First Quantum sets an Example in Zambia

First Quantum sets an Example in Zambia

First Quantum Minerals is a mining and metals company which was founded in 1983 and currently has 12 projects under various stages of development worldwide. Two of these are currently in the ongoing development: the Kansanshi and Sentinel mines in the north west of Zambia.

The first, the Kansanshi mine, is the eighth largest copper mine in the world. Its two pits, located 10km north of Solwezi, together produced 270,724t of copper and 167,395oz of gold in 2013. A planned expansion to increase its production capacity to 400,000t of copper is awaiting final approval.
Its expansion has already involved two phases, a first phase which increased its oxide circuit capacity by 20% to 7.2 million tonnes, allowing them to easily switch between mixed and sulphide circuits, and the second phase which increased the annual oxide treatment capacity to 14 million tonnes. Phase three involves a SAG grinding mill circuit for treatment of primary sulphide ore.

Meiring Burger, also notes that another landmark for the firm is the addition to the mine of a smelter, which just recently produced its first anodes. Its annual production capacity is 1.2 million tonnes of concentrate that can be smelted. This would be noteworthy in itself, but it’s also the first time that First Quantum has taken on a smelting operation. They’re using state of the art technology, which the firm invested around $850 million in.
There are several advantages to this for the firm, notes Mr. Burger. For one, there currently isn’t sufficient smelting capacity in Zambia so First Quantum has been stockpiling concentrate production over the past few years. High export taxes make it unprofitable to sell on to foreign buyers but by smelting it to anode, the firm can sell it into the market, dropping unit costs and creating a new revenue stream.

In addition it produces sulphuric acid from off gasses, which is consumed in the oxide leach circuits of the Mine’s processing plant. Acid is a significant cost when bought in the market or made by sulphur burning, so another significant saving to be had.

The second mine, the Sentinel copper mine, is located approximately 150km west of the Kansanshi operation and is expected to produce between 280,000t to 300,000t of copper each year when it is completed later this year. The total capital costs are expected to reach $2.1bn when the cost of adding a nickel processing plant is taken into account.

Needless to say, such an operation is quite an undertaking on several levels, not least in an underdeveloped economy like Zambia. Contractors included an international cast of engineering and technical equipment firms ranging from Kone Cranes and ACTOM Power Transformers to FLSmidth and CSA Global. The two mines together represent a total investment of close to $3bn.

In a country unaccustomed to such huge one off FDI investments, there is always potential to lose some of the typical knock-on benefits of FDI (jobs, infrastructure development, etc). However, those same knock-on benefits and CSR initiatives played a core part of the overall strategy at the Sentinel mine.
First Quantum’s principals for CSR are based on community input. “There is no point building a white elephant that won’t get used, so we conduct regular needs assessments in the local villages to understand requirements. Ideally the community should also contribute in a meaningful way, such as planting the grass for their school fields where the company has levelled the pitch, so that local peoples feel part and parcel of the future of their area. Similarly our CSR is slanted towards the key areas which gel with business imperatives, such as education, healthcare, infrastructure and training and local business development.”
Inclusion was an important part of the overall CSR strategy. Tristan Pascall of First Quantum told John Mills of the Sustainable Business Review, “there were people here before and we’re very conscious that if they stand outside the gate looking in, they need to feel that they have access towards training for possible employment and some advancement because of the projects arriving into the area.

The inclusivity that Pascall talks about is tangible. The North Western Province where the First Quantum mines are located was something of a forgotten area in the decades since Zambia’s independence. Unemployment was high and the skill base was low. When the mines are fully operational, Pascal estimates that around 90% of the workforce will be Zambian, many from the local province.

A particular emphasis is also placed by the firm on the inclusion of women. Meiring Burger notes how, during school visits to the mine, girls are shown that there are positions for women in a mine, where traditionally it may have been perceived as a male-only environment. Women are employed at the mines in a number of roles, in a society where teenage brides are all too common.

In addition, the Sentinel mine took on an extensive relocation exercise for local communities located close to the mine. This has been a consensual process and at the time of writing, is nearly complete. In all, some 640 households were moved to a choice of two new areas, further from the mines, with better infrastructure and easier access to either the town or their farms. Before the settlement, in many cases farmers were walking 20km back and forth to their farms every day.

Pascall notes, “We did that in a very sensitive manner in that we retained a lot of their traditional structures in terms of the location of individual households relative to their family groups and the community headman and so on. Even though they’ve moved, we’re conscious that livelihoods are improved so we’ve introduced programs such as a conservation farming package. I think we’re up to a 1,000 farmers on that program and on average, we see around a 250% increase in yields that the farmer can deliver from their fields. “
In addition, the fact that there are now many locals employed at the mine that a micro economy has grown up in the area: the farmers’ extra produce can now find a market with miners who have money to spend, which in turn creates a more liquid market for other goods and services. Casava – the local crop – has also improved its output and we are hopeful that it will find new markets such as for sale to the mine processing plant as starch feedstock.

An unfortunate trend which is prevalent among new mining enterprises in under-developed countries is that the AIDS virus rises in line with the new influx of temporary workers. The mine at Kalumbila has seen a welcome curb in this growth. As Pascall points out, “health-based studies in 2010 show that the prevalence (before First Quantum arrived) was 2.7% and the prevalence now is still under 3%. We obviously hope we can maintain this good record into the future operations of the mine”
Malaria presents another serious health issue in Zambia. To date, First Quantum has protected over 6,300 houses around the Sentinel mine with spray and anti-mosquito nets. There’s been an emphasis on providing education and knowledge in preventative health in tandem with that for the business and construction training. At the end of 2012, it was the recipient of a “Business Leader in Zambia” award for its campaign work in malaria prevention.
The company has also been active in conservation. They have signed a five-year agreement for the protection of the West Lunga National Park and the Game Management Areas around it and maintain an ongoing dialogue with the Department of Forestry for two of Zambia’s largest forests, which they’re keen to see extended into a similar MOU arrangement.

Housing and home ownership
Less than 4% of Zambia is covered by leasehold title, and the country is short of perhaps 2 million housing units. Mortgage rates in Lusaka are between 25-30% per annum, and loan tenure averages around 5 years. Consequently the housing market in Zambia is undeveloped. First Quantum has established a home ownership program, that subject to release of leasehold title at both Sentinel and Kansanshi, will allow employees to own their home. The program includes a subsidised loan rate of around 8.5% and tenure of 12-15 years, which greatly improves the affordability of housing for workers. The program is aimed at improving employees’ living standards, as owning the family home improves the likelihood of education within the family, increases the possibilities for starting new businesses and encourages savings for retirement.

Power lines into North Western Province
As part of the planned developments (and included in the capital cost numbers) at Sentinel and Kansanshi, First Quantum is investing upfront $198 million in new transmission line infrastructure for the state power utility ZESCO Limited. The new double circuit 330kV transmission lines will close a loop on the established power infrastructure into Copperbelt and North Western Provinces, and provide redundancy to the system. ZESCO will repay 50% of the capital costs for the line from future power invoices to First Quantum. And the lines will bring possibility of main grid connection to outlying villages in the area through the the Rural Electrification Authority.

Looking to the Future
Buy-in for both the mines, as is typical, hasn’t always been easy but the social, economic and environmental indicators from First Quantum’s first years in Zambia are positive. They have established foundations, namely the Kansanshi Foundation and the Trident Foundation, whose aim is to continue a three-way discussion between the company, communities and government. It’s just another part of the holistic strategy that the firm have taken to their mining operations in Zambia. As Pascall says, “Our total CSR package to date at Sentinel without producing an ounce of copper or a dollar of revenue is in the order of $20 million including the resettlement program; we’re keen that when you come back here in 5, 10 or 15 years that there’s a legacy of good planning and good CSR activities which are aligned with both community and business imperatives.”

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