Gemfields says it complied with Zambia’s request for royalty hike impact study

GEMFIELDS, a Johannesburg-listed company that operates in Zambia, said it had submitted evidence of how fiscal changes in the southern African country would affect its profitability even though it had less than a day to comply with the request.

This contradicts comments made by Paul Chanda, Zambia’s permanent secretary of mines who on January 3 told Reuters that companies polled for their views on an increase the mineral royalty rates and new import duties, effective from January 1, had not bothered to make submissions.

“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. Miningmx has asked Glencore and Vedanta if they also complied with the request.

According to Gemfields, it had received a letter, which was dated December 24, from Zambia’s mines ministry on December 26 asking for a written submission on the impact of the royalties by the next day. The letter was sent to its operating subsidiary, Kagem Mining which manages the Kagem emerald mine in the country.

Kagem Mining submitted its response, together with the requested financial model on 27 December 2018 (to the e-mail addresses provided in the letter and as requested in the letter,” said Gemfields in an e-mail to Miningmx. “In addition, and only as a failsafe, paper copies were delivered by hand to the ministry on 28 December 2018 and duly stamped ‘received’ by the ministry,” it added.

According to Gemfields, the Zambian gemstone and precious metals sector now faces a new 15% export sales tax “… meaning a loss of 15% of headline revenue”.

Based on Gemfields experience, the timing of the letter and almost immediate response required of the company indicates mining firms can expect short shrift following a national budget decision to 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.

New import duties have forced the suspension of Vedanta’s Nchanga smelter at its Konkola Copper Mines, an asset in which the Indian firm intends to invest $1bn whilst there are also plans to revamp the VAT structure in favour of a different, unspecified sales tax. Zambia is said to owe mining companies $500m in unpaid VAT.

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.

1 COMMENT

  1. Zambia have spent 40 years adjusting tax rates and moving the goal posts. Why do people still invest in countries that change the rules like this. There are so many good opportunities around the world in countries that understand the rules of business. This just smacks of stupidity. dishonesty and incompetence! Well done Zambia!

LEAVE A REPLY