Zambia emerging as a strong global mining player

Economic numbers out of Zambia are encouraging. Interestingly, the Zambian economy showed some resilience to the global economic crisis as it posted an estimated real GDP growth rate of 7.1% in 2010, marking twelve consecutive years of positive GDP growth averaging 5.12% per annum over the period. In addition, recovery in global trade saw strong demand for commodities from India, China and Brazil.

Zambia is experiencing a revival of its major copper industry with new mines being developed. Copper production in Zambia, Africa’s largest producer of the metal, is likely to rise to 900,000 tonnes in 2011 from 819,159 tonnes in 2010. Zambia’s copper output may continue increasing with production expected to reach 2 million tonnes in the next five to seven years. According to the central bank spokesman Kanguya Mayondi, “Copper output is expected to increase because mining companies are maximising on production to take advantage of the good prices. In addition, mining companies have embarked on expansion projects and that should help raise their production.”

In another development, junior oil and gas explorer Exile Resources announced that it has received a formal exploration licence for its project in North Eastern Zambia. Exile Resources, is currently reviewing data and undertaking geochemical surveys to study the potential for oil and gas in Zambia. The Toronto-based company is focused on the acquisition and development of oil and gas properties in sub-Saharan Africa and also has projects in Nigeria.

Mining in Zambia will definitely be a key driver for growth in 2011 and beyond. Mining names that are currently operating and have investments in Zambia include Canada’s First Quantum Minerals, London-listed Vedanta Resources, Glencore International AG and Metorex of South Africa. Investment in mining is expected to continue in line with the 1 million tonnes of copper per annum domestic production target by 2012.

The outlook for the Zambian economy and the Lusaka Stock Exchange (LuSE) is positive. We expect a possible listing of Konkola Copper Mines (KCM), Vedanta Resources’ local subsidiary. In addition, we expect the growth in mining to spill over to other sectors of the economy such as energy, transport, construction and manufacturing. As explained in our Sub-Saharan Africa Stock Markets 2010 Review & 2011 Outlook, dated February 2011, our top picks on the LuSE include, but are not limited Lafarge Cement, National Breweries and Zambia Breweries.

Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.