Alas, government caved in without getting anything in return.
The issue of captive suppliers relocating to Zambia is not theory and has been proved by one Mining house- Mopani Copper Mines in 2014. One such joint venture supported by MCM is between Shawonga Enterprises Limited of Zambia headed by London Mwafulirwa and ZINPRO Engineering of South Africa which have partnered to form ZINPRO Zambia Limited, to specialise in shaft and structural steel rehabilitation works. ZINPRO Zambia Operations Director, London Mwafulilwa hailed MCM for supporting joint ventures which would benefit the country.MCM Chief Executive Officer Danny Callow was quoted by Lusaka Times of 28 July,2014 that the Company was encouraging formation of joint venture partnerships between local contractors and internationally-recognized foreign firms wishing to do business with the mining company.
We have a deliberate policy that encourages foreign manufacturing companies wishing to do business with us to partner with local companies or involve Zambians in their shareholding structures. This, we believe, will help build capacity of local companies, encourage skills transfer and give a competitive edge to the local firms while improving quality and efficiency, said Mr. Callow.
In terms of promotion of forward linkages, government should also consider heading hunt for investors in car electric batteries to locate to Zambia as raw materials in terms of copper, cobalt and manganese. The electric car revolution is on the horizon and the time to act is now. China is at the forefront of this revolution. The other industries for adding value to copper which can be developed include: wire and cables, roofing and plumbing, Public health Anti microbial products as the Copper motor rotor. These will create jobs which copper mining is not producing due to technological advances but also promote exports and transfer technology.
In order to maximize revenue from multinationals, Zambia should consider assistance from the donor community especially Scandavian countries by temporarily outsourcing the management of Zambia Revenue Authority like Britain helped us in the establishing of the ZRA in the first place. There is need for cultural change at ZRA so that the suspected corruption and poort work ethic is stamped out. This piece meal introduction of ridiculous taxes aimed at Zambians and leaving the elephants in the room-multinationals- is not only unfair but political suicide.
There is also a need to change the current Mining tax unit to Transfer pricing and Mining unit so that other multinational corporation are also monitored with regard to transfer pricing and Tax avoidance. In order to make it effective, the unit should be manned by highly skilled personnel with experience in mining, tax avoidance and transfer pricing schemes of multinationals. The reason why mines have been getting away with murder is that Zambia does not have highly skilled mining tax experts.
There is no doubt that the benefits of foreign direct investment to the host country far exceed the costs. The benefits, however, depends on how the host country negotiates its deals with Multinationals and how it monitors compliance with agreements signed, stands up to the arm twisting and blackmail attitudes of multinationals and how its people resist the temptation of being bought and corrupted by foreigners thus betraying the country.
As Zambians, we should accept and take collective responsibility for not having benefited from FDI like other countries have. We should learn the lessons, correct mistakes of past failures and not blame investors. Foreign investors including the Chinese are here to advance their own interests. There are not charities. It is up to us to negotiate better deals and not go cap in hand and give in to blackmail. The threats of them pulling out resulting in loss of jobs and revenue should be taken with a pitch of salt. The experience of other countries like China as well as those in Africa- Botswana and Tanzania-have shown that if you stand your ground to the arm twisting and blackmail by investors, they are ready to negotiate win-win deals as they need us as much as we do, especially after they have pumped in billions in investment in money, material and machinery, which they cannot easily forgo by pulling out.
Thank you Nkonde for reminding us about what we already know. Unfortunately, as long as incompetence and corruption are at the heart and soul of the political system, as long as this system is supported by the few educated, and corrupt individuals who benefit from the rotten politician, as long as the drunk and hungry cadres continue to be used, there is no hope. Things will continue just like this. Even on this blog you can see the drunk hungry cadres who can do nothing but insult and post tribal crap. You can see the educated who defend a corrupt system, tooth and nail because they benefit.
Its all simple, LUNGU and his CLONES does not understand world economics. He needs to backup a little bit more than he can imagine and thats way before independence. Western world and the rest of developed economies are all about enriching themselves indoor to secure the own countries. Now today, every rich nation or I should say developed country is in a race to be on top forever it can take. Which ever foreign investor gets a chance on countries like Zambia, theyll make sure profits through manipulation is to the MAXMUM leaving the taxpayers unbenefited.
We are cursed with misleaders who still think it is up to investors to develop our country. Favourable investment climate simply equates to ripe for plunder. And we send drunken party cardres to dance at the airport to celebrate our financial illiteracy.
All this is known by the technocrats..but like the late SC saidthe learned are the most cowards.they fear to come out of the cocoon and lead this mighty nation to great heights..if they find themselves in the realm of power they easily get devoured in cadreism and clip their minds to what they are led to understand and believe..and such a cycle continues so long they are in power..but surely Zambia for how long is this cycle going to run
@1.2 Please read the article again before you start blaming people like Lungu. Was Lungu in government in 1990? In fact your Upnd has played a major part in what Kalima has written here. In 2001 Anglo wanted Mazoka to win the presidency and when he lost Anglo walked out of KCM without notice. In order to save jobs Levy Mwanawasa gave KCM to Indians who paid only USD25m..money actually realized from the mine itself. In 2015 again Upnd lost and many miners also lost their jobs. Was this just a coincidence? Each time government wants to get something from the mines you and your cronies cry that were scaring away investors. Current example is the tax issue between ZRA and KCM where you are stating that the figure by ZRA is fake. Im glad some European based NGOS are helping us discover
Well said ndanje khakis.perhaps I can add by saying the team of tax lawyers and accountants that these mining companies employ is no much for the not so well paid ZRA tax lawyers. There is need for help of action aid and NGOs like that. Meanwhile ,HH would probably take us back with the mines as its clear he has already actioned us to the highest bidder. All he needs now s power to complete his deals
Well said Ndanje khakis the other problem is that no matter what we do we will achieve nothing because we are still colonised.Our economy is not controlled by us.This practice causes our politicians to sign shoddy deals for political favours such as putting them or keeping them in power.So if HH is put in power they will expect something in return.In all democratic countries when an opposition party losses an election the leader steps down to allow fresh minds to steer the party forward.But in Africa the story is different.The only time we will succeed is when we take the bull by the horn and dictate our own destiny.Nomba kaya umwenso we lack courage and boldness.
@10 Please read the article again. Only this time go slowly and try to muster all your form 2 comprehension skills to understand. The FDI for the mines went into refurbishment or replacement of archaic equipment and implementation of new technology (former ZCCM units) after years of non recapitalisation by GRZ (UNIP) and the opening of new mines Lumwana and Kalumbila . Sadly, this in part, explains the few or non job creation. This investment was being controlled by the investors to bring the mines up to speed with world copper mines development. How does GRZ/PF come in to misappropriate? The issue is in the way privatisation was conducted. We should have taken our time by putting in sufficient measures to protect the average Zambian instead of the supersonic speed with which we took
Great article, Kalima. The problem in Zambia is policy inconsistencies brought about by our political set up. From KK to FTJ or FTJ to Levy, the winner takes all mentality messes up any gains and gives these multinationals a trump card to manipulate the new set of leaders. The two countries mentioned, Botswana and Namibia have a more stable political set up as they have only been governed by same parties since independence (Tanzania is the same too). Not that we should revert to the one party system, but separation of institutions from political systems is urgent.
I am glad that some has agreed with my belief. Unip would be in power today if our founding father KK had trust in other members of his party. KK had outlived himself and the best thing was to allow a member with a fresh mind and modern ideas to take over the mantle. With its socialist ideas Unip would have whipped the MMD hands down. As if his 27years in power was not enough the mad decided to presenter politics and ousted his successor the late Kebby Musokotwane.FTJ knew that Unip would win the 1996 election because of the suffering we we were facing after privatization. So he came up with that constitution that blocked KK from standing completely. And sadly the entire Unip decided to boycott that election. Blame it on KK.
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- The expansion of the Kansanshi mine's oxide circuit to 14.5 million tonnes per annum was completed with first plating of copper cathode in November 2013. Full utilization of this expanded solvent extraction/electrowinning ("SXEW") processing capacity is expected once the new copper smelter at Kansanshi is in operation and providing sulphuric acid as a by-product. This by-product is intended to be used in the SXEW process thereby eliminating the need to purchase sulphur to produce sulphuric acid. The resulting expected savings to Kansanshi's operating cost is approximately $150 million1 annually.
- Construction at the new 1.2 million tonnes-per-annum copper smelter is approaching peak levels. Commissioning is intended to start in mid-2014 with ramp up continuing during the year. The smelter is expected to operate at 80% of its design capacity by mid-2015 and achieve 100% in early 2016. It is intended to process a combination of concentrate from both Kansanshi and the new Sentinel mine, currently under construction. Capital cost for the smelter is projected to be approximately $690 million and production is budgeted at over 300,000 tonnes of copper and 1 million tonnes of sulphuric acid annually. In addition to the anticipated savings related to the production of sulphuric acid, the proximity of the smelter to the mines is expected to benefit the Company's overall transportation by between $130 million to $200 million2 annually.
- The Sentinel project continues on schedule and on budget towards commissioning in the second half of 2014. Construction of the required two power lines and a substation is underway. The first power line, due for completion in mid-2014, is expected to provide sufficient power for initial start-up production while the second is expected to support full operations on its completion in the latter part of 2014. At an estimated capital cost of $1.9 billion, Sentinel's capital cost per installed tonne of production is approximately 6,335, one of the lowest in the industry.
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