What are KCM's core operations in Zambia?
KCM has major operations in four different locations. The three largest of these are in the Copperbelt in the towns of Chingola, Chililabombwe, and Kitwe. These include underground and open-pit mines, concentrators, a state-of-the-art smelter, and a tailings leach plant. In Nampundwe, just outside Lusaka, we run a small underground mine too. In total, KCM operations have been running in Zambia for nearly 70 years. Initially the company was run by private firms and then the industry was nationalized in 1970s during which period KCM was managed by ZCCM, the state-owned organization. Around 2000, these mining assets were again privatized and global miners returned to Zambia. In 2004, Vedanta Resources plc, a UK-listed company, took an initial shareholding in KCM and that stake is now up to 79.4% with the balance held by the government vehicle, ZCCM – Investment Holdings.
What is the strategy and thinking behind the Konkola Deep project?
In Chililabombwe we have a deep underground mine. The mine has three shafts and two of these shafts have been there for many years. In 2010, a new shaft reaching 1,500m – making it the second deepest copper shaft in Africa - was sunk and commissioned, enabling us to access deeper parts of the orebody, which ranks among the world's top 20 in terms of grade, with a delineated volume of around 300 million tons of ore. There are challenges to extracting ore from these depths, the most pressing of which is the quantity of water. Every day we extract 350 million liters of water from the underground mine – about the same amount that is consumed daily by the population of Lusaka and its suburbs. In addition to the 350 million liters that we pump each day from the Chililabombwe mine, we also pump close to 100 million liters every day from our underground mine in Chingola. All of this pumping requires power, which heightens our cost of production. Today about 30% of our power usage is used for pumping alone; it's a sunk cost that adds no economic value to our production.
What strategy is being employed to cushion KCM from copper price volatility as far as possible?
In 2016, we witnessed the lowest average copper price in 11 years. Although there has been a small uptick in prices, they will probably remain low for another 12-18 months before we see a significant increase. There is not a great deal that a copper producer like us can do to impact the price, because it's a reflection of global supply and demand, but in a low price environment there are three areas that a producer like us can focus on. The first of these is operational efficiency. For example, if a plant needs to run for 95% of the time for efficiency, then this should be maintained. Likewise, chemicals that are used for processing, need to be recovered at dosages which are as close as possible to optimum levels. In addition, there are a whole load of mechanical maintenance and copper recovery type efficiencies which can be optimized. Secondly, when prices are low, the producer needs to go out into the market and try to negotiate better prices for consumables and raw materials. We have liaised with our suppliers to see what we can do in terms of reducing our overall cost of production by looking at pricing and quality. The third area of focus, and one which has set us apart from other mining companies in Zambia, is volumes. In October 2015 when the power crisis hit Zambia hard and ZESCO declared “force majeure,” rather than scale down our operations as other miners did, we pushed for higher, profitable volumes in order to reduce our overall cost of production. For us it was the right strategy and the right way to address a difficult period in our operating history.
What measures need to be implemented by the public sector in terms of energy tariffs and mining regulation?
The government needs to tackle several issues, and indeed, is already doing so. Regulations surrounding power factors—an indicator of how efficiently power is being used—need to be enforced to ensure that large users of power can maintain high-levels of efficiency. By way of background, we are the largest consumer of power in the country, so our ability to source reliable power at affordable rates greatly impacts our performance and our sustainability. I know that the Minister of Energy is eager to move towards a more cost-reflective tariff which takes into consideration the chain of sourcing energy, from generation all the way to transmission. I think it will be important to accommodate bulk buying rates and retail rates if Zambia is to continue to attract foreign investors into the sector.
What is your outlook for Zambia's mining industry and for KCM in the medium term?
On the whole the outlook is positive. Just last month, Mr. Anil Agarwal, the Group Chairman of Vedanta Resources plc, met with His Excellency Edgar Lungu the President of Zambia and made a number of investment commitments. One of these is to move production levels to 400,000 tons of copper each year, which would quadruple production over the next three to seven years. This extra capacity will come from a number of sources, including the Konkola deep underground mine. We are currently working with consulting engineers and mining experts to review the technologies we employ and to boost productivity. Most importantly, we want to mine deeper. So far our deepest level is at 950m and our target is a next development at 1,100m. This will be a game changer for KCM. We are already the largest integrated copper producer in Zambia and the second largest in Africa. Our smelter, one of four in the country, can produce 310,000 tons of copper every year. In my view, Zambia is well placed to increase its percentage share of global production, currently in the region of 4-5%. The first step towards achieving this is to fill all of Zambia's smelters with available concentrates and generate cash from sales for future mine development.
How does KCM demonstrate its commitment to reducing its environmental impact?
KCM is working towards addressing all remaining legacy issues in respect of environmental matters. We are determined to be best in class as far as the environment is concerned and we have invested a substantial amount toward reducing our environmental footprint and being a net-positive contributor to biodiversity. By way of example, we have built a smelter in Chingola that has a sulfur capture rate of 99.6%, second only to a smelter in Japan which has the highest in the world. We have replaced storage tanks and pipe infrastructure at our Tailings Leach Plant and de-silted our Pollution Control Dam. We have reduced by 50% the amount of water we consume across all our operations during the last three years, further enhancing our ability to attain zero discharge. These are just some of the important steps that we have taken to ensure we conform with Vedanta's Sustainability Framework and achieve best environmental practice. Aided by new technologies and processes, we continuously strive to achieve higher environmental standards. In terms of biodiversity, we are looking across the board for opportunities to revegetate areas of operations. In April we launched a pilot project with Better World Energy to plant Pongomia Pinatta trees for environmental remediation. The trees will revegetate tailings dam sites and can be harvested for bio-diesel production, to serve some of our energy needs. Pongamia is an ideal plant for recovering a variety of waste burdens and bringing soil back to life. We think the project can create at least 500 jobs in agro-forestry and farming, bringing employment for local people.