Zambia’s $2bn copper mine projects face disruption over royalty tax
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Copper miners in Zambia have halted $2 billion worth of planned investments because a royalty tax introduced in 2019 rendered the projects unattainable, an industry lobby group disclosed.
Sokwani Chilembo, chief executive officer of the Zambian Chamber of Mines, said the plan by First Quantum Minerals Limited, a Canadian-based mining and metals company, to invest $1 billion to extend its operations located in Kansanshi won’t proceed until the royalty is deductible from other corporate taxes.
Chilembo noted that the royalty payment regime has to be scrapped for progress to begin. “If the government thinking is otherwise, good luck,” he added.
The same fate is suffered by EMR Capital-backed Lubambe Copper Mine’s project to invest $1 billion in a new mining operation.
Zambia’s strained relationship with mining investors has deteriorated over time with cases of the government clashing with Glencore Plc over the Switzerland-based company’s plan to discontinue Mopani copper mines’ operations.
According to economic analysts, the East African country’s aggressive stance over its major export industry may likely reflect maneuvering by President Edgar Lungu as he struggles with economic challenges ahead of the 2021 presidential election.
Bwalya Ng’andu, the country’s finance minister explained that the country doesn’t get enough from its mineral resources but would be willing to consider mining company grievances over the royalty.
Mining investors are pushing for tax cuts after the second-largest copper producing country approached external creditors for as much as $1 billion in debt-servicing relief as the government seeks to restructure its foreign loans.
The minister bemoaned the effects of the covid-19 pandemic which cut its 2020 output to about 764,188 tonnes, far short of the country’s target of one million tonnes.
Zambia whose dependence on copper is about 70 per cent increases its revenue-based royalty from a minimum of 5.5 percent to 7.5 percent when copper trades at $6,000 to $7,500 a tonne with a further jump to 10 percent should prices top $9,000. Unfortunately, copper has traded above $6,000 since the end of June.
The royalty represents a double taxation of producers, who also pay corporate income tax, Chilembo lamented. “This pushes up the effective tax rate and makes these projects unattractive given the cost of capital.” he added.
He noted that as soon as the double taxation is scrapped, the mining projects become feasible.