Tough times continue for miners in Africa
Posted: October 15, 2008, 11:30 AM by Peter Koven

UBS Securities analyst Onno Rutten just completed a tour of the copper projects in Zambia and the Democratic Republic of the Congo (DRC) and from what he can tell, the challenges remain enormous for the mining companies.

"Growth projections for the region appear overly ambitious due to political, financial and logistical barriers," he wrote in a note to clients.

But despite the challenges, he still sees good value in shares of First Quantum Minerals Ltd., Equinox Minerals Ltd., Katanga Mining Ltd. and Lundin Mining Corp. because of their high ore grades and long mine lives.

Mr. Rutten noted that general industry projections call for a 16.5% compounded annual growth rate in copper production from the region over the next five years. He does not think this is likely, and lists a number of reasons why.

In the DRC, the "seemingly endless" contract review has restricted access to external capital, and some additional requests from the government appear to be severe for the mining companies. In Zambia, everyone is waiting to see what comes out of the Oct. 30 election, though all candidates are running fairly moderate platforms. And Mr. Rutten noted that the logistical situation is improving but power shortages remain a big concern.

His top pick among the Copperbelt companies is First Quantum because of its low operational risk, self-funded growth pipeline, reasonable cash costs, and country risk diversification.

Peter Koven

Jean-Louis Kayitenkore
Procurement Consultant
Gsm:  +250-08470205
Home: +250-55104140
P.O. Box 3867
East Africa
Blog: http://www.cepgl.blogspot.com
Skype ID : Kayisa66

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