Zambia Copper Output Drop Pressures Kwacha, Mining Stocks

Zambia's copper production fell 12% in the first half of 2024, the central bank reported on Monday. The decline, driven by mine suspensions and lower ore grades at key operations, directly pressures the kwacha and the sovereign's fiscal position. Copper accounts for over 70% of Zambia's export earnings.

The immediate consequence is a tighter foreign-exchange market. The kwacha has weakened 8% against the dollar this quarter, and the central bank has burned through reserves defending it. A sustained output drop means less dollar inflow, which forces the Bank of Zambia to either let the currency slide further or drain reserves faster. Both outcomes raise the cost of servicing Zambia's external debt, restructured in 2023 under the G20 Common Framework.

First Quantum and Barrick Face Volume-Driven Revenue Hit

First Quantum Minerals (FM.TO), which operates the Kansanshi mine, and Barrick Gold (GOLD), which runs Lumwana, are the two largest copper producers in Zambia. Lower production at Kansanshi, where First Quantum is transitioning from open-pit to underground mining, has been the primary driver of the national output decline. First Quantum's Zambian operations contributed 42% of its 2023 copper production.

A weaker kwacha lowers local-currency operating costs, providing a partial buffer. The revenue hit from lower volumes, however, is larger and more direct. First Quantum's all-in sustaining cost at Kansanshi was $2.10 per pound in Q1 2024. With copper prices near $4.00 per pound, the margin remains healthy. The volume shortfall, however, means less free cash flow for debt reduction and shareholder returns.

Zambia's Fiscal Targets at Risk from Output Shortfall

Zambia's eurobonds have rallied this year on the back of the completed debt restructuring and improved copper prices. The production drop introduces a new risk. The government's 2024 budget assumed copper output of 800,000 tonnes. The current run rate points to about 720,000 tonnes. That 10% shortfall translates to roughly $500 million in lost export revenue, or about 2% of GDP.

Standard Chartered analysts have flagged that Zambia's fiscal targets are now at risk if copper output does not recover in the second half. The government has limited room to adjust spending, given that 40% of the budget goes to public-sector wages and debt service. A revenue shortfall would likely mean deeper domestic borrowing, which crowds out private credit and pushes up local bond yields.

The Next Marker: Q3 Production and Central Bank Decision

The key marker is the Q3 production reports from First Quantum and Barrick, due in October. If Kansanshi's underground ramp-up shows sequential improvement, the output narrative flips. If not, the kwacha and Zambia's eurobonds face further pressure. The Bank of Zambia's next monetary policy meeting on August 15 will also be critical. A rate hike to defend the kwacha would slow economic growth further, compounding the fiscal strain.

For traders, the setup is a copper-price call with a country-specific tail. A sustained copper price above $4.20 per pound would offset most of the volume loss. A drop below $3.80 would expose the full extent of Zambia's fiscal vulnerability. The stock market analysis of mining equities already reflects this tension, with First Quantum trading at a 15% discount to its net asset value versus peers.

Zambia's copper story is no longer just about the commodity cycle. It is now a test of whether the government can manage a structural output decline without undoing the debt restructuring gains of 2023.