Document of The World Bank FOR OFFICIAL USE ONLY 1; .Report No. 4624-ZA STAFF APPRAISAL REPORT ZAMBIA EXPORT REHABILITATION AND DIVERSIFICATION PROJECT February 22, 1984 Industry Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$ 1.00 = K 1.60 K 1.00 = US$0.625 (The Zambian Kwacha is officially valued in terms of a basket of currencies, for which the U.S. dollar is the intervention currency. Since July 1983, the Government has followed a flexible exchange rate policy, making periodic adjustments in the official value of the Kwacha. The rates expressed above are as of January 1984.) FISCAL YEAR Government: January 1 - December 31 ZCCM: April 1 - March 31 WEIGHTS AND MEASURES 1 meter (m) = 3.281 feet (ft) 1 cubic meter (m3) = 35.315 cubic feet (ft3) 1 kilometer (km) = 0.62 miles 1 kilogram (kg) = 2.205 pounds (lb) 1 metric ton (tonne, t) = 1,000 kg. or 2,205 lbs. 1 megawatt (MW) = 1,000 kilowatts PRINCIPAL ACRONYMS AND ABBREVIATIONS AfDB - African Development Bank AMACOZA - Anglo-American Marketing Company AMATELCO - Amax Marketing Company CIPEC - Conseil Intergouvernemental des Pays Exportateurs de Cuivre ECU - European Currency Unit EEC-SYSMIN - The Minerals System Facility of the European Economic Community ETU - Education and Training Unit: GDP - Gross Domestic Product GNP - Gross National Product ICB - International Competitive Bidding ILZSG - International Lead Zinc Study Group LME - London Metal Exchange MEMACO - Metal Marketing Corporation of Zambia Limited NCGM - Nchanga Consolidated Copper Mines Limited RCM - Roan Consolidated Mines Limited SRI - Stanford Research Institute International, of the USA TL3 - Tailings Leach Plant III tpy - tonnes per year ZAL - Zambian Appointments Limited ZCCM - Zambia Consolidated Copper Mines Limited ZES - Zambia Engineering Services Limited ZIMCO - Zambia Industrial Mining Corporation Limited FOR OFFICIAL USE ONLY ZAMBIA - EXPORT REHABILITATION AND DIVERSIFICATION PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. INTRODUCTION ............................................. I II. THE ZAMBIAN MINING SECTOR ................................ 1 A. Role of the Mining Sector in the Economy. 1 B. Mineral Resources and Reserves. 3 C. Structure of the Sector. 5 D. Prospects of the Copper Sector. 6 III. THE COMPANY. 8 A. Organization and Management . . 8 B. Mining and Processing Facilities . .10 C. Manpower and Training ..11 D. Past Performance. 13 E. Production Costs ..16 F. Cost Cutting Measures ..18 G. Past Financial Results ..20 H. Rehabilitation Program ............................. 23 IV. THE METALS MARKETS ....................................... 26 A. The Copper Market ................................... 26 1. International Supply and Demand .... ............ 26 2. Copper Prices .................. 28 B. Transport Routes .................. .................. 29 C. Metal Marketing Corporation of Zambia, Ltd. (MEMACO) ............. . 31 l. Background and Organization ................... ... 31 2. Activities and Sales ...... ....................... 31 3. Sales Strategy ................. .................. 33 4. Market Intelligence ............. .. ............... 34 This report has been prepared by Messrs. P. Lietard, R. Lloyd, J. Strongman and Mrs. M. Kutcher, of the Industry Department and Mr. L. Swahn, of the Education Department. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Page No. V. THE PROJECT .............................. ................ 35 A. ZCCM Investment Program (1984-88) ................. .. 35 B. Objectives of the Rehabilitation Project ............ 36 C. Project Description ...... ........................... 36 1. Replacement and Rehabilitation Component ......... 36 2. Training Component .............. .. ............... 36 3. Technical Studies Component ........... ........... 37 D. Project Implementation and Schedule .............. ... 38 E. Environmental Aspects and Safety ................ .... 39 VI. CAPITAL COSTS, FINANCING PLAN AND PROCUREMENT ........ 40 A. Capital Costs ................. . 40 B. Financing Plan ......... ..41 C. Procurement.................... 42 D. Allocation and Disbursement of Bank Loan . .43 VII. FINANCIAL ANALYSIS ..45 A. Revenues . ............... . .................. . 46 B. Operating Cost ..... 47 C. Financial Projections ..... 47 D. Breakeven Analysis ............ ...... 49 E. Sensitivity Analysis ...... . ...50 F. Financial Covenants ............. . 51 G. Auditing and Reporting Requirements 52 H. Financial Rate of Return and Sensitivity Tests,,,,,,, 52 I. Major Risks....... 53 VIII. ECONOMIC ANALYSIS.. 54 A. Economic Rate of Return .54 B. Foreign Exchange Benefits .55 C. Other Benefits .55 IX. AGREEMENTS REACHED AND RECOMMENDATIONS .... ................... 55 TABLES Zambia - Mineral Production, 1974-83 .......................... 2 Zambia - Copperbelt Ore Reserves ..... ............... 4 ZCCM - Local and Expatriate Work Force, 1974-83 .... ........... 11 ZCCM - Production Statistics, 1974-83 ......................... 14 ZCCM - (NCCM/RCM) Copper Production Costs ..................... 16 Effect of Cost Cutting Measures on ZCCM Fuinds Flow .... ........ 19 Summary of ZCCM (NCCM/RCM) Financial Performance, 1978-84 ..... 21 - iii - TABLES (Continued) Page No. Summary of ZCCM (NCCM/RCM) Funds Flow Statements, 1978-83 .... 22 Synopsis of Key Elements in the Rehabilitation Program ....... 24 Implementation Schedule of Key Elements in the Rehabilitation. 25 Metal Price Projections - ZCCM Realized Prices, 1983-90 ...... 26 LME Copper Prices and Average Cash Production Cost, 1973-83... 28 LME Copper Prices - Future Price Projections .... ............. 28 Zambia - Copper Dispatches via Various Routes, 1976-83 ....... 29 Comparison of Copper Export Routes ........................... 30 MEMACO - Copper Sales by Countries, 1977-83 .... .............. 32 MEMACO - Cobalt Sales by Countries, 1977-83 ................... 33 Summary of Capital Cost Estimates ............................ 40 Financing Plan ............................................... 41 Allocation of Bank Loan ........................ 43 Inflation Rates, 1983-90 ..................................... 45 ZCCM - Copper Production and Sales, 1983-90 .... .............. 46 ZCCM - Cobalt Planned Capacity, Production and Sales, 1983-90. 46 ZCCM - Base Case Price Assumptions, 1983-90 .................. 46 ZCCM - Summary Financial Performance, 1983-90 .... ............ 48 ZCCM - Total Taxation, 1984-90 ............................... 49 ZCCM - Breakeven Prices for Copper, 1983-90 .... .............. 49 ZCCM - Sensitivity Case Key Indicators ....................... 50 Sensitivity Tests on Incremental Financial Rate of Return after Taxes ................................................. 53 ANNEXES 3-1 Ownership Structure of the Zambian Copper Industry 3-2 ZCCM - Investments in Subsidiary and Associated Companies 3-3 ZCCM Organization Chart 3-4 Copper/Cobalt Operations Diagram 3-5 ZCCM - Manpower and Training 3-6 NCCM - Audited Financial Statements 3-7 RCM - Audited Financial Statements 3-8 ZCCM - (NCCM/RCM) Income Statements 3-9 ZCCM - (NCCM/RCM) Balance Sheet 4-1 The Copper Market 4-2 The Cobalt Market 4-3 The Lead and Zinc Markets 5-1 Implementation Schedule 5-2 Environmental Effects of ZCCM Operations 6-1 Analysis of IBRD Financing 6-2 Estimated Disbursement Schedule for Bank Loan 7-1 Assujmptions for Financial Projections ANNEXES (Continued) - iv - 7-2 ZCCM Income Statement 7-3 ZCCM Sources and Applications of Funds 7-4 ZCCM Balance Sheet 7-5 Cash Flows for Financial Rate of Return 8-1 Cash Flows for Economic Rate of Return 8-2 Foreign Exchange Effect MAPS IBRD 16492R IBRD 17004 -v - DOCUMENTS AVAILABLE IN THE PROJECT FILE A. MINING SECTOR 1. Zambia - Copper Sector Survey, World Bank; February 1981. 2. NCCM and RCM's Comments on the draft report: Zambia - Copper Sector Survey; April 1981. 3. Zambia Mining Yearbooks, 1974-80. 4. Mineral Resources of Zambia, NCCM, July 1979. 5. Zambian Copperbelt - Production, Reserves and Resources, NCCM; November 1981. B. THE COMPANY 1. NCCM Annual Reports, 1971-81. 2. RCM Annual Reports, 1972-81. 3. RCM Financial Forecast, 1982-91; July 1981. 4. Mining Expansion Projects in Zambia, RCM; June 1981. 5. Heads of Agreement to effect the Merger of NCCM and RCM; December 1981-83. 6. Proposed Merger of RCM with ZCCM to form ZCCM; February 1982. 7. ZCOM Annual Reports, 1982-83. 8. ZCCM - Existing Operations and Technical Facilities. 9. Environmental Problems of Copper Mining and Refining in Zambia, N.P. Perera; Industry and Environment, January-March 1982. C. THE METALS MARKET 1. MEMACO Annual Reports, 1975-83. 2. Memorandum on Short Term Copper Price Cycle, World Bank; February 1983. 3. World Copper Supply-Demand, EPD, World Bank; April 1982. INTRODUCTION 1.01 The Government of the Republic of Zambia and Zambia Consolidated Copper Mines, Limited (ZCCM) have requested a Bank loan of US$75 million equivalent to finance part of the foreign exchange cost of a US$300 million program to rehabilitate ZCCM's facilities and to rationalize its operations. This rehabilitation program is crucial to reestablish ZCCM's competitiveness on the world market and to ensure ZCCM's future financial viability. It is also vital for a stable development of the Zambian economy, since the mining industry accounts for over 30% of Zambia's GDP and around 95% of its foreign exchange earnings, and is Zambia's major employer. As such, the Government is dependent on copper revenues to finance its investment programs to develop other sectors of the national economy and to diversify the country's economic base. The proposed loan would be the first by the Bank to the Zambian mining sector. 1/ 1.02 The proposed Project addresses the technical, management and human resource problems which, in conjunction with recent depressed copper prices, have undermined the technical efficiency and the financial position of the Company. The Project is comprised of three components: (i) a replacement and rehabilitation program for high-priority equipment and spares to rehabilitate ZCCM's existing mine and plant facilities, (ii) a training program to upgrade skills of the local technical and supervisory workforce; and (iii) technical studies with the aim of reviewing economically justified capacity and production levels and rationalizing ZCCM's operations. 1.03 Following a mining sector survey in October 1980, the Project was first identified in August, 1981, and was appraised in February 1982, by Messrs. P. Lietard (Mission leader), A. Leon, R. H. Lloyd, J. Strongman, and C. N. Ahmad, of the Industry Department; L. Swahn, of the Education Department (EDC); and M. Stoakes (Consultant). A post appraisal mission comprised of Messrs. Lietard, Lloyd and Stoakes visited Zambia in March, 1983 and was joined by a team of the African Development Bank. Contact was also maintained during the appraisal and post-appraisal with representatives of the European Economic Community in Brussels and Lusaka. II. THE ZAMBIAN MINING SECTOR A. Role of the Mining Sector in the Economy 2.01 The mining sector has been the dominant influence in Zambia's economic development, contributing consistently over 30% of its gross domestic 1/ The IFC has participated in two ZCCM (formerly NCCM)-sponsored projects, i.e., the Cobalt project (US$20 million investment, Report IFC/P-354, 1979); and the NCCM Tailing Leach Stage 3 project (DM 70 million investment, Report IFC/P-462, 1981). - 2 - product (GDP) 1/, and around 95% of its foreign exchange earnings. It is the second largest employer after the Government, with about 57,300 salaried people, or 16% of Zambia's total paid employmnent. Of all minerals produced in the country, copper is by far the most important, accounting for about 90% of Zambia's total mineral export value. 2.02 Zambia's mineral production, with the exception of cobalt, has declined since 1974, as shown in the following table, but none with such overall economic impact as copper, which has decreased in total volume produced by 18% between 1974 and 1982. Zambia - Mineral Production, 1974-83 (000 tonnes) Year Copper Cobalt Lead Zinc Coal 1974 709 2.0 25 58 707 1975 648 1.9 19 47 898 1976 712 2.2 14 36 773 1977 659 1.7 13 40 708 1978 654 2.1 13 42 615 1979 583 3.2 13 38 599 1980 612 3.3 10 33 575 1981 589 3.2 14 34 552 1982 584 2.4 15 39 567 1983 575 2.4 15 38 460 Average Annual % Growth Rate, 1974-83 (2.3) 2.1 (5.5) (4.6) (4.7) Sources: Zambia Mineral Yearbooks, 1974-81. ZCCM Annual Reports, 1982-83. 2.03 Declining production has been exacerbated by depressed mineral prices. Copper price declined 38% in real terms between 1974 and 1982, and the 3-month average copper price at mid-1982 was about 60 cents/lb and touched as low as 50 cents/lb in June 1982. In 1983, copper production accounted for 88% of the total value of Zambian mineral production (followed by cobalt at 7%, lead and zinc together at 3%, and coal at 2%). Since the mid-1970s, the mining industry has become increasingly less able to sustain itself financially; and its contribution in direct (mineral and export) taxes to government revenues, which averaged K 170 million (US$140 million) per year during 1965-74, was marginal in 1975 and 1976 and has been nil every year since then, except in 1980 when it reached K 75 million (US$63 million). In April 1983, a tax on mineral exports (4% of export value, increased to 8% in August 1983) was introduced to provide a new source of mineral revenue to the Government; until then, mineral taxes were levied solely on the basis of profit. 2.04 Largely because of the importance of the mining sector in Zambia's economy, the country has, as a result, experienced consecutive years of 1/ In constant 1970 prices. In current terms, mining has declined to about 15% of GDP due to lower copper prices since 1975. - 3 - economic and financial hardship, affecting most seriously government finances and the balance of payment. Real GDP stagnated between 1974 and 1978, and declined by 10% in 1979; growth has averaged about 2% per annum since then. Real GNP per capita (US$560 in 1980) is 25% below that in 1974 and 50% less than in 1965. The balance of payments has been in chronic disequilibrium since 1975, with current account deficits averaging 8-10% of GDP; deficit financing has absorbed a large share of net domestic credit and contributed to a sharp rise in domestic prices, averaging 20% per annum during 1976-78 and 12% per annum during 1979-81. B. Mineral Resources and Reserves 2.05 Zambia has an area of 752,000 km2 (Map IBRD 17004) and has been relatively well prospected over a long period of time. Over 600 mineral occurrences and some 45 minerals or metals have been identified. Most of the country is part of the great plateau of South-Eastern Africa at an average elevation of some 1,200 meters above sea level. 2.06 In its north-central part, Zambia has one of the richest metal provinces in the world. The copper-cobalt mines are linked geologically to those in the Shaba province of Zaire both being part of the same copperbelt which is 500 km long and 300 km wide and extends from Kolwezi in Zaire to Luanshya in Zambia (Map IBRD 16492). The important copper and cobalt deposits occur in layers of sedimentary rock and form sheet-like bodies 5-20 meter thick which have been considerably bent and twisted by geological forces over the long period since they were formed. Unlike the porphyry copper deposits of North and South America and of the Pacific which originate from the action of hot fluids from deep in the earth and generally average about 1% or less copper, copper in Zambia and Zaire was deposited in basins by water together with particles of sands and clay; and the deposits average 3% copper in Zambia and 4% copper in Zaire. 2.07 The Copperbelt, together with the neighboring copper-cobalt producing Shaba province of Zaire, forms one of the world's greatest metallogenic provinces and the two countries' copper resources 1/ rank third in the world, after the USA and Chile. Of the estimated 1,100 million tonnes of copper deposits on land, Zambia and Zaire have 131 million tonnes or some 12%, with Zambia itself having an estimated 58 million tonnes, or 5% of the world's total. In addition, the Zambian/Zairian copperbelt contains by far the greatest known resources of cobalt: of an estimated 9.9 million tonnes of cobalt metal resources in deposits on land, Zaire has a larger share with some 3.1 million tonnes, or 31%, followed by Zambia with 1.7 million tonnes, or 17% of the world's total. 2.08 The deposits of the Zambian Copperbelt were first exploited only in the early 1930's, when in 1931 Roan Antelope (Luanshya) commenced production. Production was intermittent, while the intensity of exploration, both on the Copperbelt and elsewhere in the country, was gradually building up under the concession companies, most notably those controlled by the Anglo-American Group of South Africa and Roan Selection Trust of the United 1/ Geological resources are defined as mineral occurrences which have or may acquire some economic value in the future. - 4 - Kingdom. Recognized ore reserves 1/ are about 497 million tonnes, averaging about 3% copper, corresponding to about 15 million tonnes of copper and 327,000 tonnes of cobalt, as shown in the following table. Zambia - Copperbelt Ore Reserves (000 tonnes) Copper Cobalt Reserve Category Ore Reserves % Cu Tonnage Ore Reserves % Co Tonnage Fully developed 20,212 3.72 751 17,461 0.48 82.1 Partially developed 57,799 3.53 2,040 22,983 0.13 31.1 Undeveloped 419,212 3.01 12,620 167,638 0.13 214.0 Total 497,223 3.10 15,411 208,082 0.16 327.2 Source: ZCCM Annual Report, 1983. In addition to these geological reserves, over 800 million tonnes of potential ore resources, grading 2% copper, are indicated or inferred in the Copperbelt itself. 2.09 Most of the larger deposits which now form the nucleus of the mining industry in Zambia were found between 1899 and 1923, long before organized prospecting was initiated. Despite strenuous efforts over several decades, geological prospection produced a comparatively small inventory of additional metal, although the coverage given to the areas held under concessions has been sufficiently comprehensive within the limits of the available technology not to have missed any large deposits or major new mining areas. For example, although more than 600 additional mineral deposits were recorded by systematic work between 1924 and 1928, except for Konkola and Chibuluma, none were turned into mines of any consequence. This includes ground in the west of the Copperbelt in which the Kalengwa and Lumwana copper deposits were subsequently detected geochemically. It is also inevitable that odds are decreasing that additional investments will yield commensurate results because all relatively cheap and quick methods of exploration have been tried. With no major technical breakthrough in sight, most future discoveries will have to depend largely on expensive drilling, and the probability of discoveries is decreasing in view of the already thorough coverage given to the country. 2.10 While copper and cobalt are by far Zambia's major mineral resources, there are also important lead-zinc deposits at Kabwe. In addition, coal mining at Maanba was started after the Unilateral Declaration of Independence in 1965 from the then Rhodesia. The Maamba Colliery is now producing the majority of the country's coal requirements and IDA approved in March 1983 a 1/ Reserves are mineral occurrences which are exploitable subject to current economic and technical conditions. - 5 - US$4.3 million engineering credit for that mine. 1/ There are good-quality amethysts and emeralds which are being exploited by small-scale companies and artisans. Developments in the field of industrial minerals have been most successful, particularly in limestone for cement, lime and pyrite for the smelters at the Copperbelt, clays for brick and claywares, and sand for glass manufacture. In addition, there are deposits of fluorspar and feldspar and small tin deposits being worked in the southern part of the country. Finally, exploration efforts are now being directed towards finding liquid or gaseous hydrocarbons. 2/ 2.11 Although there are probably few large mineral resources outside the Copperbelt, there are smaller occurrences which could justify a continuing exploration effort, such as in phosphate rock in the western provinces, in gold, in uranium, which occurs in the same sedimentary rock as the Zambezi valley coal deposits, and in diamonds since many occurrences of kimberlite (host rock for diamonds) have been located. C. Structure of the Sector 2.12 The history of mining in Zambia is largely that of copper. Copper has been extracted from surface deposits for centuries by Zambian small-scale miners, but it was only during the 1930s that important rich copper deposits were mined with new technologies, that production was raised, and that Zambia became one of the world's leading copper producers. Total production increased from 6,400 tonnes to 145,000 tonnes from 1930 to 1935, reaching 644,000 tonnes in 1964, the year Zambia became independent. 2.13 In 1969, the copper mining industry was partially nationalized, with the Government purchasing a controlling 51% of the outstanding shares. The industry was then consolidated into two groups. Operations of the Anglo-American Corporation of South Africa formed Nchanga Consolidated Copper Mines Limited (NCCM), while t'ne operations owned by Roan Selection Trust International, Inc. of the UK (a wholly-owned subsidiary of the AMAX Corporation of the USA) became Roan Consolidated Mines Limited (RCM). The Government formed a holding company, the Zambia Industrial Mining Corporation Limited (ZIMCO), which then held the Government's 51% share in both NCCM and RCM. To finance the purchase, ZIMCO issued bonds at 6% per annum, payable in 1978 for RCM and in 1982 for NCCM, for a total acquisition cost of about US$331 million. Anglo-American Corporation and Roan Selection Trust continued management of their respective companies until 1974 when the Government, having redeemed all the outstanding ZIMCO bonds, terminated their management and marketing contracts for a lump sum of US$79 million, and both RCM and NCCM became self-managing. 2.14 Copper production in Zambia peaked in 1976 with a total output of 712,000 tonnes, representing about 11% of total world copper production. As the financial conditions of both companies then began to deteriorate, and the need for more equity became apparent, the Government discussed with AMAX and 1/ President's Report No. P-3431-ZA of February 18, 1983. 2/ President's Report No. P-3206-ZA of April 22, 1982. - 6 - Anglo their willingness to inject new funds into the companies. Since neither was willing to provide more equity, the Government agreed to convert portions of its outstanding loans to NCCM and RCM into equity. As result, in 1979 the Government increased its shareholding, in NCCM and RCM to 60% and 61%, respectively. Finally, in May 1981, the Government announced the merger of RCM and NCCM into a new company to be known as Zambia Consolidated Copper Mines Limited (ZCCM). The merger documents were signed in March 1982, with retroactive effect to April 1981. Following clhe merger, ZIMCO remains the major shareholder of ZCCM with 60.3% of the shares, the other shareholders being Zambia Copper Investments, a Bermuda-based company controlled by Anglo-American (27.3%), Roan Selection Trust (6.9%), and public shareholders in the USA (4.2%) and in the UK (1.3%). A complete presentation of ZCCM's activities is made in Chapter III. 2.15 ZIMCO was originally established to Look after the Government's mining interests. Its role has been expanded since then, and as of March 31, 1983, the state-owned holding company had total assets of about US$515 million and about 100 subsidiaries operating in the mining, industrial, and agricultural sectors, as well as in trading, hotels, transport, energy, and financial services. Foreign companies are minority shareholders in many of ZIMCO's subsidiaries, such as ZCCM, and do nol: have control over the management of their operations. While represented at the Board of ZCCM, ZIMCO lost the chairmanship which it held in NCCM and RCM when ZCCM was created. The Chairman and Chief Executive Ofi-icer of ZCCM is de facto nominated directly by the President, which has considerably weakened ZIMCO's influence on ZCCM's policies and strategies. 2.16 The capacity of the mining companies to meet financing requirements is to a large extent controlled by policies and practices established by the Ministry of Finance and the Bank of Zambia. Effective taxation rates on copper production are high reaching 79% through a dual imposition of a 51% mineral tax on profits and a 45% incorne tax on profits (after mineral tax) plus an 8% royalty on sales receipt. Effective taxation on cobalt, lead and zinc revenues is also a high 56%, comprising a 20% mineral tax and 45% income tax on profits. These rates, among the highest in the world, have provided little financial incentive to the companies to invest and expand production. In general, the lack of coordination on mineral policy, development and financing have seriously hampered the rationaL development of the Zambian mining industry. D. Prospects of the Copper Sector 2.17 Problems and prospects of the mining sector are basically those of the copper sector; first, because copper represents 90% of the value of all minerals produced in Zambia, and second, because the production of other minerals such as cobalt and coal, are closely associated with the production and refining of copper. 2.18 The copper industry is confronted with various constraints that were analyzed in the Bank's Basic Economic Report (No. 1586b-ZA, of October 3, 1977). Basically, these mining activities have reached their full maturity, and all deposits are becoming less rich and less accessible, leading to increased real costs of production. Over the next 20 years, the context in which the sector will have to operate is a combination of average copper grades declining from 3% to 2%, depletion of certain deposits, scarcity of foreign exchange, shortage of skilled personnel, and unreliability of the - 7 - transportation network. The effects are being felt most intensely at a time when copper prices are particularly low, and as a result ZCCM is incurring large financial losses. 2.19 Ore grades during the initial decades of the copper industry in Zambia were extremely high: for example, Chingola ore was 5-6% copper during the 1940s and 1950s, while it is about 3% at present and Nkana ore was about 5% copper in the 1930s and is only about 2% at present. As mentioned (para. 2.08), the known geological reserves of the Copperbelt are estimated at 497 million tonnes, containing an average of 3.10% copper, representing 15 million tonnes of copper. Recovery of finished copper from this reserve at the mines (about 73%) and the metallurgical plants (about 85%), is 63% overall, representing about 10 million tonnes of copper metal. 2.20 Fully or partially developed reserves represent about three years of production at the present production rate, and the tonnages quoted for undeveloped reserves represent an additional 14 years of production. This tonnage is small if compared with similar figures for other copper-producing countries. For example, a similar number for Zaire is on the order of 50 years. Although there are large additional indicated resources, difficult geological conditions--including strongly folded, deep ore bodies of varying thickness, large underground volumes of water, complex ores and rising costs of production--may make exploitation of the greater portion of those resources uneconomic. For example, 200 million tonnes of ore are indicated and possible at Konkola, with an average grade of 3.7% copper, but a copper price about double the present price (in real terms) would be required for them to be economically exploitable. Another example is Nchanga: resource tonnages include those at depths below the Nchanga open pit which may prove uneconomic to mine; and, despite Nchanga's high-grade ore (3.2%) and the largest total estimated reserves in the Copperbelt (270 million tonnes), Nchanga mine production is already expected to decline over the next decade. 2.21 Exploration activities by ZCCM indicate that while small orebodies exist which could be mined economically at current or foreseeable copper prices, there are no known economic deposits in the Copperbelt vast enough to replace the largely declining production that will take place in the 1990s. 2.22 In this context, it is important that the Government decide the role the copper industry should play in its macroeconomic plans for the next decade, first, because the geology, mining conditions and resulting mining cast will force a considerable drop in copper production around the year 2000 thereby necessitating the development of alternate sources of income for Zambia in the 21st century; and, second, because even decreasing production levels in the medium to long term will require investing substantial technical, human and financial resources that are also needed for any credible diversification program. 'While it is generally accepted that Zambia will have to diversify its economic base in preparation for its post-copper era economy, the decision making and planning process will take time as long-term objectives and short-term requirements, particularly foreign exchange needs and employment considerations, will have to be weighed against each other. 2.23 For ZCCM, however, the need to receive clear directives from the Government on what is expected from the mining industry is more urgent. For example, it has operated in recent past with the assumed objective of maximizing production, which may or may not have maximized foreign exchange - 8 - earnings to Zambia; but, with economic conditions of production receiving only secondary consideration, the impact on ZCCM's financial standing has been quite damaging and has already jeopardized the Company's ability to sustain its activities without massive Government assistance. In order to establish comprehensive strategies over the coming decade, ZCCM has received directives from the Government, its majority shareholder, giving primary consideration to profitability and economic efficiency. Such directives were endorsed by ZCCM's Board in February 1984. They imply closing of uneconomical operations and permanent or temporary release of some labor, with their far-reaching social consequences; the priority allocation of foreign exchange to sustain ZCCM operations; the determination of an adequate taxation regime and dividend policy to permit a sound financial structure for the Company; and possibly a reduction in the levels of production. Chapter III discusses how ZCCM will in turn translate such directives into specific strategies and action plans. III. THE COMPANY. 3.01 Zambia Consolidated Copper Mines Limited (ZCCM) was established in March 1982 through the merger of NCCM and RCM (paras. 2.13-2.14) with an authorized share capital of K 900 million (US$563 million). The ownership structure of the Zambian copper industry before and after the merger is presented in Annex 3-1. The Company has eleven affiliates, as detailed in Annex 3-2, which have a combined share capital of K 30 million (US$19 million). Ten of the affiliates provide products (power, lime, timber) and services (air transport, exploration, engineering, personnel and management advice, property maintenance, personnel recruitment) to the mining industry. The eleventh affiliate, Mulungushi Investment Limited, was founded to acquire a 50% investment in the newly established Societe de Coulee Continue de Cuivre, a continuous cast rod company in France. The purpose of this investment is to provide a base for future expansion of copper sales into a growing market segment. A. Organization and Management 3.02 ZCCM's Board of Directors consists of 12 members; seven are appointed by ZIMCO, the majority shareholder, and five are nominated by the minority shareholders and represent the interests of the Anglo and AMAX groups. The Board meets quarterly and provides overall guidance and supervision to the Company's operations. The Chairman of the Board, who is also ZCCM's Chief Executive, is appointed by ZIMCO, but de facto nominated directly by the President of the Republic of Zambia. The present Chairman, Mr. F. H. Kaunda, had been NCCM's Managing Director since 1975. 3.03 Reflecting the Company's history, ZCCM's organizational structure is characterized by the centralization in Lusaka of all functional lines of command such as Technical Support, Finance, Corporate Planning, Purchasing and Marketing, and Manpower Development and by the geographical separation of its production divisions. After the merger, ZCCM asked Booz, Allen and Hamilton, of the USA, to assist in defining the Company's new organizational set-up. The reorganization at the top of the Company, which has already taken place, is timely and important in view of the increased needs for - 9 - strong management and control at this difficult time of the copper industry's history. The new top management structure is shown in the organization chart in Annex 3-3. 3.04 Of particular interest is the creation of a Corporate Planning Department to strengthen the Company's strategic planning capability. The Department will be, within ZCCM, the unit in charge of formulating production and investment strategies to attain the objectives defined by the Government, and of estimating the human and financial resources, required for the implementation of such strategies. It has now been considerably strengthened and is presently composed of an economist, three technical staff (a geologist, a mining engineer and a metallurgist), a transport specialist, a metals market specialist (para. 4.24), two financial analysts and two economists. Its mandate is to carry out the coordination of all personnel, financial, geological, mining, metallurgical and commercial plans related to the development, preparation, interpretation and revis.on of the Company's long-term corporate plans. ZCCM has agreed to maintain the adequacy of the size and qualification of the permanent staff of its Corporate Planning Department. 3.05 The Chief Executive is assisted at headquarters by a managerial and technical staff of about 305, including 280 Zambians, and 12 out of the 29 top positions are occupied by Zambians. In addition to the Executive and che Management Liaison Committees established at the recommendation of Booz, Allen and Hamilton to facilitate flow of information and decision-making among the Company's top managers, there are three additional technical committees: the Industry Production Committee, to review production plans and achievements and to advise top management on matters relating to industry production and sales; the Job Evaluation Committee, to evaluate all senior staff positions; and the Industry Accident Prevention Committee, to review the Company's safety conditions. Other technical committees are formed on an ad-hoc basis to review the Company's production and service operations in the fields of geology, mining, metallurgy, engineering and ordering and supply management. 3.06 ZCCM's operations are organized into seven self-contained production divisions operating the mines and surface plants: Konkola, Nchanga, Nkana, Luanshya, Mufulira and Kalulushi on the Copperbelt, and Kabwe off the Copperbelt to the south. 1/ Each Division is headed by a General Manager, who reports to the Executive Director of Operations and is assisted by four managers (Mines, Metallurgy, Engineering, and Personnel). Eight of the 29 top positions at the division level are occupied by Zambians, underlining the lack of Zambians with enough technical expertise and seniority to fill senior posit.ons. In addition, two service divisions, administration and engineering, have been created from such similar support divisions of NCCM and RCM. ZCCM is basically a production company and does not have a marketing division. Practically all its sales are for export and are made through the Metal Marketing Corporation of Zambia Limited (MEMACO), a state-owned company with responsibility for marketing all of Zambia's mineral products (para. 4.15). 1/ Prior to the merger, these divisions were called: Konkola, Chingola, Rokana, Luanshya, Mufulira, Chibuluma, and Broken Hill, respectively. - 10 - 3.07 In mid-1983, Booz, Allen and Hamilton submitted initial reviews regarding the organization of each of ZCCM's divisions and associated services, concluding to the suitability of the original (geographical) structure of the operating divisions. Their further work will address the changes needed to improve the information reporting among the divisions and with the head offices in Lusaka. This phase is expected to be completed by April 1984. ZCCM has agreed to present by June 30, 1984, for discussion with the Bank the proposed information reporting system. B. Mining and Processing Facilities 3.08 ZCCM's production facilities are an intricate and interdependent matrix of operations spread over a 150-km crescent on the Copperbelt (Map IBRD 16492). A simplified operations diagram is presented in Annex 3-4 on the following page. The details of each division's facilities and operations are presented in the Project File (B.8), and these are summarized below. 3.09 Mining Facilities. There are 12 separate ore bodies: the deposits near the surface are most economically exploited in eight open pits using electric shovels and large trucks; while the deeper or steeply-inclined deposits are being mined underground by a variety of methods including sub-level caving and blast hole open stoping, with the ore being hoisted to the surface in 19 shafts. 3.10 Processing Facilities. The metallurgical operations are complex because the copper and cobalt are contained in both sulfide and oxide ores. To extract the metals, it is necessary to treat the oxide minerals by one process and the sulfide minerals by another and, to the exten- possible, to treat the cobalt minerals separately from the copper minerals. Twelve concentrators with a total feed capacity of 36.6 million tpy of ore and a total production capacity of 2.3 million tpy of concentrates produce six different concentrates that are fed into ten metallurgical plants. The technology and equipment date from the 1930s to the 1980s. Old reverberatory furnaces are used to melt the sulfide concentrates and comprise three coal-fired furnaces at Luanshya, five coal- or oil-fired furnaces at Nkana, and three coal- or oil-fired furnaces plus a modern 36-MW electric furnace at Mufulira. 3.11 It is in the smelter that the complexity and interdependence of ZCCM's operations are observed most. The sulfide ores do not contain enough sulfide for proper smelting, and iron sulfides in the form of pyrite concentrates have to be brought in from the Nampundwe mine located near Kabwe. Also, most of the sulfuric acid used for leaching oxide copper is produced from the sulfur dioxide released in the smelter during matte converting. In addition, precious metals follow the copper into the blister then into the anodes, and are removed at the end of an electro-refining cycle, washed, and processed at the Ndola precious metals plant to recover refined, marketable gold and silver and a crude selenium product. 3.12 ZCCM's total smelting/refining capacity is estimated at 630,000 tpy of refined copper, and its leaching plants have a combined capacity of about 263,000 tpy. Hence, ZCCM's total capacity to produce marketable copper is about 863,000 tpy, a level neither ZCCM, nor before it, NCCM and RCM combined, ever achieved. The plants produced 575,500 tonnes in 1982/83, including - 11 - 15,100 tonnes of electrowon copper (99.5% copper), 445,300 tonnes of electrorefined copper (99.97% copper) and 115,100 tonnes of wirebars (99.95% copper). In addition, they produced 2,200 tonnes of cathode cobalt, and minor quantities of gold, silver, and crude selenium. 3.13 Outside the Copperbelt, the Kabwe Division operates an underground mine, a concentrator, a smelter and hydrometallurgical plant and, in 1982/83, produced 15,200 tonnes of lead, 39,400 tonnes of zinc, and minor quantities of cadmium. 3.14 IFC Projects in ZCCM. IFC approved two investments to NCCM, one of US$20 million in 1979 for the expansion of the cobalt plant of the Nkana Division, and another of DM 70 million in 1981 for the expansion of the tailing leach plant of the Nchanga Division. Details of these investments can be found in reports IFC/P-354 and I-FC/P-462. C. Manpower and Training 3.15 ZCCM is a major employer in Zambia, with a total work force at December 1983 of about 57,300 people, including 55,400 Zambians and 1,900 expatriates, as summarized in the table below. ZCCM - Local and Expatriate Work Force, 1974-83 a/ 1974 1978 1979 1980 1981 1982 1983 Local 54,374 56,104 55,403 57,845 58,907 57,637 55,644 Expatriate 4,638 3,420 2,834 2,608 2,596 2,584 2,032 Total 59,012 59,524 58,237 60,453 60,803 60,221 57,676 Expatriate (X) 7.9 5.7 4.9 4.3 4.3 4.3 3.5 Annual Turnover ExDatriate () 23.3 34.5 32.3 24.8 21.7 17.2 31.4 Local (%) 8.7 9.1 5.1 5.4 5.7 7.6 5.6 a! 1974-80 Calendar Years; 1981-,3 Fiscal Years ended March 31. Sources: Zambia Mining Yearbooks, 1974-80; NCCM, RKC and ZCCM Annual Reports, 1981; ZCCM Annual Reports, 1982-83. The Zambian employees are members of the Mining Workers Union of Zambia, wh'ich negotiates three-year pay agreements and other benefits on behalf of its members. Turnover is low at less than 6% and labor relations are good; there has been no major labor unrest for ten years, reflecting the fact that ZCCM, and before NCCM and RCM, have been following a rather generous employment policy, first by preserving their employees' jobs even under extreme economic conditions, and second by offering monetary and non-monetary compensation packages substantially more attractive than those offered elsewhere by ZIMCO, and well above the national average. Low copper prices and the resulting squeeze on its financial resources have of late forced ZCCM to rely on attrition and early retirement schemes to reduce its local work force and - 12 - increase its overall productivity. As a result, ZCCM's local work force was reduced by 570 during 1981/82 and 1,990 during 1982/83, and is expected to decrease by another 300 during 1983/84. 3.16 The wage bill for local labor represents the second largest single production cost item at about 26% (para. 3.29), and hence the determination of salary levels is especially significant in ZCM1's effort to contain its production costs. This is particularly true at a time when ZCCM's generally high compensation levels raise questions about adequate income distribution throughout Zambia and about the merits and risks of continuing a priviledged situation for the mining work force. The situation has admittedly not been well studied but deserves consideration as the size of ZCCM's work force and its compensation levels affect not only ZCCM's productivity and financial health, but also the allocation of Zambia's human and financial resources to other sectors of economy. ZCCM has agreed to prepare by September 30, 1984, a document for discussion with the Bank on the monetary and non-monetary benefits available to its local work force at all grades. The document would permit the Government to review the comparative! advantages enjoyed by ZCCM employees as compared to similar positions within the ZIMCO group and in the private sector. Following the review of this clocument, the Government and ZCCM have agreed to present to the Bank by December 31, 1984, an action plan to arrive at appropriate levels of the monetary and/or non-monetary compensation by ZCCM to its local work force. 3.17 Expatriate staff decreased from 16% of ZCCM's (then NCCM and RCM) labor force at independence in 1964, to 10% in 1971 when the Zambianization policy was introduced, and further to 3.5% in 1983. In 1964, steps were taken to provide for increased Zambian participation at managerial levels, through fragmentation of jobs and job responsibilities. While the organizational change was appropriate at that time, ZCCM's staffing structure has now become overly cumbersome, and there is a need for the Company to take steps to achieve more simplified lines of responsibility within the mining operations. This is the objective of the second phase of the Booz, Allen, and Hamilton study (para. 3.07). Aware of its need for expetrienced expatriates at managerial and professional levels, ZCCM is actively recruiting through Zambian Appointments Limited (ZAL), a 100% subsidiary of ZCCM established in London. Several factors contributed to making recruiting and retaining expatriates difficult. First, the terms of employment include salaries far from competitive with comparable level salaries in traditional mining countries. Second, the Government, as part of its Zambianization program, limited the reinittance of foreign exchange to expatriates. Third, expatriates were limited to three-year contracts which tended to discourage them from seeking a life career in Zambia. Finally, deteriorating living conditions and the personal security problems that have existed since the political strife in southern Africa have discouraged mid-career expatriates from accepting positions or remaining in Zambia. Middle management particularly has become increasingly weakened by the continuous departure of expatriates because of the deteriorating competitiveness of compensation benefits: 65% of the expatriate work force has left within five years of service, and 53% is 34 years old or younger, in an industry where experience is essential. - 13 - 3.18 Effective April 1982, a new compensation policy was implemented to retain or attract experienced expatriate staff. Under the new scheme, expatriates receive a total compensation package competitive again by international standards, paid partly in kwacha (essentially the same salary as their Zambian counterparts) and partly as a tax-free expatriation allowance. Being then able to retain and attract expatriates of distinctly higher qualification and experience, the new scheme was accompanied by a reduction in the size of the expatriate work force, from about 2,600 in early 1982 to about 1,900 in late 1983. While practically all those released were in the lower echelons, and could be readily replaced by Zambians with either adequate qualifications or with the potential to acquire them, the scale and suddennes" of the reduction is expected to create in the short term disruptions at the operations of each Division. 3.19 A detailed description of the manpower situation and training activities in Zambia is contained in Annex 3-5. Training of Zambians is supported by both the Government and ZCCM's Department of Manpower Development and Training, but has been insufficient to fill the growing list of vacancies. There is an absolute shortage of academically prepared candidates to undertake and complete advanced training in mine-related fields, due largely to a general weakness in secondary education, particularly in mathematics and sciences. In June 1980, there were only 27 graduates from the School of Mines and 22 from the School of Engineering at the University of Zambia. Overseas training has been more limited, notwithstanding active roles in recruitment and sponsorship of Zambian candidates for training by the companies themselves both locally and abroad: in the academic years ended June 1981 and 1982, there were 14 overseas graduates in mining and in minerals engineering. 3.20 The continuing departure of expatriate employees, and the shortage of trainable candidates are forcing ZCCM to (i) identify its shortfalls in required skills at all operating levels; (ii) define priorities for filling existing or future vacancies; (iii) reformulate its training and skills upgrading program for its Zambian work force; and (iv) define a realistic policy for a gradual replacement of expatriates by Zambians. ZCCM has agreed to prepare by September 30, 1984, a comprehensive training program consistent with its training priorities and with the human and financial resources which can be allocated to training. D. Past Performance 3.21 Past production statistics for the most important metal products are presented in the table below. -14- ZCCM - Production Statistics, 1974-83 a/ 1974 1978 1979 1980 1981 1982 1983 Ore Mined (000 tonnes) Open pit 7,735 7,998 8,565 7,612 8,219 8,318 7,776 Underground 28,219 23,824 21,273 22,385 19,970 19,752 24,553 Total 35,954 31,822 29,838 29,997 28,189 28,070 32,329 Average Copper Grade (x) 2.46 2.44 2.31 2.28 2.26 2.24 2.15 Concentrators Copper Concentrate Produced (tonnes) 3,034 2,017 1,868 1,874 1,846 1,802 1,734 Average Copper Grade (x) 24.25 30.64 29.96 29.83 30.22 31.07 - Final Production (tonnes) Copper: Anodes 31,882 26,112 20,142 2,164 1,558 1,685 - Electrowon Cathodes 11,808 19,710 40,963 23,411 16,842 15,428 15,068 Electrorefined Cathodes 121,377 289,795 373,737 425,401 417,598 422,966 445,348 Shapes 543,829 318,239 147,240 157,318 151,920 151,954 115,102 Others 584 156 1,812 2,374 - - - Total 709,480 654,012 583,894 611,668 587,918 591,853 575,518 Cobalt 2,664 2,063 3,257 3,309 2,988 2,682 2,212 Lead 25,015 12,878 12,758 10,044 9,988 11,407 15,164 Zinc 53,355 42,462 32,786 38,213 33,928 36,106 39,448 a/ 1974-81 Calendar Years; 1982 and 1983 Fiscal Years ended March 31. Sources: Zambia Mining Yearbooks 1974-81; ZCCM Annual Report, 1982-83. Bank staff estimates. 3.22 The main problem encountered by ZCCM (and before by RCM and NCCM) has been the mines' inability to deliver sufficient tonnages of suitable- grade ore to the concentrators. Mining output, which was 36 million tonnes in 1974, has decreased at an average annual rate of 3%, to 28 million tonnes in 1982. By contrast, the metallurgical plants, comprising concentrators, smelters and refineries, are largely underutilized. The declining tonnages are due to several factors. First, the ore reserve grade tends to decline with increasing depths as mining operations move away from the secondary enrichment zones into primary sulfides. Second, there is a lack of adequate mine development and stope preparation in underground mines, and of adequate overburden removal in the open pits, mostly for lack of equipment in proper working order. The fully developed reserves represent about nine months of mining on average, which is low by mining standards, and as little as four to five months in some mines. As a result, the mines have very little flexibility in meeting daily production targets. Tn addition, the already extensive use of overtime leaves very little slack to expand production to meet monthly targets. - 15 - 3.23 Third, the lack of development tends to increase dilution (tonnage of waste rock per tonne of ore mined), since in an attempt to meet the concentrators' capacity, development waste tends to be trammed as ore and stopes are drawn. The average millhead copper grade was 2.46% copper in 1974 and has declined steadly since then to 2.15% copper in 1983,and the amount of ore required to produce one tonne of finished copper was 56 tonnes in 1983 as compared to 43 tonnes ten years earlier, notwithstanding recent tailings leach retreatment of previously mined materials. Average dilution is now around 40%, which is high by any mining standard; it varies from mine to mine (from practically zero in the open pit to over 90% in the underground mines), depending on the developed reserve position, ground conditions and mining methods, and the ability of mine supervisors to maintain efficient operations. The high dilution can be explained, in part, by geological hanging wall conditions at particular Copperbelt mines where the mining method breaks waste in the footwall and ground conditions are weak. However, increased dilution in recent years (from about 25% in 1976 to about 40% at present) has exceeded that normally expected from changing technical conditions and seems to reflect more on ineffective supervision and management of mine operations and workers and lack of adequate mine planning. Finally, copper recovery in the concentrators tends to fall with declining millhead grade as the concentrator operations are geared to a constant tailings discard grade. 3.24 Overall productivity of the Zambian copper industry has as a result decreased steadily over the last years, from an average of 12.3 tonnes per employee in the 1973-76 period, to 11.7 tonnes per employee in 1977 to 9.7 tonnes per employee in 1981, improving only slightly in 1983 to 10.0 tonnes per employee. This compares to about 12.6 tonnes per employee in Zaire and 30.8 tonnes per employee in Chile. This trend is due to two main factors. First, ZCCM's underground mines are largely unmechanized and labor-intensive with a resultant low output per manshift. Second, there is a general lack of discipline among mine workers attributable to the weaknesses of the managerial structure and to the lack of incentives built into the wage structure. Despite the decline in productivity, how-ver, it is still more economical for the mines to use labor- rather than capital-intensive production methods, given the high cost of capital, shortages in foreign exchange for capital expenditures, and shortages in skilled maintenance technicians. 3.25 There is a need to carry out a critical review of all of ZCCM's mining operations, particularly underground, in order to (i) assess the geological and geotechnical factors affecting operations; (ii) re-assess the suitability of the present mining methods; (iii) prepare adequate development and mine plans; (iv) determine appropriate cut-off grades; (v) improve mining controls such as sampling, surveying and grade control; and (vi) organize the proper supervision and discipline, together with an attractive incentive scheme for the workers, in order to increase labor productivity. The coverage of such mining audits and the details of their implementation are presented in Chapter V. ZCCM has agreed to undertake by December 31, 1984 a comprehensive review of its mining operations, and to prepare by March 31, 1985, an action plan to increase mining controls, reduce dilution and increase labor productivity. - 16 - E. Production Costs 3.26 The following table illustrates unit copper production costs for ZCCM (or for NCCM and RCM combined) over the 1978-82 period: ZCCM (NCCM/RCM) Copper Production Costs (US cents/lb) 1983 Years ended March 31, 1978 1979 1980 1981 1982 1983 % of Cost Production (000 tonnes) 647 624 596 588 592 575 Production costs Mining 25.8 24.5 30.6 35.3 37.2 34.0 42 49 Concentrating 5.8 5.5 7.7 8.4 7.9 6.5 8 10 Leaching, smelting and refining 9.0 11.6 12.2 15.1 14.2 12.8 16 18 Mine management and administration 11.9 11.3 14.3 16.1 16.7 10.6 13 16 Depreciation/replacement 2.3 3.2 4.8 4.7 5.8 5.1 6 7 Total production costs 54.8 56.1 69.6 79.6 81.8 69.0 85 100 Transport, freight, insurance 5.6 6.2 7.6 7.5 7.9 7.0 9 Financial charges and others 3.4 3.7 4.3 3.8 5.4 4.4 6 Total cost 63.8 66.0 81.5 90.9 95.1 80.4 100 Average LME price 60.0 69.0 92.2 94.0 76.0 68.5 Source: NCCM/RCM and ZCCM Annual Reports, 1978-83. 3.27 Total production costs increased from 55 cents/lb in 1978 to 82 cents/lb in 1982, at an average annual increase of 10%, with most of the increase (43%) attributable to the mining costs. After the cost cutting measures adopted in 1983 (paras. 3.32) and the devaluation of the kwacha, total production costs decreased to 69 cents/lb in 1983. In real terms, the annual increase was about 1-2%. Total costs, including freight, insurance and financial charges, increased from 64 cents/lb in 1978 to 95 cents/lb in 1982, and decreased to 80 cents/lb in 1983. Total unit costs are high when compared with similar costs in other copper producing countries: there are about 70-75 cents/lb in Chile and Peru and 80-85 cents/lb in the USA, despite the fact that Zambian ore contains at least twice as much copper per tonne of ore mined aE in Latin America or the USA. This is attributable mostly to the high proportion of underground mining, low productivity, poor mine planning, control and supervision, and high dilution. - 17 - 3.28 The most important activity, production of ore in mining operations, accounts for almost half of total production costs, and is an obvious target for introduction of new mining techniques and control, to increase productivity and reduce costs. The combined production costs for concentration, leaching, smelting and refining, representing 28% of total production costs, are less significant. Those activities are also the ones where in the long term the merger of NCCM and RCM into a single company are expected to provide greater opportunity for rationalization and optimization. Administrative costs have remained fairly high in the past due to the fact that ZCCM has to bear the cost of providing social services to practically the whole population of the Copperbelt, but have declined somewhat as a result of the creation of ZCCM, and now represent about 16% of total production costs. 3.29 Of the total production costs, 36% is for labor (of which about 10% alone for expatriate labor), 38% for operation materials, spare parts and maintenance stores, 8% for fuel, and 4% for electricity. At present levels of production, it is estimated that about 63% of the total costs are fixed, and that about 47% represents its direct or indirect foreign exchange component and about 49% its total foreign exchange requirements including debt service. The above results show that Zambia's production cost is in the top 30 percent of copper producers worldwide, partly because of the Company's strategy of maximizing production. ZCCM has agreed to undertake by March 31, 1985, in collaboration with its consultants, a study of the cost, financial, economic and social implications of reducing output by closing economically and financially unjustified operations such as Nkana Central, Kansanshi, Konkola No. 3, Chibuluma, Torco, Mindola, or other mines/facilities over a two-three year period. This would include the formulation of a detailed schedule and action program for such closures (para. 3.43). 3.30 The high foreign exchange content of copper production costs makes the industry sensitive and vulnerable to shortages and delays in obtaining foreign exchange from the Government, and in fact, stringent foreign exchange conditions in Zambia for the past five years have had serious adverse effects on the copper sector's performance. Unavailability of foreign exchange for spare parts, machinery, equipment, reagents and other intermediary goods has caused increased equipment downtimes and increasing maintenance problems in all Copperbelt operations. Government procedures for import licensing and foreign exchange allocations have also increased the Company's foreign exchange problems by allowing the allocation to be made on discretionary basis. While a Technical Committee and an Official Committee of Permanent Secretaries composed of representatives of relevant ministries and agencies reviewed and decided the foreign exchange allocations on a sectorial and company basis, the issuance of import licenses was made by the Ministry of Commerce and monthly allocations of foreign exchange to commercial banks were made by the Bank of Zambia. For example, the Company had been given priority in obtaining six-month blanket import licenses for goods purchased abroad and in establishing limited imprest accounts outside Zambia, but the blanket licenses were often not supported by payment authorization from the Bank of Zambia. While in fact ZCCM has fared reasonably well in obtaining foreign exchange relative to the rest of the country, the necessity to apply continual pressure on the Government on a day-to-day basis and the uncertainty of foreign exchange receipts have been difficult conditions under which to operate. - 18 - 3.31 A new foreign exchange allocation scheme was put in place hy the Ministry of Finance and the Bank of Zambia, effective June 1982. The policy accords ZCCM priority access to foreign exchange on a monthly basis, up to 50% of its metal sales proceeds in that month to cover its direct foreign exchange requirements (about 35%), as well as the foreign exchange requirements of its local suppliers (about 15%). To implement this policy, a Permanent Committee consisting of representatives of ZCCM, the Bank of Zambia, and the Ministries of Finance and Mines has been created. ZCCM has been authorized to open bank accounts in foreign currencies, to be operated by Zambia Engineering Services Limited (ZES), its wholly-owned subsidiary, and the use of the funds no long requires prior approval of the Bank of Zambia. While the procedure for using the funds has worked relatively well, Zambia's other foreign exchange requirements, most notably for debt servicing and for essential goods, have not permitted adherence to the 50% ratio. For example, Zambia's annual gross foreign exchange earnings were about USl.O-l.]L billion during 1982-83, compared to US$1.5-1.6 billion annually in the prior years, and ZCCM received only about 25% of its metal proceeds during 1982-83. Following the extension of Zambia's debt by the Paris and London Clubs in 1983, overall foreign exchange allocation policy to ZCCM has been reviewed. The Government has agreed to a minimum foreign exchange allocation to ZCCM of about US$350 million during 1984, representing about 35% of ZCCM's estimated sales proceeds during that year. Local suppliers would have dlirect access to foreign exchange through Zambia's normal import licensing and foreign exchange allocation procedures. For the subsequent years, ZCCM has agreed to submit to the Government, not later than August 31 of each year, an estimate of its foreign exchange requirement for the following calendar year; and the Government has agreed to present to the Bank for approval, by October 31 of each year, its proposed foreign exchange allocation amount to ZCCM for the following calendar year. F. Cost Cutting Measures 3.32 In May 1982, pressed by plunging copper prices and lack of funds, ZCCM prepared a survival budget, including drastic cost cutting measures, that forecast a reduction in operating costs of about K 95 million (US490 million) or 8% and a reduction in capital expenditures of about K 41 million (US$39 million), or 17%. The results of 12 months of cost cutting have been better than forecast, as shown in the table below. - 19 - Effect of Cost Cutting Measures on ZCCM Funds Flow (April 1982 - March 1983) (K million) Revised Original Budget Difference from Budget (May 1982) Actual Original Revised Operating Costs Labor 394.1 352.7 321.2 -19% -9% Materials 505.3 451.6 406.6 -20% -10% Contractors 69.1 62.3 58.9 -15% -5% Others 76.9 84.0 66.2 -14% -21% Depreciation 77.6 77.4 73.9 -5% -5% Sub-Total 1,123.0 1,028.0 926.8 -17% -10% Cost per pound (US4/lb) 0.89 0.81 0.78 Capital Expenditures 246.7 205.7 162.2 -34% -21% Other Items Selling Costs 225.7 223.5 194.7 -14% -13% Net Loan Finance (150.2) (159.6) (181.2) +21% +14% Change in Store Holdings 11.9 (89.3) (29.9) Change in Working Capital _(84.6) (83.9) (91.7) Total 1,372.5 1,124.4 980.9 Source: ZCCM. During 1982/83, ZCGM was able to reduce its total operating and capital costs by an additional K 145 million (US4138 million) over the austerity budget decided last year, mostly through the departure of local and expatriate personnel (US$30 million), savings in materials and consumables (US$42 million), and deferment of capital investments (US$41 million). 3.33 Financial charges increased well beyond the forecast levels because low copper prices forced the Company into heavy borrowings, and the store holding levels remained much higher than anticipated partly because of an overhang of orders placed the year before and partly because materials savings left a good part of the stores inventories untouched. 3.34 Prior to merger, both companies used similar, but not identical, inventory management and procurement procedures. Each operating division had its own warehouse but used central procurement services, with procurement agents in Kitwe, Ashford (U.K.), New York, Johannesburg, and Harare. Since the merger, procurement has been consolidated and rationalized. ZCCM uses a computerized procurement procedure based on inventory codings including all but capital equipment, major spares and infrequently ordered items. The status of routine spares and supplies, about 250,000 items, is checked twice a week by the computer to identify items which are out of stock or below pre-set - 20 - minimum levels. The computer then automaticalLy prints out a list of potential suppliers and after manual check, prepares the order. The inventory and spare parts management suffer from several deficiencies: (i) procedural, since no priority setting exists to decide which items should be ordered first; (ii) human, since the clerks doing the checking do not know the relative importance of the items being ordered and since, at the same time, Divisions hoard choice items in their own warehouses; and (iii) financial, since unpaid invoices from previous orders prevent the shipment of new priority items by the suppliers. ZCCM has agreed to formulate by December 31, 1984 a comprehensive equipment maintenance and replacement program, to reorganize its stores inventory management and to prepare an integrated purchasing and ordering system. 3.35 To a good extent, many cost cutting measures such as the departure of expatriates and the reduction in the size of the local work force can be considered permanent; others, such as extending the life of equipment and spares, are less irreversible. During 1984, ZCCM expects to reduce its operating costs by another 8%, mostly through further reductions in the size of its work force, improvements in its purchasing methods, and reduction of some social services. Considering the success of last year's program, and the austerity mentality now prevailing within the Company, these additional cuts are not unrealistic. In the long term, however, the cost reductions will come mostly from (i) increases in productivity at the mines; (ii) rationalization of ZCCM's operations as a result of the merger; (iii) introduction of adequate divisional cost accounting systems to permit continuous control of the Divisions' performance; and (iv) establishment of a systematic approach to budget preparation and to cost/benefit analysis of capital expenditure proposals. G. Past Financial Results 3.36 Audited financial statements for NCCM and for RCM during the years 1978-81 are given in Annexes 3-6 and 3-7. Combined financial statements for NCCM and RCM for the 1978-80 period, and audited financial statements for ZCCM during the years 1981-83 are given in Annexes 3-8 and 3-9 and are summarized on the following page. ZCCM's accounts (and before NCCM's and RCM's) are audited annually by the international accounting firm, Deloitte, Haskins and Sells, and auditing arrangements and procedures are satisfactory. - 21 - Summary of ZCCM (NCCM/RCM) Financial Performance, 1978-84 a/ (K million) Years ended March 31, 1978 1979 1980 1981 1982 1983 1984 (6 mos.) Income Statement Copper Sales (000 tonnes) 638 639 549 b/ 598 570 588 310 Average Copper Price (K/tonne) 992 1,209 1,700 1,620 1,522 1,477 2,160 Copper Revenues 633 773 921 969 868 869 639 Other Mineral Revenues 51 113 168 124 109 104 53 Total Revenues 684 886 1089 1,093 977 913 692 Cost of Sales 698 756 820 1,008 1,083 1,043 572 Net Profit After Taxes (22) 90 141 56 (174) (128) 11 Net Profit/Sales (%) (0.3) 10 13 5 (18) (13) 2 Cash-Flow Statement Internal Cash Generation (22) 140 193 137 (60) (43) 124 Capital Expenditures 96 65 102 172 273 230 90 Balance Sheet Assets Current Assets 465 614 725 669 729 684 773 Net Fixed Assets 1,014 1,029 1,061 1,174 1,341 1,538 1,580 Other Assets 6 11 17 15 12 12 12 Total 1,485 1,654 1,803 1,858 2,082 2,234 2,366 Liabilities and Equity Current Liabilities 368 465 547 465 649 602 774 Long-Term Debt 380 229 179 269 482 831 c/ 612 Net Capital 737 960 1,077 1,124 951 801 980 Total 1,485 1,654 1,803 1,858 2,083 2,234 2,366 Exchange Rate (average US$/K) 1.21 1.25 1.22 1.19 1.09 0.95 0.80 Current Ratio 1.3 1.3 1.3 1.4 1.1 1.1 1.0 LT Debt/Equity Ratio 34:66 19:81 14:86 19:81 34:66 51:49 48.52 LT Debt/Sub. Debt and Equity Ratio - - - - - 38:62 36:64 a/ Audited statements, 1978-83. Preliminary estimates, 1984 (6 months). _/ RCM fiscal year was changed from July/June to April/March in 1980. Sales that year cover only 9 months for RCM. c/ Includes K 203 million in subordinated debt. Source: NCCM/RCM and ZCCM Annual Reports. - 22 - 3.37 With copper sales representing on the average 88% of total revenues during the period, the Company's financial performance has essentially followed the cycle of copper prices. Until 1982, costs on the other hand, increased regularly on a per tonne basis (para. 3.28) and in absolute terms, leading to losses in years of low copper prices. Even in 1980, a year of high copper prices, production costs amounted to 75% of sales. In 1983, the austerity measures permitted for the first time a reduction in costs, but even lower copper prices resulted in yet another year of large losses. The deep and persistent slump in copper prices for the last three years has hurt ZCCM most dramatically, as it was combined with a consistent decline in copper production. The result has been a net total loss of K 302 million (US$311 million) in 1982 and 1983 combined, by far the largest in the history of the Zambian copper industry. The recent change in the parity of the Kwacha, together with continued austerity measures, has however, halted this loss trend and permitted a small profit during the first six months of 1984. 3.38 ZCCM's funds flow statement for the 1978-83 period is summarized below. The summary reflects the effects of low copper prices and the Company's lack of profitability during the period, with cash generation accounting for only 24% of ZCCM's sources of funds. During the period, ZCCM was forced, because of cash flow and foreign exchange difficulties and heavy debt service commitments, to restrain capital investments for expansion, replacement and modernization of its facilities to a total of K 938 million (Us$1,050 million), or only 58% of its funds applications. To cover its heavy losses in 1982 and 1983, ZCCM incurred large amounts of short-term debt and made extensive use of bank overdrafts. Summary of ZCCM (NCCM/RCM) Funds Flow Statements, 1978-83 (K million) Source Amount % Applications Amount % Cash Generation 389 24 Fixed and Other Assets 938 58 Short-Term Borrowings 282 18 STD Repayment 60 4 Long-Term Borrowings 946 52 LTD Repayment 591 36 Share Capital 97 6 Dividends 41 3 Net Working Capital (16) -_ Total 1,614 100 Total 1,614 100 Sources: NCCMIRCM and ZCCM Annual Reports, Audited Statements, 1978-83. 3.39 Despite a deteriorating cash flow position, ZCCM's balance sheet has improved substantially in the late 1970s as a result of the Government's converting outstanding long-term debt to equity. The Government converted its K 66 million (US$81 million) loan to NCCM into equity in 1977 and K 40 million (USW50 million) of its K 134 million loan to RCM into equity in 1979, thereby increasing its equity participation in both companies to about 60%. By 1980, ZCCM's long-term debt/equity ratio had improved to 14:86, and at the end of 1981, when ZCCM was established, ZCCM share capital was fixed at K 900 - 23 - million, of which K 893 million were paid-in. This was practically a doubling of the combined share capital of NCCM and RCM, which was made possible by capitalizing the accumulated reserves of both companies. 3.40 ZCCM's financial structure deteriorated sharply in 1982 and again in 1983, as a result of the poor performance of those years. Net working capital decreased from K 204 million in 1981 to K 82 million in 1983; its current ratio declined from 1.4 to 1.1; and its long-term debt/equity ratio deteriorated from 19:81 to 51:49. 3.41 In February 1983, ZCCM's Board approved a number of measures to improve on the structure of its balance sheet after verifying with the atuditing profession that these were in line with Zambia's accounting policies. First, it introduced new accounting practices in order to (i) spread over the lives of the loans the losses related to the January 1983 and subsequent devaluations of the kwacha; (ii) restate at parity the value of assets acquired abroad and financed by long-term loans repayable after the devaluation; and (iii) capitalize the interest costs of loans to finance new assets until such assets are brought into use. It also agreed on the principle of a revaluation of the fixed assets of the Company. Second, it authorized negotiations (i) with the Government on the subordination to all other loans, subordinating K 203 million (US$193 million) of government loans, and (ii) with its minority shareholders on the issue of new share capital. After subordination of government loans, approved in July 1983, ZCCM's long-term debt to equity and quasi-equity ratio has improved from 51:49 to 36:64. Also, during the 1983 Paris and London Club meetings, about K 85 million (US$65 million) of ZCCM's debt (including debt in arrears and due in 1983) was rescheduled, which is expected to improve the Company's liquidity situation during 1984-86. H. Rehabilitation Program 3.42 As illustrated throughout Chapter III, the crisis of the last three years, while considerably damaging ZCCM's ability to produce copper economically, has provided also the shock necessary to start a complete restructuring of ZCCM's operations, organization, and finances. Some decisions, particularly in cost cutting were, since the establishment of ZCCM in April 1982, drastic enough in the last year to avert near-bankrupcy for the Company, and augur rather well for its survival and slow recovery. Many actions initiated will have, however, to be continued and accelerated if ZCCM is to regain enough strength to absorb price fluctuations in the copper market (Chapter IV). These actions have been discussed in the preceding paragraphs and the key elements of ZCCM's rehabilitation program are summarized in the synopsis and in the implementation schedule presented on the following pages. - 24 - Synopsis of Key Elemnts in the Rehabilitation Program Actions Taken up to Problems September 30. 1983 Actions Planned Rseponuibility Completion Date I. Stratey for the Lack of clear directions ZCCM asomed foreign Pormulaticon of long-term Government November 21, 1983 Copper Industry from the Government (ZCCM's exchabge earnings and objectives for ZCCM, majority shersholder) to employment to be compatible with its natural, percft ZCCM strategic planning. Government main concerns. human, technical and finsncial nesouoces. Lack of long-term production Creation of Corporate Formulation of production ZCCM, assisted June 30, 1985 and investment strategies. Planning Depsrtment. and investment strategies by SRI to Attain defined objectives. Estimation of resources required. 2. Restru-taring of Following merger of NCCM and Following Boos, Allen Development of appropriete ZCCM, assisted Jone 30, 1984 M nagement RCM in April 1982, entensive and Hamilton (gAH) management information and by BAR neorganinatioc is required. recommendations, new top reporting systems. levels structure to strengthen managegent Strengthening of Corporate ZCCM March 31, 1984 control and efficiently Planning Department. use personnel now in place. 3. Rationaligation of Folloving monger, ratlonalina- Stanford Research Optimization of mining end SR1 March 31, 1985 Operations tion in overall use of nines Institote (SRI) engaged metallurgica1 operations and plants is required. to survey ZCCM's transportetio network, in facilities and recommend line wit 2CCM's strtetgy. changes in nines end plants operetionn. 4. Efficiency of Operations Tendic.y to macxinie mine Mining: Bank recommends Review of underground mining ZCCM, Assisted December 31, 1984 output, s;ithout proper regard in depth review of all rethods. Determin.tion of by mining to productivity and costs, mining operetions. ct-off grades. Preparation conseoltants of mine development plans. Preparation of an action ZCCM, assisted March 31, 1985 plan on mining controls to by mining reduce dilution consultants Productivity: Formolation of a policy ZCCM September 30, 1984 Comprehensive training for gradual replacement of progra underway. expatriates by tambian work force, and cf training end skills upgrading program for Uambian cork force. Review of wages and other ZCCM September 30, 1984 benefits to Cambian work force. Formulation of policy no ZCCM and December 31, 1984 contain ZCCM wage bill. Covernment Reconmendation to improve ZCCH, assisted December 31, 1984 store inventory management by SRI and purchasing/ordering systems. Cost Cutting Measures: Incorporate octions on ZCCM March 31, 1985 Austerity neasurea rationalization of opera- oucceosfully implenented tiuns on improvement of during FY1983. mine productivity permanently within ZCC8 policies, operati-vs evd control systems. S. Impact of productico Output maximization without due Study of closure of Review of major high cost zcC, assisted March 31, v1 5 cot-back regard to economic, financial selected facilities. facilities, and study of by SRE And market consideration. closures of selected fecilirie- 6. Rationnlization of Ltck of systematic cost/ Replacement Equipment: Review of physica1 state of ZCCM, assisted December 31, 1984 Investment Decisions benefit analysis leading Postponement of least equipment, And formulation by SRI to sub-uptional use of priority invesntsnts. of comprehensIve Mintensnce ZCCM financial resources. and replacement policy. Preparation of an equipment replacement program. Definition of priority ZCCM Jone 30, 1984 criteria for investment, in line with ZCCCt's strategy. Eatablishhetn of methods of SRI December 31, 1984 nystematic fin-ncil and economic cost/benefit analyses. Ieprove.ent io cost control ZCCM, assisted December 31, 1984 acouonting system and by SRI fcrsclacion of procedures for budget preparation, based on Abto merhods. 7. Rctt-ii-ctiiu of Foreign Egohanie A11-ction- New alloc1 tion ocheoc Review of Zanb:a'o foreign Government North 31, 1984 Factoro Eoogena.s to Lack of nyotemotic and adequaot Approved in June 1982. e.ohange obligaLtions. ZCCM f-reign ech-age ollo-stion, Maerkd improvement in di-ropting ZCCM' ubility to thn use of fundo, but Entimation of zccMn. foreign ZCCC Abogut 31, 1984 uperate -oothly. lck of aufficiet enchauge reqoiseneot, in And each year for-ign e-ch-ong Iie with itr exioting thereafter earni.go hove linitod finoncial ubligutiona ond bonefito of nev eohe=. with ZCCG otr-tegy. Agreo=ent 00 foreign Governrent fcttbnr 31, 1984 eachange 11oc-tion. and each ypor thereoftor -otion and Dividend Policies Nro xpyort tax introduced R-vino udoqucy of ta..tion Government Decehber 31, 1984 Firal egie cnd dividend in April 1983. cod dividend policies and zCCM icy l- little rer pro-c-tig ZCCM olvency. 2M'. --oot-. - 25 - ZAMBIA IMPLEMENTATION SCHEDULE OF KEY ELEMENTS IN THE MINING REHAILITATION . _4 1W85 lIA1 1 2 3 4 1 2 3 1 4 1 .. Ffi A I I A SO N DI FM A M J S ON 0 F M A M J STRATEGY FOR THE COPfPE IND LSTRY . . .. . . . . . . .n . _ . ZCCM/SR I I1 RESTRUCIURING OF Mq4AGEMENT ZOOM SIl. III PATI0NAIZATION OF OPERATOMNS I r _ _ _ _ _ - _ IV EFFCIENKY OF OPERATIONS -Mlning l l | L _ ~~~~~~~~~~~~~I Cos zot_c - Prdn I - t- - C- t-oduc,Iir M-.- l | L _ l l | ZC gM | ! - - l l l lZ -l-Cos Fng Meos~e rf m mlr U rn =r mrnr rn - - rn M - t r rn = - U * - rn - - V RATIONALIZAT OF INVESTMENT DECISONS * I ZCCM/SRI -Rq enIt EquP-rent and Mbintf,ce - rn - I -Cfl,Ift 01 Cdtlnao For I-Ort-ets - Oce/B"nff AmN- ZCCM/SRI -OfOlotiof Econ- lPo,n dcItr L-nl r 1i ; V\ RATIONALIZATION OF FACTORS EXOGENEOUS TO ZCCM FOZ/lCCM - b4g, Elchon. AI-k GRZtUZ GRZ/ZC GVZC -T T- O r- Dlid-ed Poaciest Z I GRZ G trnent o tIhe lepubic d Zo-bb ZCCM Zambia Coorklboted Cpper Minef SRI Stanford Reoach Irstit,t R,AH Boat. Alo -d H-ftrntrI Word Bank - 25223 3.43 Following Bank Guidelines for the Use of Consultants, ZCCM selected Standford Research Institute International (SRI), of the USA to assist the Company to (i) formulate management, production and investment strategies consistent with the broad objectives assigned to it by the Government; (ii) review and establish capacity and production levels of ZCCM which can be justified from an economic, financial and market point of view for the short, medium and long term; (iii) define the optimum use of ZCCM's mining and metallurgical facilities resulting from the merger of NCCM and RCM; (iv) introduce methods of systematic cost/benefit analysis of investment; and (v) rationalize cost accounting methods and budget preparation. By June 30, 1985, ZCCM would present to the Bank for review and discussions action programs on (i) its reorganization (para. 3.07); (ii) the training of its local work force (para. 3.20); (iii) improvement in the productivity of its mining operations (para. 3.25); (iv) the shutting down of financially and economically unjustified facilities (para. 3.29); (v) its purchasing/ordering systems (para. 3.34); and (vi) the rationalization of its operations (para. 3.35). ZCGM has agreed to prepare by December 31, 1985 for Bank approval on the basis of all the studies prepared and of all the action programs formulated, a production and investment strategy, to attain the objectives set by the Government (para. 2.23), as well as a comprehensive program of actions to implement such strategies. Approval of the program of actions and agreement of its implementation would be required prior to releasing the second tranche of the proposed loan (para. 6.12). - 26 - IV. THE METALS MARKETS 4.01 The key world market factors and current and projected prices, have been reviewed for ZCCM's major metal products, copper, cobalt, zinc and lead, accounting for over 95% of ZCCK's sales over the forecast period. Price projections used in this report are summarized in the table below, and are discussed in more detail for copper in this Chapter. Fuller details of the copper market together with discussions of the cobalt market and of the lead and zinc markets are presented in Annexes 4-1 through 4-3. Metal Price Projections - ZCCM Realized Prices, 1983-90 al (US$/lb) Years ending March 31, 1983 1984 1985 1986 1987 1988 1989 1990 Metal Terms Copper (real terms) b/ 0.71 0.70 0.73 0.74 0.76 0.77 0.73 0.68 (current terms) 0.71 0.76 0.85 0.92 1.00 1.08 1.09 1.07 cobalt (real terms) 5.60 5.60 5.15 5.20 5.30 5.35 5.50 5.70 (current terms) 5.60 6.00 6.00 6.50 7.00 7.50 8.00 9.00 Zinc (real terms) 0.35 0.31 0.34 0.34 0.30 0.26 0.29 0.34 (current terms) 0.35 0.33 0.39 0.43 0.39 0.37 0.43 0.53 Lead (real terms) 0.26 0.22 0.27 0.27 0.24 0.20 0.23 0.27 (current terms) 0.26 0.24 0.31 0.34 0.31 0.28 0.34 0.42 a/ ZCCM realized copper prices include a 2% premium above LME prices. b/ Year ended March 31, 1983 = 100. Source: Bank staff estimates. A presentation of the copper, lead and zinc markets was made in the report Price Prospects for Major Primary Commodities prepared by the Economic Analysis and Projections Department (Report No. 814/82, of July 1982). Information is also available in the Project File (C.1 to C.4). That report is presently being updated and a new presentation will be provided in Report 814/84 due to be issued in mid-1984. A key feature of metal prices is their volatility, and in this presentation, projections of prices until 1990 are made taking account of various cyclical price scenarios, while longer-term projections are made on a trend basis. A. The Copper Market 1. International Supply and Demand 4.02 The supply of copper comes from two sources--primary (mine) production (85%) and secondary (scrap) production (15%). Copper mine production is concentrated in the developing countries whereas secondary production occurs almost entirely in the industrialized countries. In 1981, LDCi accounted for 60% of world 1/ copper raine production, up from 1/ All sta'istic efer to World excluding Centrally "lanned Economies unl
Группа Всемирного банка · Staff Appraisal Report
Zambia - Export Rehabilitation and Diversification Project
Открыть оригинал документа
Полный текст размещён на сайте публикующей организации. lawenc.com индексирует метаданные и ведёт на официальный источник.
Вернуться к постатейному просмотруПолный текст
Основные сведения
Организация
Группа Всемирного банка
Тип документа
Staff Appraisal Report
Страна
Замбия
Источник
Всемирный банк