The heads of mining companies should not be complacent about higher prices and need to continue to run their operations as efficiently as possible, the chief executive officer of Konkola Copper Mines (KCM) told Metal Bulletin.
Steve Din said during an interview on the sidelines of the Mining Indaba conference in Cape Town, South Africa that the mining sector must avoid a tendency to become exuberant and lose its grip on the productivity gains that it has achieved since the global financial crisis.“Mining CEOs must not rest on their laurels – they can’t rely on strong prices forever. They need to keep their operations efficient and at the right level in the cost curve. We have to stick to basics and think about our cost of production, our volume levels and our overall availability, and run a safe, efficient operation,” he said.“I don’t think that people have the luxury of flicking a switch on or off for costs, because as soon as prices go up, costs automatically go up, too. If you really want to make the most of this pick-up in the cycle, you have to try to keep control of costs by keeping your operation lean,” Din added.
According to Din, although supply-demand fundamentals are tight, there is speculative froth in the current commodity price strength, and some caution is therefore required.
KCM is a subsidiary of Vedanta Resources Plc and operates in the Copperbelt and Central provinces of Zambia. The company produces around 200,000 tonnes of copper annually but has plans for significant growth in the next few years.“We’re targeting production of up to 500,000 tonnes in the next four to five years. It’s a short time frame because the growth will come from brownfield expansions, with a significant amount invested when Vedanta acquired the company in 2004,” Din said.
“All the hard dollars have been spent, so now it’s a matter of turning the handle to get the production,” he added.
Zambia is the second-largest copper producer in Africa; KCM accounts for more than 30% of domestic output.
KCM’s 2018 plans are based on a copper price of $6,300 per tonne. Din said the company has “turned the corner” after some tough years and that the copper price is in its favor, for now at least.
“We’ve come through a very difficult period. The year 2016 was the lowest copper price – at $4,500 per tonne – for the past 11 years, so it’s been very tough,” Din told Metal Bulletin.
“We’ve got a lot of responsibility in terms of our operations – we employ 13,000 people and communities depend on us. We’ve come out of the global financial crisis much stronger as a result of looking at things in more detail,” he added.KCM has open-pit and underground mines at Nchanga and Konkola, and an underground pyrite mine and concentrator at Nampundwe. It also has three concentrators, two at Nchanga and one at Konkola.
According to Din, there is an element of pent-up frustration toward the mining sector among communities and host nations in Africa, and communities want to see more.“Obviously if communities want to see more, and they’re not getting it, then the government is impacted. Mining companies have got to change the way that they work,” he said.
Miners are failing by not talking to the communities around them. “You don’t secure your mining license out of a capital city,” Din noted.“You secure a mining license with the communities around you, so you’ve got to know what’s happening, what people are finding difficult. You’ve got to fill the communication gap. The mining company also has to be prepared, where the government isn’t doing what it should be doing, to fill that gap, too,” he said.
A price decline is likely to spur a flight of capital from the mining sector eventually, and miners need to manage this by building stronger foundations for continued growth during the cyclical upturn, he said.
“If you haven’t managed costs during the cycle, then guess who suffers? Your stakeholders, including communities, host nations and shareholders. I can understand a lot of the frustrations that the governments are feeling,” he said.