Uganda could earn from the rising global Copper prices

Sunday May 8, 2011

UGANDA has failed to earn money from the high copper prices after prolonged efforts to seek investors to manage, revive and operate copper deposits in Kasese continues to drag on.

Current copper prices hit a historic high of the $10,000 mark a tonne, up from $1,500 three years ago, which makes the six-decade Kilembe Copper Mines commercially viable and justifying investment to sink new shafts to reach the deepest ore

“Kilembe mines stopped extracting copper long time ago. We are not benefitting from the good prices because there is nothing to sell.,” a top Kilembe Mines (KML) official told Business Vision.

The official said the copper mine is “under care and maintenance in preparation for the new investors.”

Up to 1982, the care and maintenance function was financed from the treasury. However, since then, the company is earning income from generating power, processing lime, foundry castings, and fabrications and carrying out treatment of timber for its survival.

“Supply power to the national grid is our core business. But we also rent out assets and our expertise that utilise the mine support units,” the source said. “We don’t really need much. We just need about sh60m per month to pay salaries , wages and other administration costs.”

What is driving copper prices up?
When you switch on the light, it is copper wire that conducts the electricity to the bulb. Chances are the hot water that comes out of your tap arrived there through a copper pipe.

From the corrosion-resistant copper carbonate to the circuit board in your computer, the brown metal is as practical as the yellow metal is precious.

The extraordinarily loose monetary policies adopted by European Union and the United States (US) governments to combat the financial crisis have driven up the prices of nearly all commodities.

But the key to the copper story is soaring Asian demand. Asians want modern houses with Western-style wiring and plumbing. They want cars. They want electronic gadgetry. So they want copper.

In 2005 China accounted for 22% of global copper consumption. In 2009 the figure was 39% and it is continuing to rise.

Try as they may, the copper miners can’t keep pace. And the supply of copper in the world isn’t limitless.

Prolonged divestiture
Since the mid 1990’s there have been talk and plans to privatise the operations of the mines in order to revitalise operations because of the huge capital needed to revive the mines, which Government says it cannot afford to raise.

“To be sincere, nothing is moving except talking and talking. We are not complaining but for the fact it has dragged,” the source expressed frustration.

But Jim Mugunga, the Privatisation Unit spokesperson, told Business Vision that procurement and audit process to establish the worth of KML prolonged the divestiture.

“We are mindful of the copper prices which are highest ever but the fact remains we need to ensure we get value for money,” he asserted. “We are not selling the copper products but revitalising the mines to ensure investors add value to the raw materials.”

Mugunga said Government hired American firm J.T Boyd to update the documentations “which has been submitted for review, analysis and waiting recommendation. He did not give specific timetable for the actual divestiture.

There is confirmed four million tonnes of copper ore accessible at Kilembe, and strong geophysical anomalies on the un-mined 2,800 acres of mining lease as well as on the surrounding exploration areas of more than 600km squared.

Did the glorious past succumb to the infamous resource curse?

KML was incorporated in Uganda in July 1950 by two private Canadian mining companies, Frosbisher Ltd and Ventures to mine copper which is associated with cobalt in Kasese.

However, the company was taken over in 1962 by Falconbridge of Africa which sold its shares to the state in 1975.

Production of copper concentrates started in 1956 and up to early 1970’s it was the third-largest foreign exchange earner.

But in 1982, mining stopped because inflation was eating up the profits as well as insecurity. Since then the mine has been under care and maintenance which involves continuous pumping of water from underground workings to ensure access to mineral reserves.

Nowhere in Uganda is the impact of the so-called “Resource Curse” –less economic growth and more impoverished local communities despite plenty of minerals -is being evident of the western-town of Kasese.

Poverty levels in Kasese stand at 48%, according to district statistics, which is still high compared to 31% at national level. Most people still have one meal a day and at least three persons die of preventable diseases in each of the 24 sub-counties in the district every week.

But the most touching issues is that stock piles where copper mining was stopped more than 30 years ago are a threat to local communities.

Kasese district has poor safe water coverage with most of the people using water from running rivers of Nyamugasani, Nyamwamba, Mubuku and Lubiriha that carry lots of minerals from Mount Rwenzori. According to climate change experts, river Nyamwamba alone is already contaminated by stockpiles from Kilembe mines.

“Uganda’s mineral strategy does not take account into the aspiration of the people. The people around mining areas are suffering from poverty,” Dickens Kamugisha, the African Institute of Energy Governance Institute (AFIEGO), said.

“This is what usually causes the resource curse and my prayer is that such mistakes should not spread to the nascent petroleum industry because the consequences will be disastrous,” said Kamugisha.

By Ibrahim Kasita : The New Vision Newspaper