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Power costs may cripple Zambia miners

Reuters | Fri, 09 Jul 2010 16:28

[miningmx.com] -- FOREIGN mining companies operating old mines in Zambia, Africa's largest copper producer, may be forced to shut some of their operations if state power utility Zesco introduces higher tariffs, an official said.

Zambia plans to raise prices in a bid to gradually shift to a more viable electricity tariffs by 2013 to raise money for investment in new power generation facilities.

Michael Tarney, the MD for corporate development at Copperbelt Energy Corp. (CEC), the main supplier of power to the mines, told Reuters Zesco should consider the costs of individual mines when arriving at the new tariffs.

"The modern mines can absorb the higher tariffs because they are using modern technology and incurring lower costs but the old mines may be forced to shut down if electricity costs are very high," Tarney said.

"There is need to critically examine the costs of the old mines because they are using expensive technology."

Zambia's Luanshya Copper Mines, then owned by Enya Holdings BV of the United Kingdom, suspended operations in 2008 citing losses when copper prices collapsed at the height of the global financial crisis.

Swiss firm Glencore International AG's majority owned Mopani Copper Mines also said it would temporarily close loss-making operations in Zambia but later reversed the decision.

Tarney said CEC had an agreement with Zseco that provided for yearly electricity tariff increases to cover inflation.

Tarney said the last electricity tariff increase for CEC outside the arrangement to cover inflation was in 2008 when the tariffs were hiked by 33%.

Zesco in May asked Zambia's energy regulator for a 36% increase in electricity tariffs for users other than the mines.

The power firm was granted a 26% hike for the period April 2010 to March 2011, but asked the regulator to allow it to raise tariffs by a total 36% from July, citing inflationary pressures, rising import costs and steep hikes in the price of equipment.

Other foreign mining companies operating in Zambia include Canada's First Quantum Minerals, London-listed Vedanta Resources, Equinox Minerals and South Africa's Metorex.