FQM might pay around US$1-billion to settle ZRA tax bill- Wall Street analyst

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Head of the Office of the High Commission of Canada in Lusaka Amy Galigan inspects copper at First Quantum Minerals' Kansanshi mine.
Head of the Office of the High Commission of Canada in Lusaka Amy Galigan inspects copper at First Quantum Minerals’ Kansanshi mine.

First Quantum Minerals Ltd. will ultimately pay around US$1-billion to settle its tax spat with Zambia, according to a Wall Street analyst.

Last week, the Zambia Revenue Authority (ZRA) slapped First Quantum with a US$7.9-billion tax bill, claiming the miner had drastically underpaid certain import duties over a period of five years.

In a subsequent conference call with analysts, First Quantum’s chief executive officer Philip Pascall declined to speculate how much the company may end up paying, saying it wouldn’t be prudent to comment in a public forum.

Shares in the company have lost about 10 per cent of their value since word of the tax claim first surfaced on March 20.

“We expect the company to have to pay something significant to resolve this issue,” wrote Jefferies analyst Christopher LaFemina, in a note to clients on Tuesday.

“We assume for now that the total cost will be US$1-billion.”

Mr. LaFemina also predicts First Quantum’s cost of capital will go up due to higher operating risk in Zambia and the possibility of additional tax penalties.

“The company’s weighted average cost of capital (WACC), a measure which includes the cost of raising equity or debt, will rise to 10.5 per cent from 8.5 per cent,” he wrote.

First Quantum is far from the only Canadian mining company to be blindsided by tax demands from developing countries attempting to obtain an increasing share of resource riches, as commodity prices rebound.

Earlier this year, the Democratic Republic of the Congo (DRC) government announced plans to significantly increase royalties and eliminate existing stability agreements that protected mining companies from tax hikes.

A number of top mining executives, including Robert Friedland, executive chairman of Ivanhoe Mines, later met with DRC President Joseph Kabila in an attempt to soften his demands, but the tax changes were ushered in regardless.

Last summer, the Tanzanian government presented Barrick Gold Corp. subsidiary Acacia Mining PLC with an astronomical US$190-billion tax bill.

In a provisional agreement announced in October, Barrick said it was prepared to grant Tanzania a 16-per-cent stake in Acacia’s gold mines in the country, and pay it US$300-million. But five months on, a final settlement has yet to be reached and Acacia remains subject to a gold-concentrate export ban in Tanzania.

“What we’re seeing in the DRC, Zambia and Tanzania is just the grab. It’s outrageous numbers [their governments are] throwing out,” Rob McEwen, chairman of McEwen Mining Inc. and former CEO of Goldcorp Inc., said in an interview.

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18 COMMENTS

  1. And once we get the money, we channel it towards Eurobond repayment or do away with IMF package

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    • Yeah but we will be losing 6 billion. That is a lot of money to hand to these self-serving capitalists. We need to fight to the end for the entire amount. The struggle should continue!

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  2. @Ndanje khakis. These people make serious money. $1 billion is a drop in the ocean. I don’t understand why we beg them. The other groups we have been stupid about are emerald mines. Sata tried local auctioning but I guess these ideas died with him. Botswana doesn’t tolerate nonsense with anybody. Tanzania has also stepped up. Wake up guys! Galamukani!

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  3. These so called cr white investors or should I say infestors have been duping us for a long time. Let them pay more. They use our resources to develop their countries when we remain in abject poverty. Cry my Africa! Cry my Zambia and say enough is enough!

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  4. In Zambia anything is possible, they may pay zero to govt/ZRA but something to somebody

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  5. The problem in Zambia is we are ruled by a hungry corrupt ex Komboni dweller, who has ZERO morals.
    The mines will promise him U$D 80 Million, & he will interfere, & ZAMBIA WILL NEVER COLLECT WHAT IS OWED TO US.
    Mark my words, & check in a couple of years from now.

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    • Refreshing but don’t be duped. We are suing for R7 billion stolen from us and we are being ‘promised’ 1 billion. Awe! If we leave it there we are enriching the exploiter. Get 90 per cent and we can say refreshing

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  6. There are probably politicians in Zambia lining up at FQM begging management “I can shut up on the issue” in exchange for gwagu. It’s the Zambian mentality, sadly.

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  7. I have seen this kind of thing many times over the years. This shakedown of companies may benefit one for a short time, but long term it kills foreign investment. Before you know it, no companies will build mines in these places, then the jobs will not be there and the economy will weaken even more.

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  8. 190 tax bill in Tanzania and then the Mine offered government 16% share plus $300 Million! Will my simple calculation total asserts at Acacia maybe will over $100Billion meaning governments get $16b stake plus now its long life dividents! But still they refused!

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