Miners failed to demonstrate how tax hike will affect profitability, says Zambian official

First Quantum's Kansanshi mine in Zambia

MINING companies operating in Zambia had failed to demonstrate how higher taxes implemented this year by the country’s government would affect their profitability, said Reuters citing the comments of Paul Chanda, permanent secretary for mines.

Chanda said his ministry had asked individual mining companies to provide financial models by Friday last week on how the new taxes would impact them, but none had done so. “We wanted them to show how the new taxes will affect production and profitability but so far we haven’t received anything,” Chanda told Reuters.

First Quantum Minerals, a Toronto-listed mining companies which produces copper in Zambia, said on December 21 that it would retrench 2,500 staff at its Zambian facilities in the first quarter of 2019 as a result of the higher taxes.

In its national budget in September, Zambia announced it would increase the mineral royalty rates by 1.5%, introduce a fourth tier rate at 10% when the copper price exceeds $7,500 per tonne, and make royalties on minerals non-deductible for tax purposes.

Zambia’s Chamber of Mines said on December 20 that the effective tax rate Zambian miners would be paying would range between 86% and 105% putting 27,900 jobs at risk. More than half of the country’s copper mines would be unprofitable next year, it said.

Copper output will be flat next year and will start declining from 2020 as a result of the tax increases, Sokwani Chilembo, CEO at the Chamber of Mines, told Bloomberg News. The industry group has forecast production of 820,000 metric tons for this year, he said. Copper accounts for more than 70% of Zambia’s foreign-exchange earnings, the newswire said.

“Two mining companies have written to us asking us to give them more time but we haven’t heard anything from the others,” Chanda told Reuters. Companies operating in the southern African nation include First Quantum, Glencore, Barrick Gold Corp and Vedanta Resources, said Reuters.

2 COMMENTS

  1. He i was thinking that this is a matter of simple arithmetic!

    Why the Zambian Minister wants proof ……It beats me!

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