Rating agency Moody’s Investors Service yesterday published research that analysed Glencore’s planned investment in the Mopani copper mine in Zambia with key findings that the increased copper production will raise Zambian government revenues, contribute to fiscal consolidation and return public finances to a sustainable path.
Moody further projected that that Glencore’s planned investment will contribute to bringing Zambia’s real GDP growth to 5% or more in 2018, by adding up to 0.5% of GDP that year.
The credit rating agency also said that that the investment is credit positive for Zambia because it will help drive growth.
“Glencore’s decision to invest now, when Zambia’s economy faces challenges, sends a positive signal of investor confidence, ” the report said.
However, the rating Agency said that this update did not contain any credit rating action and that Zambia’s current B2 rating and Stable outlook remained unchanged.
On 30 March, Swiss commodity trading and mining company Glencore plc announced plans to invest more than $1.1 billion in the Mopani mine in Zambia (B2 stable) during 2016-18. The investment, which will help improve the mine’s operational efficiency and extend its life, is credit positive for the sovereign because it will help drive growth.
Glencore’s investment will reduce production costs and increase the efficiency and profitability of Mopani’s copper mine shafts, allowing them to raise production and take advantage of the potential for a gradual recovery in copper prices over the next three to five years.
We project that this will contribute to bringing Zambia’s real GDP growth to 5% or more in 2018, by adding up to 0.5% of GDP that year. Increased copper production will also raise government revenues, contribute to fiscal consolidation and return public finances to a sustainable path. Additionally, Glencore’s decision to invest now, when Zambia’s economy faces challenges, sends a positive signal of investor confidence.
The investment marks a positive turnaround for the mine and Zambia’s entire copper sector, which has been stagnating following a sharp decline in copper prices and severe electricity shortages since 2015. In 2014, before commodity prices began falling, the Mopani mine produced about 110,000 metric tons of copper, or about 15% of the sector’s output .
In September 2015, Glencore, which has a 75% stake in the Mopani mine, announced that it would suspend its operations in the mine for 18 months owing to a combination of low copper prices, electricity shortages and an unstable and unconducive tax regime. However, the mine’s operations were instead reduced by about half, to 46,933 metric tons from about 93,000 in 2015. The investment will allow the mine to return to its productive capacity in 2018.