Crippling power shortages have forced Zambia’s largest copper producer, First Quantum Minerals Ltd., to halt production at one of its largest mines, the company said Monday, in a major operational scale-down that will result in the loss of nearly 1,500 jobs.
The Toronto-listed miner said that it had embarked on a “rigorous” cost-cutting program to save its $2.1 billion Sentinel copper mine following the decision of the state power company, Zambia Electricity Supply Corp., or Zesco, to slash power supplies to its operation because of a nationwide shortfall.
Until recently, Zambia has had one of the most reliable electricity grids in the region, depending on its vast hydropower plants, as well as imports from South Africa to maintain a steady supply to its mines.
But both sources have faced pressure in recent months: The worst drought in three decades has lowered water levels at dams, plunging the country into a deficit of nearly 600 megawatts, while imports from South Africa have dried up as the region’s most-advanced economy grapples with its own power-generation shortfall.
“The electricity supply is insufficient to maintain viable mining operations,” First Quantum said. “All discretionary spending has been stopped and a process of closing out contracts to reduce costs has commenced.”
The Power cuts in Zambia, coupled with falling copper prices, are increasing the risk of a credit rating downgrade at copper producer First Quantum, Moody’s said on Monday.
Moody’s, which has a negative outlook on its B1 rating for Canada’s First Quantum, said that “credit metrics may deteriorate more sharply than anticipated in the next 12 months, towards levels not commensurate with the current rating.”
First Quantum’s problems were compounded by a fall in copper prices — down about 18 percent so far this year — that is denting its revenue at a time of mounting financial pressure for the company, which is consuming cash as its develops its large, open pit Cobre Panama project, Moody’s said.