Africa Mining: “Lights back on for First Quantum in Zambia” – Mining Journal

First Quantum_220817 web
The Sentinel copper mine and Kansanshi complex in Zambia will enjoy full power after a brief set back
BMO Capital Markets analyst Alex Terentiew reckons he may have overcooked his downward revisions to First Quantum Minerals’ (CN:FM) copper output on the back of a power dispute affecting its Sentinel copper mine and Kansanshi complex in Zambia, after the issue was rapidly resolved.

Terentiew had clipped his expected production back to 567,500 tonnes for the year, slightly below company guidance of 570,000t, though said late last week the new figure “may ultimately prove conservative given the quick resolution to the tariff dispute”. Last year the Kansanshi complex on its own produced more than 250,000t.

First Quantum revealed it had run into problems mid-last week, with power to Kansanshi having been cut by 15% and the Sentinel mine by 29% over the previous week.

At that point, Kansanshi’s smelter was shut down for planned maintenance that could last four weeks, which the miner hoped would reduce the impact of the shutdown, provided it did not drag on for too long.

Terentiew, clearly fearing the worst, jumped to factor in a prolonged outage.

First Quantum and other miners had challenged a price hike earlier this year by supplier Copperbelt Energy Corp. The dispute prompted Glencore (LN:GLEN) to shut down two mines.

Zambian energy minister David Mabumba said last week First Quantum had failed to pay the new flat tariff of US$0.09 per kilowatt hour.

First Quantum said it had agreed to pay the rate for both operations, conditional on state-run CEC allowing the company to source 200 megawatts of power from other suppliers. The company also said it had offered to build additional power transportation capacity from Zimbabwe.

Final details of the resolution have not yet been fully disclosed but BMO models are now factoring in a slightly higher price of power. That said, Terentiew suggested the actual realised price would come down.

“If we assume that all power is sold at the $0.093/kWh previously offered by the government,  total operating costs in Zambia (76% of total estimated 2017 copper production) we estimate may rise by approximately 4%,” he said in a note early this week.

“First Quantum, we understand, is receiving credits to offset the company’s contribution to building part of the power line, and has also proposed purchasing 200 MW from a third party at a presumably lower price, likely reducing the overall cost/kWh and lightening the impact on First Quantum’s operating costs,” the note stated.(source: miningjournal.com)

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