First Quantum Minerals says it will go ahead and reduce production at its Sentinel mine immediately the new Sales Tax takes effect on 1st April 2018.
FQM Director of Operations Matt Pascall said in a staff memo that the reduction in production will inevitably result in job cuts.
Mr Pascall has also denied allegations that it is using arm twisting tactics to oppose the new tax measures contained in the 2019 budget.
He said following the 2019 Budget announcement on 28th September, Kalumbila Minerals Limited has conducted a thorough analysis with respect to the Budget’s impact on the Sentinel Mine. First Quantum Minerals (FQM) and KML are mindful of the concerns expressed by various observers and other stakeholders about reducing the number of employees at the mine,” Mr Pascall said.
“Some of the comment has been that reducing employee numbers should be a last resort after all other avenues of cost reduction have been exhausted. We would like to assure all our employees that this is exactly the position taken by KML,” he said.
“Our major costs are: taxes; electricity; maintenance spares; reagents and consumables (diesel); and wages and salaries. We have very little control of the cost of taxes, electricity and diesel as these are set by the government – furthermore all of these have been subject to steady increases over the past 7 years, even where such increases are in contradiction to signed agreements,” he observed.
Mr Pascall stated that with the low grade of ore at Sentinel Mine at 0.5% Copper which is the lowest being mined in Zambia and the historic low copper prices of 2016/17 the mine has done, and continues to do, everything possible to minimise its costs and consumption of reagents, consumables, maintenance spares and labour.
He said the sole remaining avenue to reduce consumption is by reducing the tonnage throughput.
“Once the new tax measures take effect it will no longer be economically viable to continue to run Sentinel’s operations at full capacity. It is with deep regret that the reduction in operational output will also lead to a reduction in employee headcount,” he said.
Mr Pascall said this reduction in both throughput and employee numbers will take place over a period of some months and those affected will be notified in due course through their line managers.
“However, the imposition of General Sales Tax on 1st April, which is likely to increase our costs by at least 20% on procured items, will necessitate the full manpower reduction to be in place by that date. Various government spokesmen have commented that KML should have dialogues with government and not simply resorted to “strong arm tactics”. We, and I personally, have met with numerous Honourable Ministers and other government officials from the very early dates that the various tax changes were proposed. We discussed in detail the implications, including reducing work forces, and even left them with written confirmation of our concerns,” he said.
“Unfortunately, despite all efforts (not only by FQM but also the whole of the mining industry) to objectively and transparently inform decision makers on the inevitable consequences of the proposed measures, our message seems not to have been heard, and the tax changes have been implemented.”
Mr Pascall assured that Sentinel Management will do its best to mitigate the impact that these changes will have on employees and the broader Kalumbila community.
“We would hope that at some time in the future the tax regime will be adjusted to take into account the requirement of investors to make satisfactory returns on their investment, and would like to assure any affected workers that wherever possible they will be reemployed once it becomes viable to revert to full production.”
He added, “In anticipation of a future return to full production and throughput it will be management’s critical responsibility to ensure that the entire plant for this wonderful, world-class, mine is maintained in first class, ready-to-work, condition.”
He hoped that threats to reduce access to expertise required to ensure this condition is maintained will not eventuate.
“We will keep you informed at every stage of this restructuring of Sentinel’s operations. Finally, I would like to thank our entire workforce at every level and in every role for the part you have played in making Sentinel one of the world’s great mines. It has been a long hard road and many of you have worked long hours to overcome operational problems and help us get to the current situation, where some of the biggest and most modern equipment in the world functions so well,” he said.
“Management’s prime responsibility is to ensure the long term viability and continuity of this mine, and it is with deep regret that the steps outlined above will be required for reasons outside of our control. Despite this message I would like to extend Season’s Greetings to all employees for a Blessed Christmas and to wish you and your families a Healthy, Safe and Prosperous 2019.”