John Glaston, Zambia Government Affairs, First Quantum Minerals Ltd.

Zambia’s Trident project meeting development and production projections.

JohnGladston-BLOGWhen interviewed in 2013, First Quantum Minerals (FQM) was on track for production at Trident to start in Q3 of 2014. Can you give us a brief update of your progress?

John Glaston (JG): That will remain the case. FQM is very pleased with the progress at Trident, which is going to be delivered on time and on budget. It is quite incredible what FQM has achieved at Sentinel, in an extremely remote and underdeveloped area of Zambia. In just over two years from board approval in June 2012, FQM is now poised to commission the first mill train at Sentinel.

What is the scale of FQM’s investment in infrastructure around the Trident area?

JG: The total investment, which includes the Enterprise nickel mine, is $2 billion. The initial approval for the Sentinel project was $1.8 million and we are coming in on budget. What makes the Trident project stand out is the supporting infrastructure that FQM is building. FQM is developing a complete town in Kalumbila, which will provide the basis for a self-sustaining community out with the mine. The large-scale mining licenses at Trident are for 25 years. When the ore body is exhausted, the community will be able to sustain itself as a result of this infrastructure and development. In the project phase, Sentinel is employing around 4,000 Zambians. Once operational, Sentinel will have around 2,000 Zambian employees but there will a multiplier effect whereby even more jobs will be created in the area. The skill levels of those Zambians jobs will also be higher, as a great deal of skills transfer has already taken place since the project began.

When will Sentinel reach its full production capacity?

JG: It will depend on when we can get the full electrical power to Sentinel. FQM in partnership with Zesco is constructing in excess of 600 kilometers (km) of 330-kilovolt (kV) power transmission line that effectively creates a circuit around the industrial heartland of central Zambia and help stabilize Zambia’s power supply. Not only the mining sector will benefit; all Zambians will too. The first stage of this project has been completed and will be energized this month, which will enable us to commission and run one train at Sentinel. Once the second stage of the 330-kV powerline is complete, it will enable FQM to operate two mill trains concurrently at Sentinel. Based on the contracts for the power connections, we hope that the transmission line circuit should be completed by end of the year 2014.

The Democratic Republic of Congo recently passed Zambia as Africa’s top copper-producing country. Do you think that FQM’s operations will propel Zambia back into the top position?

JG: By the end of 2014, FQM is going to have two world-class producing mines in Zambia. I have every confidence that Sentinel will see Zambia return to be Africa’s largest copper producer. Once fully operational, we expect to see Sentinel produce 280,000 metric tons (mt) to 300,000 mt of copper per year in concentrate. Sentinel has a measured and indicated resource of 1,027 mt of copper at a grade of 0.51% Cu. With the relatively low-grade ore body at Sentinel, we will need to mill around 55 million metric tons per year (mt/y). When Kansanshi started, it was designed for about 110,000 mt/y of copper and is now typically producing 260-270,000 mt/y. With current plans, production at Kansanshi will raise will to about 400,000 mt/y.

In the past there has been uncertainty around the statutory instruments (SIs) that were being implemented and are now being revoked?

JG: It is in FMQ’s interest to have a close working relationship with the Zambian government. The fiscal environment in Zambia remains challenging for the government, and it has shown great flexibility adjusting their fiscal policies as their situation changes. The withdrawal of the SIs in 2014 is an example of that.

What will be the importance of Enterprise and nickel as a commodity to FQM and is this asset on track to be commissioned in 2014?

JG: FQM’s center of gravity remains copper, but the global nickel market has seen a recent surge for various reasons. FQM has gained significant experience in nickel over the last few years and have an incredible deposit at Enterprise, which is currently subject to environmental approval. Enterprise has the added advantage of being located right next to Sentinel, so they will share a lot of infrastructure.

What is FQM’s stance on income through beneficiation?

JG: FQM would love to see income through beneficiation. That said, currently the Zambian government does not have the industrial capacity to see that play out. Any initiative the government takes to increase its ability in that area would be applauded, which is why FQM has sought approval for a Multi Facility Economic Zone (MFEZ) at the Trident Project. The MFEZ has been approved by the Board of the Zambia Development Agency and is aimed at encouraging the development of local businesses up and down the supply chain. At this moment, mining in Zambia is an export industry and the export levy on concentrate remains contentious.

What is FQM’s greatest challenge in Zambia moving forward?

JG: What investors look for in a jurisdiction is the predictability and stability of the fiscal regime that they are operating in. Operating in a relatively high-tax jurisdiction is one thing, but it is the predictability and stability of that jurisdiction that is crucially important to any investor. It has been well documented that the tax regime in Zambia has been subject to some fairly significant changes over the years. That is why we maintain a very close partnership with the Zambian government and a constantly open dialogue with them. We have also brought our shareholders to Zambia to meet with the government and understand the confidence that FQM has in the future of Zambia.

Across the jurisdictions in which FQM operates, how would you rank Zambia?

JG: Sub-Saharan Africa, including Zambia, has its share of challenges that are absent in developed countries. Part of those challenges is fiscal in nature. As a large investor in the Zambia, as long as we continue working in close partnership with the government, we can feel our way through these challenges together. FQM is always on the lookout across the Globe for high-quality opportunities, which will allow it to do what it does best: deliver high-grade projects on time and on budget. In Africa, potential investors will find no better country in which to achieve this than Zambia.

This interview was conducted as part of the research being conducted by GBR for its upcoming Min-ing in Africa Country Investment Guide (MACIG) 2015. To participate in this report, please contact Sharon Saylor at ssaylor@gbreports.com.

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