CoM adds voice to Zambia tax hike

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CoM adds voice to Zambia tax hike
Chimwemwe Mwanza
Posted: Tue, 12 Feb 2008

[miningmx.com] -- ZAMBIA’S Chamber of Mines has thrown its weight behind criticisms an increase in corporate taxes and a higher royalty had made the copper-rich country a more unpredictable place in which to invest.

“If you renege on your old contract, what’s the guarantee that you will honour the new one?” said Fred Bantubonse, a spokesman for the Zambian Chamber of Mines in an interview.

“What happens if the copper prices fall: will government and our investors go back to the drawing board?”

Zambia’s mines minister Kalombo Mwansa said recently that an annual royalty of 3% would be imposed from 0.6% currently, even for companies that have so-called development agreements in which royalty rates were guaranteed for a period. The corporate tax rate has also been set at 30%.

At the Emerging Africa Congress in Livingstone, Zambia, Mwansa said there would be no change in the new fiscal regime and that it would apply equally to all participants in the sector, no matter when they made their investment.

Silane Mwenechanya, a consultant who helped frame the new legislation, acknowledged there has been a mixed reaction to the new legislation. “I think the process was fairly consultative,” he said.

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“Many of these companies that I‘ve been consulting for are upset at the new changes. But the reality is that they would be bargaining from a weakened position. Do they pack and go or stay and reap the commodities boom?”

Lumwana Mining Company (LMC), which is the local company owned by Toronto-listed Equinox Minerals, said it was taking a wait-and-see approach. Equinox Minerals is building the R5.4bn Lumwana copper project, one of Africa’s largest.

Said Harry Micheal. MD of LMC: “If the development agreement is not affected, then we shall honour our obligations. For now we are waiting to see whether the revised legislation does affect us.” LMC and its bankers were conducting separate internal financial revaluations on the changes, he said.

First Quantum Minerals CEO, Matt Pascall, said the company would only issue a formal statement once it had exhausted consultations with the government. He added, however, that the revised legislation would have a negative impact on the company’s bottom line.

Copper accounts for about 65% of Zambia’s export income. Underinvestment by the state had slashed production to 200,000 tonnes/year from 500,000 tonnes. But since the government privatised the industry almost six years ago, production aided mainly by higher copper prices, has improved.