The Zambia Chamber of Mines has warned that the recent copper price slump in addition to a new tax regime will severely penalize the vast majority of Zambia’s mining operations.

Chamber of Mines of Zambia Economist Shula Shula said the new tax regime which imposes from 6 per cent, a 20 per cent Mineral Royalty Tax on open cast mines and 8 per cent on underground mines, structural factors and legacy issues will severely hurt mining companies.

Over half of Zambia’s copper production is currently in a loss-making position following a consistent decline in the international copper price.

As of 14thJanuary, 2015, the base metal was trading at US$5,353.25/tonne, its lowest since July 2009 according to Bloomberg.

“Profitability is derived from total revenue less total costs. Most of Zambia’s mines are high-cost operations, significantly higher than other copper-mining provinces in the world. At the current copper price, nine out of eleven of the country’s large mines (both open cast and underground) is uneconomic”, Mr. Shula said.

He said considering that the mining industry accounts for over 86 per cent of Zambia’s Foreign Direct Investment and approximately 80 per cent of exports, this is alarming for the state of the country’s economy.

Mr. Shula said government’s taxation of the mining industry, let alone any industry, must take into account two strong principles of collecting equitable revenue required for national development and ensuring sustainability of the sector as a contributor to national development.

‘’Government’s introduction of the new tax regime is severely contrary to both principles. An excessive tax burden on the mining industry, without taking into account the cost of production and unpredictability of the copper price trend, will inevitably lead to mine closures in both the short and medium-term. This will in turn lead to lost revenue for the country. At the current copper price, nine out of eleven mining operations are loss-making, even under the 2014 tax regime.

‘The trend in copper price is, has been and will most likely remain highly unpredictable. This is because copper is a base metal, heavy, plentiful and cheap when compared to precious metals such as gold and silver. As such it is purchased by consumers when required, making it difficult to speculate on future prices. This needs to be understood when effecting any policies or legislation that could impact the industry in some way.’

He said the downward trend in copper pricing shows that Zambia’s industries are very sensitive and could easily become defunct adding that the current precipitous drop will cause mines to scale back on production.

‘Contrary to the perception that the proposed regime will be simple to administer, it will be very complex as mines have open pit, underground and processing operations sometimes on the same site. At declining copper prices and a new tax regime, Zambia will move into unexplored fiscal territory.’

He added, ‘Government must therefore reverse its decision to introduce the new tax regime that poses a higher mineral royalty as a final tax and instead, institute dialogue with all stakeholders to come up with an equitable fiscal policy which is consistent with promoting mining investment and generating adequate revenues for the treasury on a sustainable basis,’ he added.

[Read 1 times, 1 reads today]
Loading...

16 COMMENTS

  1. I beg to differ.
    It is times like this that we learn to operate…Lean, Mean and with Intelligence
    Our competitors in Chile, Peru, Indonesia and Australia are doing that and surviving.
    We have the advantages of cheap labour and power on our side. The average Zambian mine could cut cost by 15-25% through draconian measures.

    0

    0
  2. Government should not even try to reverse the decision of mineral royalties. The tax regime in Zambia has been one of the fairest in the world. We must also be looking at the profits these mining companies have been able to make because of the good policies we have in Zambia. Let them to go and try in Zimbabwe.

    0

    0
  3. Mr Shula Shula slow down. I worked for ZCCM before it was privatised, and the Cu production cost used to average approx US$1.10/lb (US$2,240/tonne) on a bad period. We used to sell Cu at LME price averaging US$2,500/tonne on a good period.

    What loss mode are you talking about??

    What is the current production cost? Are you telling us it has more than doubled??

    You are an economist?

    0

    0
  4. Ba Cactus,
    Spot on.
    At luanshya, where we had the benefit of cobalt credit, our production cost was $0.95/lb.
    Let them show us their calculations. I know for a fact that KCM keeps 2 sets of accounts, one to show ZRA and the other for head office in London. Mrs Ka*o*o is aware of this. Her husband is high up in the ZCCM-IH hierarchy!

    0

    0
  5. Cactus and Bashiprofiti, are you guys serious? If ZCCM used to be profitable at the prices you have just mentioned, how come it collapsed? Here, an expert has told you that copper prices have declined. This is something you can easily check. The costs you have thrown out had a mineral royalty of 0.6%. Are you seriously suggesting that the mines would still make money even when this rate has been increased to 20%?

    And to all of you useless characters saying let the investors go, do we really have such short memories? Have we forgotten what happened to the copperbelt in the 90’s? Most of the mines that have come up have been greenfield explorations. This takes anywhere from 5 to 10 years to just set up the mine for production. MRT does not account for this

    0

    0
  6. I went back three years ago to what RB said in his address to the nation when ECZ banned campaigns 48 hrs before the general elections date.

    I am very impressed with INCREDULOUS. He/She had figures almost correct. What he predicted came out correct.

    Where are you INCREDULOUS to give us your prediction this time around????

    PLEASE INCREDULOUS COME OUT!!!

    0

    0
  7. The problem with ZCCM, which led to its ignominious demise were as follows:
    1) It was top heavy. Head office cost comprised 10% of total cost. Francis Kaunda was abroad every month.
    2) ZCCM did not stick to core business of mining. KK induced it to invest in milling companies, Mulungushi traveller busses, Manchichi Bay, Kasaba Bay and Nkamba Bay lodges, Zambian superintendents were going to seminars every 6 months, as a way of developing them, the procurement sections were inefficient, personal to holder cars were being changed every 5 years, and sold to the senior Zambians at book value, which was peanuts, free electricity, schooling, medical and water were given to all ZCCM employees. Not to mention Mpelembe Secondary School which gave scholarships to the children of senior ZCCM ppl.

    0

    0
  8. We can add:
    The two derelict ships ZCCM bought to transport copper
    Secretaries of General Managers attending training courses in the UK
    Scaw Metals to supply mill balls
    Ndola Lime to supply lime
    Many branches of Nchanga Farm
    The gear cutting workshop near Kitwe Tennis Club
    Many ZCCM sports festivals
    The collapse of ZCCM was self inflicted.

    0

    0
  9. Finally, we had four centralised nerve centres controlling the mines, namely:
    1) Head office in Lusaka
    2) Mutondo House in Kitwe
    3) Nchanga House in Kitwe, and
    4) Kalulushi operational control centre
    Often, functions like procurement and training were triplicated

    0

    0
  10. These mining companies need to look at their expatriate employees. These expetriates get rediculous huge salaries and are most of the time incopetent.

    0

    0
  11. While better qualified Zambian mining professionals are:
    1) Running a tavern in Section 6, Roan Township, Luanshya
    2) Running a saw mill in Kalulushi
    3) Growing tomatoes in Kafubu Block, Luanshya, and
    4) Running a bakery in Kitwe
    These are all guys who went through the rigorous, brutal and harsh ZCCM training programs!

    0

    0
  12. We were aware that Chibuluma/Lumwana/Mufulira/Chililabombwe were borderline mines. Unfortunately, these mines do not have a by-product credit. New management can restore profitability. It will entail some labour reduction. But mainly sourcing spares and raw materials from China. That must run concomitantly with a PROFIT SHARING bonus scheme. That way, everybody will be singing from the same hymn sheet. There are a handful of people on LinkedIn with the credentials to do so. If the mines search, they can find them within a day.

    0

    0
  13. LETS HOPE NOTHING CHANGES….current govt remain…..the new mining tax remains……Then you will see how fast Zambia will deteriorate it will be a massive decline of employment , foreign investment, Dollars for the govt to operate will vanish and within a short one year it will be the end of a very bad part of zambian history…We can then make a promise to ourselves to never be lied to again and get credible leaders in…..It is a shame that we have to be completely down before we see that we actually deserve better than what we currently get!! As for me I can not vote for someone who hijacked the presidential ticket under very dubious means without the full support of his/her ministers.lack of leadership skills,promotes violence,has no plan. Anyway Good luck to all candidates….

    0

    0
  14. FLASH:
    News just in from Kansanshi mine.
    They are producing copper at $1.40-$1.42/lb
    A sign of good management!

    0

    0

Comments are closed.