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Zambia's tax change badly managed
Allan Seccombe
Posted: Tue, 10 Jun 2008
[miningmx.com] -- A SECOND southern African government came in for a pasting on Tuesday. This time the Zambian government for the way it handled the change of its fiscal regime.
Mike Sperinck, the CEO of Australia’s Luiri Gold, which has a gold, copper and iron ore prospect in Zambia, said shares in the exploration company fell steeply on the fiscal changes the government there introduced to generate higher income from the mining sector.
It was not so much the changes, which were far from inappropriate, as the way it was handled, Sperinck told delegates at the Africa Mining Congress 2008 in Johannesburg.
“It was the way it happened. There was very little discussion,” he said, adding the brief consultation between the government and industry counted for little because none of the companies’ suggestions, recommendations or concerns were included or addressed.
“The
pendulum was too far over in favour of companies, but unfortunately now that pendulum has swung too far the other way,” he said.
For exploration companies, the fiscal changes hold no real immediate challenges, but it does raise the hurdle rate when it comes time to decide whether to advance projects into the construction phase.
The most deleterious impact is for companies that participated in
the privatisation of Zambia’s predominantly copper mining sector in the late 1990s at a time when the price of the metal was low. These early comers secured favourable tax and royalty treaties, but the government has overridden those development agreements with the new fiscal regime that applies to all companies.
Zambia has introduced a windfall tax on base metals at a minimum rate of 25% and has upped royalties to three percent of gross value from 0.6%.
At between $2.50 and $3 per pound of copper the windfall tax will come in at 25%. The tax rises to 50% between $3 and $3.50, climbing to 75% beyond that. The corporate tax rate will increase to 30% from 25%.
The handling of the tax issue dragged down shares of those companies operating in Zambia, but the negative sentiment also spread to junior exploration companies which aren't immediately affected, making it difficult to raise cash, Sperinck said.
“Up to last year I would have stood up and
said Zambia is one of the best countries to invest in,” he said, but since the changes and the way they were handled “the market loses all confidence in companies operating in those countries.”
South Africa was also singled out as a destination causing unease amongst investors.
The South African government was lambasted over the country’s crime rate, its reluctance to intervene in Zimbabwe and its incompetence as revealed by the Eskom power crisis, said Bruce Shapiro, president of the Canada-South Africa Chamber of Business at the same function.
“Investors do not like uncertainty and South Africa is facing a severe period of political uncertainty which is already stopping money flowing into the country,” he said.
Luiri is listed on the TSX Venture Exchange.
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