Zambia’s underground mines face tough future

Zambia’s underground mines could be headed for a stormy weather if Zambia returns to a 30 per cent corporate income tax together with amended royalty system, it has been learnt.

An impeccable  Government source, according to Bloomberg, is reported to have  confirmed Zambia’s decision to change  the tax system which other experts in the mines fear would lead to closure of mining  pits.

The source said it had been agreed to introduce royalties of 9 percent for both underground and open-pit operations which was subject to Parliament review when it resumes sitting in June.

The source, who asked not to be identified because the matter is private, said Cabinet agreed to revise royalties “downward in principle and that had been done.”

Royalties rose to 20 percent for open-pit mines and 8 percent for underground operations effective Jan. 1 from the previous 6 percent for both.

Mine owners warned of 12,000 job cuts as a result of the new system amid copper trading near five-year lows.

Mines Minister Christopher Yaluma however  is reported to have declined to confirm the figures, stating that  Cabinet will approve details on April 20..

On movement of shares ,Vedanta rallied 6.8 percent, the biggest intraday gain since March 23, to 552.50 pence by 3:16 p.m. in London, while First Quantum rose as much as 5.7 percent to 870 pence.

“If the reports are correct, the revised tax proposals would arguably be worse for the underground mines,” Greg Barnes and Bonita To, analysts at TD Securities Inc. in Toronto, wrote in a note to clients.

“This suggests that we are not getting a full picture of what the proposed changes to the flat royalty system will be.”

President Edgar Lungu may call Parliament to an early session to consider the changes if required, the official with knowledge said. Parliament was adjourned on March 26.

Barrick Gold Corp. in December said it would put its Lumwana mine under care and maintenance, where operations are halted for potential restart later, because of lower prices and the higher royalties.

“We welcome the fact that there is progress in the matter concerning mineral royalty tax because it is vital for industry and the country,” Shapi Shachinda, a spokesman for Vedanta’s Konkola Copper Mines unit, said by e-mail.

“However, we are waiting to see the detail when the new proposal is presented to the Parliament for approval.”

Vedanta Resources Plc, Glencore Plc, African Rainbow Minerals Ltd. and First Quantum Minerals Ltd. are among companies that mine copper in Zambia.


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