Caledonia Mining Corporation (CMCL)

[NYBob]

Zambia's industrial base, the Copperbelt (the Zambian Copperbelt
accounts for approximately 46 percent of the production and
reserves of the Central African Copperbelt, the largest and
highest grade sediment-hosted stratiform copper province
known on Earth)-



The Copperbelt is one of the richest sources of copper in
the world and the area's production of copper and cobalt are
of global importance.
The Zambian Copperbelt is unusual among sediment-hosted
stratiform copper districts in having abundant cobalt (Co) and
low silver (Ag), zinc (Zn) and lead (Pb).



Copper accounts for 80% of Zambia's foreign exchange earnings and has, since 2003, been the main driver of an annual economic growth rate of 5%. Most developing countries depend heavily on exporting just a few products as their means of earning foreign exchange but Zambia is an extreme case - the country depends on the production and export of a single product, copper.

Global copper production has been plagued year after year by
supply shortages due to falling ore grades, lower volumes,
higher costs and scarce new resources.
Copper exploration/development companies looking for or trying
to develop deposits already found and copper miners looking to
expand their production capacity are all facing some serious
challenges:

Falling ore grades
Country risk
Water supply
Labor problems, strikes
Shortage of skilled labor
Cost of capital for project finance
Capital cost overruns
Tax and sharing initiatives
Energy costs
Inadequate exploration funding - the Metals Economics Group
estimates that exploration spending plummeted 42% to $7.7
billion in 2009.
A lack of new discoveries
Currency fluctuations
Credit Suisse Group AG said in a recent report that mining
companies are missing analysts' output forecasts because of
lower-quality ore -
Xstrata posted a 3% fall in first half copper output.
The miner said copper output fell due to reduced volumes and
lower grades at their Mount Isa and Ernest Henry mines.





"Spectacular" was used by UBS to describe western world copper
demand growth in the first half of this year.
Global copper inventory levels have been on a steady decline.
Bloomberg recently reported stockpiles on the London Metal
Exchange (LME) have fallen 20% since mid-February.
According to the International Copper Study Group world refined
copper consumption exceeded production by 67,000 tonnes between
January and April this year, against a surplus of 74,000 tonnes
in the same period one year ago.



Consider:

The declining rate of production at the world's largest copper
mine, Escondida.
BHP Billiton forecasts a 5% to 10% production cut at the mine
this year due to lower ore grades. Bart Melek, Global Commodity
Strategist with BMO Nesbitt Burns in Toronto, said this could
take as much as 80,000 to 100,000 tonnes of copper out of the
market.
U.S. copper mine production had been expected to increase by
more than 200,000 tons last year, instead production declined
by 120,000 tons.
Rio Tinto and Freeport McMoRan both saw their output drop in
the first six months of this year.
A lack of investment in new mining capability because of recent
low prices.
The growth in demand from China, India and other emerging
markets.
Consistent declines in warehouse inventories are underpinning
the price of copper.
A low interest rate environment bodes well for the whole
resource sector.

The overall weakness in the U.S. dollar translates into support
for dollar denominated metal prices.
The potential for a drop in production from Australia -
the world's fifth largest copper producer -
as a result of a resource tax the government might implement.
China has set a goal of 65% of urbanization rate in 2050.
Over the coming 40 years that means 20 percentage points of
urban growth per year, that translates into 300 million rural
residents becoming urban residents over this time period.
Over the next two decades China will build 20,000 to 50,000 new
skyscrapers.
By 2025, 40 billion square meters of floor space will have been
built.
221 Chinese cities will, by 2025, have one million people.
More than 170 cities will need mass transit systems by 2025.
India's power production needs to rise by 15% to 20% annually
which means, according to the International Energy Agency
(IEA), India needs to invest $1.25 trillion by 2030 into its
energy infrastructure.
Because of this investment into new infrastructure India's
annual copper demand is expected to more than double to nearly
1.5 million tonnes by 2012 -
up from a current 600,000 tonnes.
India usually exports between 100 and 150,000 tonnes a year,
Indian copper exports are likely to cease and indeed Indians
might become large copper buyers
"The vision of a lower carbon transportation system, delivered
by affordable, hybrid and electric vehicles, connected to smart
grids, along with high-speed rail networks, requires copper.
A hybrid passenger car contains 50 kg of copper for the
electric motor, energy storage and transfer system.
Each high-speed train requires 10 tonnes of copper components,
plus 10 tonnes in the power and communication cables per
kilometer of track.
Low carbon electricity sources, such as renewables, and the
distributed electricity systems required to incorporate and
manage them, need four to ten times the copper content of
electricity produced via centralised, fossil fuel generation."
- Manifesto for a Competitive European Copper Industry, European
Copper Institute


"Our preferred commodities over the short to medium term are
thermal coal, copper, zinc and gold.
We still like copper and met-coal longer term."
- UBS investment research analysts Julien Garran, Tom Price and
Edel Tully

Zambia sees bright future for copper mining

"The outlook for copper mining is very bright.
Copper will continue to be sought because it is ideal for
construction and is a very good conductor of electricity which
cannot easily be substituted.
We need to invest in exploration activities and that will
require a lot of investment." -
Mines Minister Maxwell Mwale

Last year Zambian copper output reached 697,860 tonnes of
finished copper cathodes from 17 privately-owned mines.
With copper production rising by 16% in the first half of 2010
- first-half output equals 393,089 tonnes -
the country is on course to hit its forecast 2010 target
of 750,000 tonnes (a level last seen in 1973).
Zambia continues to attract new mining investments (Zambia's
Chamber of Mines of Zambia said investments in the mining
sector have peaked at $5 billion in the last eight years) and
the country should achieve the targeted 1 million tonnes output
forecast for 2012.

"The extractive industries are the key drivers of African
economies in general.
Here in Zambia, mining has become the mainstay of Zambia's
economy and therefore it is in the interest of government to
see that investment in the mining sector is increased.
This will reverse the negative effects of the global economic
crisis on the nation." -
Mines Minister Maxwell Mwale,

Zambia's government said that it expects a strong performance
by the mines over the long-term due to rising metals prices and
has urged mineworkers' unions to support new investors.

Zambia's mineral royalty is 3%, which compares very favorably
to other jurisdictions of around 5%.
Corporate tax is charged at 25% with a proposed profit variable
tax at 15 % -
if after paying their 25% corporate tax companies still have a
profit greater than 8% of their overall income than these
profits will be taxed at 15% -
this tax is designed to transfer a fair share of the windfall
value of copper to the Zambian government.

Do not confuse Zambia with the Democratic Republic of the Congo.
Although both countries have immeasurable resource riches there
is a vast difference between them, namely political risk.

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