Adding Value to Zambian Copper Challenges & Opportunities in Copper Fabricating

1. Adding Value to Zambian CopperChallenges & Opportunities in Copper Fabricating Simon Payton Simon Payton Consulting for Nathan EME Prepared for the Jobs, Prosperity and Competitiveness Project Supported by the World Bank, African Development Bank and DFID 1

2. Maximising the value of Zambia’s resources “The time is ripe for investors to consider processing the copper and add more value by selling finished products made in Zambia to the international market." President Banda, Lumwana, 17 April 2009 Source: Reuters

3. The Copper Industry Value Chain Structural Divides Producers Fabricators End Users

4. Market Access: Mining is bound to the location of deposits, fabrication to world manufacturing Mine Production, Refined Production and Refined Cu Usage 2008 All to Same Scale (Max 6MT/y) Russia Germany Canada S Korea China USA Japan Zambia Peru India Brazil Chile RSA Australia Source: ICSG

5. A sense of proportion: See where the big margins (and the big risks) are…. Illustrative Wire Rod Fabrication Margin, compared with SXEW Cathode Production (per tonne) $ Sources: Rod Industry; Mining Company ARs NB In Copper fabricating, metal value itself is a neutral straight-through item, except for the financing cost of metal in work in progress (from receipt to customer payment)

6. The principal copper and copper alloy (semi)-manufactures: Source: IWCC

7. What drives the copper fabricating industry? • Access to markets • Access to raw materials • Copper • Alloying materials • Scrap metal • Access to capital (plant and equipment) • Access to labour + Profitability

8. Finished Product Mfr Semis Intermediates Components Power Cable Wire Drawing + Insulation + Cabling Wire Rod Set make-up Wire Drawing + Insulation Harness Assembly Car Wire Rod Machining + Assembly Valve Forging Extruded Rod Electrical Fitting Presswork (Plating) Rolled Strip Strip Tube Coil Forming Tube Air-Con Access to Market: Semis industry responds to demand from the (complex) downstream value chain: Tube Castings Tap Body

9. SSA market represents <1% of global consumption of principal semis kt Source: CRU 2008 Source: Trade data

10. A realistic appraisal of the current market • Market in Zambia and neighbouring countries (excl RSA) for fabricated copper products is currently miniscule • Domestic and regional use of copper is driven mainly by demand from • utilities (power generation & distribution; telecommunications); • construction (building wire) • mining industry (cables; bespoke spares but OEMs importing parts) • Outside mining, there is a lack of manufacturing industry to offer a customer base on which to build a copper processing industry • RSA is significant, largely self-sufficient market; net exporter • More distant markets present logistical challenges (squeezing margins)

11. Local copper cathode is available, but that may not be a big advantage If copper cathode is sold to a local fabricator (with a saving on the cathode export freight cost) and processed for export, the freight cost is in effect transferred to the fabricator’s product, making it difficult to be competitive. The only gain is on the domestic market. 11

12. Slab Slab Cu Cathode + Scrap + Cu Cathode + Scrap + Sheet, Strip Sheet, Strip Hot Rolling Hot Rolling Cold Rolling Cold Rolling Casting Casting Alloying Metals Alloying Metals Copper cathode is not the only requirement:scrap and alloying metals are very important for some products Input Melt Cast Hot Form Cold Form ‘Semis’ (product) Continuous Casting Continuous Casting Wire Rod Wire Rod Cu Cathode Cu Cathode (& In (& In - - line rolling) line rolling) Billet Billet Cu & Brass Scrap Cu & Brass Scrap Extrusion, Extrusion, Brass Rod Brass Rod Primary Zn Primary Zn Drawing Drawing Casting Casting Cu Cathode + Scrap + Cu Cathode + Scrap + Continuous Continuous Cold Rolling Cold Rolling Sheet, Strip Sheet, Strip Casting of Strip Casting of Strip Alloying Metals Alloying Metals Billet Billet Cu Cathode + Cu Cathode + Tube Tube Extrusion Extrusion Drawing Drawing Casting Casting Cu Scrap Cu Scrap Cu Cathode Cu Cathode Tube Tube Cast & Roll Cast & Roll Drawing Drawing

13. The Copper Industry Value Chain in Zambia Zambia’s current engagement Producers Fabricators End Users

14. Zamefa already uses Zambian copper • 1967: GRZ co-founds Zamefa with PD (USA) and SM (Sweden); privatised 1996; now a successful producer of wire rod, wire and cable • Part of General Cable Corporation • Supplier of • copper wire rod (No 2 in SSA) • low voltage cables: building wire; telephone wire • Expanding other product lines • One of Zambia’s largest NTE exporters

15. Given the challenges, how does Zambia score on the key factors ? (/5=good) Subjective scoring

16. Opportunities to use more Zambian Copper • With Business as usual: • organic growth among existing operations (volume; product portfolio) • small scale developments (cast-product foundries, non-industrial scale semis manufacture; both largely scrap based) • Greater potential exists if • More local and regional manufacturing industry is in place to create a customer base (e.g. El Sewedy Transformers, Ndola) • Certain user markets are actively developed – e.g. copper plumbing; • The basic issues are fixed! • But RSA industry ready and waiting! (Potential partners in any Zambian growth….?)

17. Conclusions • Copper is mined where it is found. Copper is fabricated where there is good market access • For further processing of copper, having a market is more important than having access to copper cathode • Local & regional market currently limited in size by lack of manufacturing base; need to fill that gap and attract manufacturing investment • With improved logistics a local industry could engage in RSA market (Zamefa already present), but existing industry in RSA has the complete product range and is very competitive • Scope for development: Zambian cable product range and exports could grow; some room for small-scale developments as a growth basis. 17

18. Key issues to address…. • Is adding value to copper metal a priority for Zambian economic diversity ? • Developing a manufacturing base in Zambia, at the heart of the region • Improvements in competitive market access through better and faster logistics • The basics: finance, productivity, power quality ….

19. Thank You