Copper Boosts Zambia Growth Rates: Currently, the Falling Dollar Is Supporting Mineral Prices. the Rally of the Bellwether Red Metal, Copper, Is Driven by Speculation Based on Optimism about the Recovery in US and Elsewhere, Especially China. M J Morgan Reports

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In Shanghai, copper prices have been trading at around a 16-month high; in 2009, prices rose by a massive 151%--a record. LME copper prices similarly rose by 140% in 2009--the biggest rally in 30 years.

Prices in London have risen 50% in the last six months from the $5,000/t mark to just shy of the $7,500/t level, before retreating slightly as traders locked in profits.

With LME warehouse stocks now holding in excess of 500,000t (the highest level seen in eight months) and with limited fundamental support for price levels, it seems likely that at least the rally should relent, even if a minor price correction is not yet due.

Despite strikes in Chile, supply is not expected to be substantially reduced although the threat has provided fuel to the rally. Although the shutdown at the Chuquicamata mine in Chile reduces supply by l,800t/day, the market does not currently anticipate the stoppage being sustained. Nevertheless, enthusiasm for the red metal at the same time appears to be surprisingly resilient in the face of relatively modest demand growth and rising stockpiles.

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Zambia

Little wonder then that the Bank of Zambia, central bank to Africa's largest copper producer, recently announced an estimated economic growth rate for 2010 of 7%, up from 6.3% in 2009. The country produced 576,000t of copper--generating more than half of its GDP. The government estimates that 8,500 jobs were lost (although the figure is nearer 18,000, according to the International Labour Organisation) as a result of the collapse in copper prices last year, in the wake of the credit crunch.

However, jobs are now coming back. The Zambian Development Agency estimates that Chinese investment in the country is in the process of creating some 15,000 new jobs.

For instance, production at the Luanshya mine, owned by China Nonferrous Mining Corporation (CNMC), has recommenced, restoring 2,250 jobs--even more than the 1,700 lost when production was suspended. The mine is on course to process l,000t of copper ore per day this year, according to the management. That should yield about 12,000t p.a. of copper. That figure is set to double next year--before growing to 60,000t p.a. in 2012, as the company's $150m investment feeds into improved recovery rates.

Baluba mine, also owned by CNMC, is expected to produce 20,000t in 2010, expanding to 40,000t in five years. The company has spent $70m on the site and plans spending of $400m at Baluba and the yet-to-be-developed Mulyashi project.

Equinox Minerals' Lumwana mine, is estimated to have produced an impressive 110,000t of copper in 2009.

Botswana

Also set to benefit from the copper rally is Botswana, a country suffering from a depressed diamond market and 2,000 mining job losses. Discovery Metals' Boseto copper-silver project, in the Kalahari copper belt, is estimated to hold 60.4mt of 1.4% grade copper ore. Production is scheduled to start in 2011. …