The need to reduce global greenhouse gas emission levels inspired the European Union (“EU”) to declare a ban on the sale of new petrol and diesel fueled vehicles. This will be effective 2035, after which only vehicles powered by electricity stored in batteries will be offered on the European market.
Zambia is the sixth largest copper producer in the world, holds the second largest cobalt reserves, and has ore mineralization of lithium, manganese, nickel, and graphite, all minerals critical for the Electric Vehicle (“EV”) battery industry.
The Government of the Republic of Zambia (“GRZ”) is already positioning itself to take advantage of the anticipated global demand for copper and cobalt, as well as the bullish EV battery market. Here is how:
Increasing Copper Output
In 2022 the Government of the Republic of Zambia (“GRZ” or the “Government”) set a national annual copper production target of 3 million metric tonnes to be achieved starting 2031. The 275% increase in annual production from the current 800,000 tonnes will be achieved by expanding output at existing mines and opening up of greenfield projects.
Since the current Government came into power in 2021, First Quantum Minerals (“FQM”) pledged a USD1.25 billion investment to expand operations at Kansanshi Mining Plc (“KMP”). ZCCM-IH in partnership with EMR Capital and KoBold are also in the process of setting up a new copper mine in the next 10 years Mingomba Mine whose detailed exploration works using AI technology commenced during the quarter, will sit on one of the richest ore bodies in the world with an estimated 247 Metric Tonnes (“MTs”) of ore with average grade of 3.64% copper according to the Lubambe Extension Project study.
Revisions to Taxation on Mining to Boost Investment
The first significant revision by the Government to the country’s mining tax regime was to introduce the deductibility of the Mineral Royalty Tax (“MRT”) payments. Previously, MRT was non-deductible which was widely viewed by mining companies as double taxation.
Non-deductibility of MRT meant that mining companies had to pay MRT on revenue in addition to income tax from profits. This resulted in decreased output, as well as an overall decrease in investment by new entrants into Zambia’s mining sector, and reinvestment by mining entities already operating in the country. This is no longer the case, as evidenced by reinvestments in KMP, as well as the USD150 million investment to develop Mingomba Mine among others.
Value Addition to Minerals Used in EV Battery Production.
Zambia is Africa’s second largest producer of both copper and cobalt, eclipsed by the Democratic Republic of Congo (“DRC”) which accounts for 70% of global cobalt production. In spite of this, both countries are considered among the least developed, and continue to export raw metals critical for the EVs industry. To change this narrative, both Zambia and the DRC signed a Memorandum of Understanding (“MoU”) with the United States of America (“USA”) to jointly develop manufacturing plants that will increase their involvement in the global supply chain for EV batteries.
In addition to the extraction of raw materials needed to produce EV batteries, both countries will be involved in processing, manufacturing, and the assembly of EV batteries and battery components for export. By engaging in the refining of and value addition of minerals extracted to produce EV batteries and battery components, both countries will yield significantly greater economic benefit from their copper and cobalt deposits.
Expected Outcomes for Zambia
Investment in mining, increased commodity output, and value addition to commodities will put Zambia on the path to economic recovery. This is cemented by analyst predictions of copper prices settling around the USD9,000 per tonne mark in the near future, gradually increasing amid widening supply and demand deficits over time.
In time, the country itself will abandon fossil fueled internal combustion engines and shift to using EVs.