First Quantum

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By Shapi Shacinda

LUSAKA, Jan 22 (Reuters) – Zambia’s copper producers trimmed daily output following a second nationwide power failure within 48-hours and they planned to import 210 megawatts of power from the Democratic Republic Congo (DRC), officials said on Tuesday.

Neighbouring Zimbabwe also saw its second nationwide power blackout in two days, paralysing industry and dealing a further blow to its ailing economy.

A senior industry official said Zambia’s state power utility Zesco was rationing electricity supplies to mines due to a “systems failure.”

The power disruptions plunged the whole of Zambia into darkness for the second time on Monday night, forcing the vast copper and cobalt mines to suspend production.

“The mines are not producing normally because we are only able to supply them with power to keep emergency operations as Zesco has limited power supply,” said Hanson Sindowe, the chairman of power distributor, Copperbelt Energy Company (CEC).

CEC purchases power from Zesco for distribution to all the mines in Zambia.

“Zesco can only give us up to 400 megawatts, while total demand for power at current production levels is 530 megawatts. We are now in the process of arranging imports from the Congo, which will be between 200 megawatts and 210 megawatts,” Sindowe told Reuters.

There was uncertainty as to when normal power supplies would resume because Zesco had not identified the cause of the blackouts, which started on Saturday night. Sindowe said mining operations had not yet returned to normal.


Industry officials said they had stopped operations at some mines in the mineral-rich southern Africa country to avoid endangering lives of miners and damaging equipment.

“We could not send the night shift underground because there is no point endangering the lives of people. The biggest danger is the frequency of the power failures and we are not sure when this will be resolved,” said Passmore Hamukoma at Zambia’s second largest mining unit, Mopani Copper Mines (MCM).

A nation-wide power blackout over the weekend hit copper and cobalt output in Zambia and briefly trapped workers underground.

Mines in Zimbabwe also continued to suffer huge losses due to stalled production on Tuesday and the electricity outtage there forced factories to a halt, while there was no trade on the Zimbabwe Stock Exchange.

The power cuts worsened already erratic water supplies that have assailed the country for months, with large parts of the main cities of Harare and Bulawayo as well as other urban centres going without water on Tuesday.

Officials at state power utility ZESA were not immediately available for comment, but state media quoted a company executive as saying the blackout resulted from a recurring systems failure at its Kariba hydro electrical plant on the border with Zambia.

Power outages have also caused partial flooding at mines in the two countries as water could not be pumped out.

Derek Webbstock, the chief executive of Luanshya Copper Mines, which operates Baluba copper mine and Chambishi Metals Plc, Zambia’s leading cobalt producer, said it had suffered losses totalling $5 million after the two power failures.

He said hoisting of copper from underground and the transportation of ores had been disrupted.

Webbstock said operations at LCM had not returned to full capacity on Tuesday because of damage to equipment despite power being restored and the firm was realigning its operations.

“This is very serious because we are losing income and this will affect economic growth. It will also impact on the workers and the community too and currently there is no proper information how long this might continue,” Webbstock added. (Additional reporting by Nelson Banya in Harare; Editing by Veronica Brown)

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Posted: January 14, 2008, 2:10 PM by Peter Koven

The government of Zambia has proposed higher taxes on mining companies, and that affects two names Canadian investors follow closely: Equinox Minerals Ltd. and First Quantum Minerals Ltd. UBS analysts Alec Kodatsky and Tony Lesiak have tried to break down the new tax regime and what it means for those companies. The government is expected to increase the corporate tax rate from 25% to 30% and the royalty rate from 0.6% to 3%.

In the case of Equinox, the company has already negotiated  a 10-year development agreement for its Lumwana project, and believes it is exempt from higher taxes for the length of the agreement. Mr. Kodatsky is keeping that as his base-case assumption. But if the government decides to implement higher taxes at Lumwana right away, his net asset value forecast on Equinox would drop 7.3%, from $6.06 a share to $5.62 a share. He is maintaining a “buy” rating and a target of $6.75 a share.

First Quantum, on the other hand, could see an immediate tax and royalty hike at its Bwana Mkubwa and Kashime projects if the tax changes are implemented. It has a long-term tax stability agreement at the Kansanshi project, but Mr. Lesiak is already assuming higher royalty rates on that one.

Mr. Lesiak has cut his earnings per share estimate for 2008 from $11.78 to $11.50, and he lowered his 2009 forecast from $13.64 to $13.30. He is maintaining a “buy” rating on the stock but reduced his target to $120 a share from $125 a share.

Source: National Post