Zambian smelting capacity a concern, Lundin says

When Phil Wright lashed out against Equinox Minerals‘ (EQN-T, EQN-A) hostile takeover bid for Lundin Mining (LUN-T) in a conference call earlier this week, the chief executive cited the shortage of Zambian smelting capacity as yet another project risk facing Equinox.

Ore from Equinox’s Lumwana copper project, 220 km west of Zambia’s copper belt, is predominantly sulphide and treated through a conventional sulphide floatation plant, producing copper concentrate for smelting.

In February Equinox announced that it was studying the feasibility of expanding Lumwana’s initial design capacity of 20 million tonnes per year to 45 million tonnes per year and said it will make a final decision in 2012.  

In his Mar. 21 conference call, however, Wright questioned whether Zambia would have enough smelting capacity to handle production from Lumwana.

“Independent market studies indicate a shortage of Zambian smelting capacity that commences in 2015, excluding any expanded production from Lumwana,” Wright said. “Now we know that other market participants are sufficiently concerned about the shortage of smelting capacity that they plan to build their own smelter[s]. That’s not a move that mining companies take very likely. So you can take it that it’s not just the independent studies that are showing a shortage of Zambian smelting capacity, but market participants are deeply concerned as well.”

Wright added: “If they [Equinox] can’t sell it in Zambia, it appears that they will be facing a 15% export duty payable.”

Equinox officials in Australia couldn’t immediately be reached for comment, but according to the company’s website, Lumwana currently has two primary off-take agreements in place, one with the Chambishi Copper Smelter and one with Konkola Copper Mines Plc.

Chambishi has an agreement to take up to 230,000 dry tonnes of copper concentrate under a five-year take or pay arrangement, while Konkola has entered into a five-year off-take agreement with Lumwana to treat 70,000-80,000 dry tonnes of copper concentrate at its recently commissioned Nchanga smelter. (An off-take agreement with Mopani Copper Mines Plc was terminated in 2010.)

“The CCS and KCM off-take agreements cover the majority of Lumwana production and any overflow is expected to be taken up by metal traders with logistics on the Copperbelt,” Equinox noted.

Zambia’s Minerals Development Minister Maxwell Mwale says the country’s copper production is expected to hit 1 million tonnes per year by 2015, up from the current 713,000 tonnes. according to The Lusaka Times.