Finance Minister Hon. Felix Mutati and FQM Director of Operations Matt Pascal: looking to the future of mining.
FILE: Then Finance Minister Hon. Felix Mutati and FQM Director of Operations Matt Pascal: looking to the future of mining.

Outgoing First Quantum Minerals Chairman Matt Pascal has sent out an emotional farewell letter to Zambian employees as he is set to leave the country.

Mr Pascal who has been involved in the Zambian project for over 22 years is leaving his role to concentrate on a new role in Panama.

In his letter, Mr Pascal has warned that the Zambian Government might be taking the mining industry to death following the introduction of a new mining tax regime.

He also insisted that FQM will go ahead and sack 1,000 miners as a cost saving measure.

Mr Pascal also revealed that his company is $400 million in VAT tax refunds by the Zambia revenue Authority.

Below is the full farewell letter to staff by Mr Pascal

END OF MY ZAMBIAN CHAPTER-MATT PASCAL, FQM CHAIRPERSON

  • We have to shed 1000 jobs as it’s the only cost we can vary
  • ZRA refuses to allow us to bring fuel at costs demanded by SADC Protocols
  • We are owed $400million in VAT tax refunds.
  • Zambia may be taxing the mine to death
  • Since I was involved in privatisation, it was inevitable that ZCCM is sold to save the sector.
  • Will spend more time in Panama we were are developing a new copper mine.

My involvement with Zambia as part of First Quantum started at Kansanshi in 1996 when, as the first FQM person to visit the mine site, I did a quick review of the then small-scale mine and resource as part of the Privatisation exercise.

As a side note our bid for Kansanshi wasn’t successful and it was bought by an American company, Cyprus Amax on 31 December 1996. Cyprus Amax did a detailed drilling exercise which significantly increased the resource from ZCCM’s 50Mt to over 300Mt. However, they couldn’t make the project feasible due to the low copper price (about 80c/lb). Phelps Dodge, another American company, then bought Cyprus, and after some time agreed the project was not feasible by which time copper price had dropped to about 70c/lb.

In the meantime, FQM had started production of the tailing retreatment plant at Bwana Mkubwa. After several bidgs to buy mines through the Privatisation process of ZCCM, we were finally successful in being awarded what is now Mopani Mines through the privatisation exercise of late 1999. With Glencore we took over control of Nkana and Mufulira mines on 1 April 2000.

A year later we diluted our interest in Mopani and coincidently Phelps Dodge decided to get out of Africa with their last holding being the Kansanshi prospect. We were able to convince Phelps to sell to us, and we reworked the feasibility study which showed that with a considerably smaller plant (by selectively mining the different ore types) for the same copper output the project was feasible with a break-even at 72c/lb.

While working on the Kansanshi study we secured the exploration rights in DRC over what became the Lonshi and Frontier mines. Lonshi started mining in 2002, and after upgrading the Bwana plant we were able to start treating Lonshi ore in 2003.

Kansanshi’s first concentrate production was on 31 December 2005, and the first cathode was produced in about April 2006.

Exploration work at Frontier had been on-going and had proved up a viable resource. Work started on the mine site in mid-2006 and first concentrate production was in Q3 of 2008.

By this time, we had purchased Adastra whose principle resource was the Kinganambo Musonoi Tailings (KMT) deposit in Kolwezi. After some disagreements with our partners, Gecamines, we with the other minor shareholders (IFC and IDC) commenced construction of the process plant in October 2007. When this truly first class plant was nearing completion in the final months of 2009, the government decided to take away our license as we and our other shareholders were not prepared to adjust the terms of the agreement. Some 2 years later our license to mine Frontier (the biggest tax payer in Congo’s history) was removed in retaliation for initiating international arbitration over the KMT seizure.

The prime responsibility of any company to all its stakeholders is to stay in business. If a company or mine closes down for whatever reason all parties, including all the employees, lose.

So ended our short experience in the Congo. As some consolation one of the prime benefactors of our expulsion is under investigation by the US Department of Justice and is on the so-called Magnetskyi list. This certainly exonerated FQM in our principled stance with regard to honouring agreements and not bowing to unethical pressure.

Back in Zambia Kansanshi continued to expand from its original name-plate production of about 110,000 tons/year to the maximum achieved of over 270,000 tons. This making it the biggest producer ever in Africa. In 2015 one of the world’s largest single stage construction smelters was successfully commissioned and brought up to name-plate capacity within 3 months. The impact of the smelter in terms of acid costs, recovery and other benefits has been huge.

With the disappointment of Congo, the company became involved in mine construction and operations in Mauritania, Finland and Australia. The later acquisition of Inmet in early 2013 expanded our world footprint further to include Spain, Turkey and Panama.

Work started on Kalumbila’s Sentinel mine early in 2012, and despite a 6-month delay negotiating a workable power tariff, production started through 1 train late in 2014.

Due to the scale of the Sentinel plant and a number of other issues the build-up of production throughput took longer than we had experienced at our previous mines. But with the perseverance, dedication and professionalism of the current team this mine is now firmly established as a world-class asset.

Although my day-to-day management role in Zambia ends today, as one can see from the history, the voyage from a tiny start-up to now has been a tremendous ride. It couldn’t have happened without the all the men and women who have worked with us over these years, and this is really a tribute to all of you.

So my sincere thanks go out to all of you, and to those who may have been part of the journey but are no longer with us for whatever reason. Of course I have had to spend a large proportion of my time away from home and so my wife and family have been and remain a critical support to me.

I would also like to thank all those who, other than at work, have helped to make life more sociable enjoyable whether this was patiently waiting for me on cycle rides, hacking around the golf course, feeding me or in any other social activity.

Although our long since abrogated Development Agreements required us to be committed to undertakinge certain CSR functions, I believe we have gone a lot further than was strictly required.

Oddly it has been some of these activities that stick out as extremely rewarding. An area that we have put a huge amount of effort into has been in education. This is not limited to pure school-room education (even though we have built 6 new schools, supported early childhood schools and over 60 government schools around our mine sites) but has also included artisan training, Conservation Farming (with over 7000 active farmers), wildlife education, adult literacy, teacher training, business management training, etc.

Realistically a lot of this work should be done by government out of the taxes, especially royalties, paid by the mines.

When our mines finally come to the end of their operations the one thing that can never be taken away from people is their education i.e. it is truly sustainable.

As all of you who work on our mines will know we have also contributed hugely to infrastructure development around the mines. This has included: maintenance and rebuilding of the T5 National road; construction of many kilometres of tarred roads; buildings Kabitaka and Kalumbila towns; clinics; schools; power supply; airports; police stations; etc.

Realistically a lot of this work should be done by government out of the taxes, especially royalties, paid by the mines. Royalties, strictly speaking, should be for the benefit mainly of those whose lives are affected by the creation of the mines, i.e. the local residents.

Finally, it would seem improper for me to take my leave without some explanation for the letter I recently sent out regarding reductions in labour numbers, especially given the amount of negative reaction it has caused.

The prime responsibility of any company to all its stakeholders is to stay in business. If a company or mine closes down for whatever reason all parties, including all the employees, lose.

Having been personally involved in the ZCCM Privatisation process it was very evident even before 1999, that ZCCM could not continue as a business – it was losing $1 Million per day, which was only possible with World Bank funding that was meant for the State.

This is part of the reason that Zambia ended up with over $6 Billion in debt to the World Bank and others.

It is commonly believed that the company’s demise was due to the low copper price over a period of time. However, over the same period (1970 – 2000) Chile’s copper production went up by a factor of 10 from 500,000 tons/annum to over 5,000,000, while Zambia’s went down by a factor of 3 from 750,000 to less than 250,000. This despite the fact that Zambia’s copper grades were typically more than twice as high as Chile’s.

But it wasn’t just ZCCM that went down: so did real wages as the Kwacha depreciated from 1K = $2, to $1 = 5000, and employees were at almost starvation levels relying on the company ration of half a loaf of bread a day and 25kg of meiliemealie meal a month to survive; other para-statals like ZESCO and ZRailways were not paid over long periods leading to the deterioration of the power and railway assets of the country; and suppliers waited for months for payment of inflated invoices.

The problem was that ZCCM belonged to the government who often don’t or can’t differentiate between Gross Profit and Net Profit.

This deprived the company of the Retained Earnings necessary to provide at least Sustaining Capital if not Growth Capital. Over a period of years without this expenditure the assets of ZCCM deteriorated and with this its ability to maintain high production levels.

It may also be worth pointing out that government, through the Ministries of Finance and Mines has Board members sitting on all the ex ZCCM company boards.

By 2000 the assets were in such poor condition that not only did the new owners have to spend billions of dollars refurbishing them; but also had to pick up the full retrenchment liabilities (over $110 Million) for the entire ZCCM workforce.

The uneasy truth was that ZCCM had reached a stage where it couldn’t afford to pay reasonable wages nor could it afford to retrench workers due to the high retrenchment benefits. Sometimes it is important if not critical to reduce labour numbers if the health and survival of the company is at stake.

What had happened to the once mighty ZCCM? It had effectively been taxed to death this is probably true to say that being a State-owned entity it was not able to make decisions on a purely business basis, and the Golden Goose was plundered of all its eggs.

Winston Churchill once said “We contend that for a nation to try and tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handles”.

As I said in my letter, the government effectively controls a large part of our costs.

Specifically, it sets the level of taxation, it sets the price of electricity and it controls the price of one of the major consumables, diesel. The price of diesel has increased significantly over the past year as not only has the government stopped the import of fuel by major suppliers at competitive prices, but they have also disallowed a standard 25% rebate on duty exemption on South African fuel which passes all the definitions of SADC produced imports.

The taxation level has been further exacerbated by the non-refund of VAT to the tune of well over $400 Million to FQM.

This leaves the only costs in our control as being; other consumables, maintenance spares and labour. Reducing the cost of consumables automatically reduces the levels of production, and once production levels decline so must labour costs.

To prevent a ZCCM-style deterioration in assets, maintenance spares and quality of maintenance needs to be upheld as these are part of Sustaining Capital.

Any new or Expansion Capital will not be possible under the prescribed new tax regime.
To reiterate what was in my letter – these moves on labour reduction are not “strong-arm tactics”, they are simply measures that need to be taken to ensure the mines are not “taxed to death”.

It may also be worth pointing out that government, through the Ministries of Finance and Mines has Board members sitting on all the ex ZCCM company boards.

They have full unfettered access to all the financial information that illustrates the plight of the industry, and are free to ask for all pertinent back-up details.

The main reason for this message was to thank all current and past staff and employees of our Zambian operations for their loyalty, dedication and efforts that have contributed to the company’s success and to my enjoyment and fulfilment.

Also to explain why the current unpleasant situation has arisen and why we are taking steps to mitigate their effects.

Finally, to wish you all a healthy and safe 2019, and to state that I have no doubt that Rudi (who has also made the 22-year journey) and his team will ensure that the mines get through this tough period and will flourish in the future. And while my main responsibility will now be in South America I will no doubt visit Zambia from time to time.

Thank you
Matt Pascall

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49 COMMENTS

  1. They think we are still in the colonial days. Fusekeni. Lungu no brown envelops mate. Control yourself just for once, for the Zambians!

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    • But why are you insulting these foreigners? It is totally not their fault (again).

      If you have grievances, direct them at Lungu and his groupies.

      Maybe these mines have stopped bribing our leadership,

      So whether it is via brown envelopes OR higher taxes, this leadership WILL get paid.

      They have mansions to build, and pregnant Swazi women to look after.

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    • Indeed @analyser, you do get it now.

      If the mines refuse to give out brown envelopes, they will just get taxed more.

      And we all know how our taxes are being spent.

      Bottom line is that this PF leadership will get paid, one way or the other.

      And it is not even funny.

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    • Well, it’s not funny at all! We probably don’t need the central Government. We need to go back to the traditional set up where control is within society. The Politicians can just go and look for normal jobs like everyone else. We try the chiefs again to deal with the needs of their subjects.

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    • Lungu and Co. must have been promised big by the Chinese that they are ready to throw the sink at the Western investors. It is beginning to look more that ever before that Lungu and Co. are not ready to negotiate over the new mining taxes. Believe you me, the Chinese must be lining up to take over. Lungu has never been this bold.

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    • Not even Paschal’s emotional tirade will save the Western investors from being run over by Edgar Lungu and his Chineses friends. Zambia is headed for a complete takeover of the mines by the Chinese.

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  2. Most of the profits these mines are making never trickle down to the average citizen.

    In exchange for brown envelopes, those in leadership have kept taxes very low for these mines.

    The last time Zambians really benefited from the mines was before the privatisation saga.

    This practice of corruption should have been left behind in 2018.

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    • Why should the mine profits be trickling down to the citizens? We sold the mines and giving away black mountains which have valuable mineral deposits to thieves. We are not taxing the Jerabos and only a few individuals are benefiting. Are Zambia’s benefiting from inflated tire tenders and ambulances? do not lie in using the name Zambian while its only a clique benefiting

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    • you have tried running the mines yourselves and what was the result of that .Stop insulting investors when you are not providing an enabling environment .You think a business man comes to do you a favor ?its a win win situation or nothing at all ..If they don’t make profits they leave its as simple as that .

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  3. Matt Pascal is a potential witness in the commission of enquiry into the privatisation of Zambia’s state owned enterprises particularly those under the ZCCM stable

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  4. You have been chased? Just go my friend, we need to get a fair share from this depleting asset before its too late. Why did you leave DRC? Same tactics and threats will not do this time around, just go.

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  5. Give Zambians their share.you have made
    Enough for yourselves.pump 1% of your
    Profits to Zambians. After reaping all
    These years,now you saying taxing to
    Death.shame.

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  6. Mr M Pascal would have done well to just write a farewell letter to FQM employees without commenting on issues he knows very little. FQM has done very well in Zambia. When they started in Zambia, FQM did not have any assets to talk about. They started raising funds on the Canadian Stock exchange based on the start-up operations in Zambia. Today, Mr Pascal and other shareholders are very wealthy indeed; thanks to Zambia. This has reminded me of Anglo America who started off in Zambia(Northern Rhodesia) and went on to become global players in the mining industry.
    ZCCM was not losing a million dollars a day. This is not correct. The sovereign debt of $6billion was not because of the mining industry. Remember the third world debt we were paying more in interest than we borrowed?
    FQM bought…

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  7. Foreign mining companies are elaborate fraudsters using base asset erosion or what you call transfer pricing to ensure the Zambian Govt and by extension, the taxpayer get no value. I do not support PF, I choose to be non partisan but in this regard, anyone opposing this is unpatriotic. This is how it works.
    ABC Mining from Australia mines copper in Zambia at $2,800pmt as cost. ABC mining then sells this copper to ABC Marketing in Switzerland, a related entity at $4,000pmt, the market price for copper on the London Metal Exchange is say $6,000pmt, ABC Marketing will then sell to a Chinese end user at $6,000pmt…

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  8. Going on… so ABC Marketing will then charge ABC Mining management fees of say $2,200pmt, meaning that in effect, no profit is made in Zambia and therefore, Zambian Govt is left reeling wondering what to tax. Tax on management fees is at 20%. But watch what else… tax will be paid in Switzerland where a profit has been made. It is a sad cycle.

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    • This is the reason a well thought out intervention strategy has to be designed and implemented. There are several options available to break this cycle.

      We need to own this resource and use it to our benefit, now and in the future.

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  9. St Sweet Angus, You very right with a very practical example. PF government is not asking for their profit, its only asking for the sales tax… whats wrong with that. if you sale your copper at $3000 to your marketing company, give the sale tax to the government for that. VAT was being manipulated by the so-called mining companies. Why dont they go somewhere if they dont make profit….LIERS

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  10. Useless companies like FQM are managed by shameless colonialists, and their barbaric Boers with fresh apartheid tactics. They are now trying to get sympathy from the Zambians they misuse. Zambians let’s work together and kick these colonialists out of our country.

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  11. But what’s wrong with discussing with government and present your points instead of threats.

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  12. Going on..FQM ‘bought’ Kansanshi Mine from Phelps Dodge because Phelps Dodge were consolidated their operations in which Africa did not feature. Phelps Dodge acquired Kansanshi mine by virtue of buying Cyprus Amex. It had nothing to do with the copper price. By the way, Kansanshi Mine has always been profitable because of the Gold credit. Kansanshi Mine is a Gold mine(Many people do not know this fact). Mr Pascall was NOT involved with the privatisation. The only involvement he may have had was lobbying for the share of the privatisation cake. The GRZ is trying to manage a challenging situation. The end question may be for Africa to start asking why it is that its wealth is not used to develop it in an African way.

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  13. Pipo like Mr Pascall make God happy with their works and their use of their brains. These are the real men who create economic value to society with the use of their brains and they uplift pipos living standards.our politicians cant create economic value because i doubt if they have the capacity to think creatively. They just think they can only survive on free tax payers money. they even boast that they are in charge of the resources of the nation yet the resources they are in charge are not of their own creation but are merely forced tax contributions from tax payers. shame how pipo underrate the power of their own brains to create wealth and economic value for the society they have been privileged to look after.

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    • Do not ever mix our Lord Jehovah and your little god satan. God does not like evil colonialists and evil wealth gainers. The copper and minerals are Zambia’s to utilize for the whole nation period.

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    • Keep living like a slave. How does a racist company with a swastika sign make God happy. Do you even have an idea of how many people die there (supposedly sacrificed) from around October.

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  14. Zambia has enough money, even lungu can afford a lauxuary jet and the grz can afford to pay $1million for a fire truck that costs $280k….and to pay $1 million/ km of road build……plenty money around guys.

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  15. “Mr Pascal who has been involved in the Zambian project for over 22 years is leaving his role to concentrate on a new role in Panama.” This guy has stolen enough, let him be gone. Good riddance! We need as Africans to take over all our resources; we have enough brains. The leadership is what is lacking. Get rid of those morons too. Starting with the opposition.

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  16. “Since I was involved in privatisation, it was inevitable that ZCCM is sold to save the sector.”
    Pascal is shamelessly agreeing to being part of one of the darkest parts of Zambia’s history. This man has to go, I hope the Lord God punishes him for the misery he has brought on Zambian miners.
    Africans it is time to do for ourselves.

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  17. I jonined first quantum on 15 january 2005 pascal and the group were chassed in congo for failing to build a procesing plant to avoid bringing copper to Bwana Mukubwa in Zambia they came wit very small machines we started crushhing a heap of high grade copper (oxide)which zccm cud not proces due to lack of machinery and thas a copper containing gold we even gathered the one zccm used on roads to make them hard.There after new equipment was bot using zccm stockpile.For yo own info kansanshi was a mountain any foot rub to the ground expose high grade copper no waste material the late Levy P and group sold Kansanshi cheaply after being duped that copper ws deep so pscal shud shutup

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  18. After raking in huge profits for 22 years, now this man comes to claim that Zambia is taxing mines to death? (Nafyola – I’m kissing my teeth!)

    Mr. Pascal, your grace period is over and you might aswell forget about the $400 million VAT tax refund because that is what we will use to compensate 1,000 miners you intend to sack. It is now time for Zambians to get their rightful share and this time we wont turn the other cheek. Badbye and good luck as you go and try the same tactics in Panama!

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  19. They will be putting as much pressure as possible on the government to reduce the tax. They are only interested in the profits not national service. Please do not listen to them

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  20. Firstly, FQM made $400 million investment in Zambia which made back in excess of $1.6billion PROFIT. The only reason they are moving to Panama is the they can make higher profits off desperate countries. Mr Pascal is quick to mention the price of copper being low but dare not mention why. It was due to banks like Goldman manipulating prices to keep the prices down so that they can stockpile good quality copper only to make obscene profits when they choose to put the price up. They keep mentioning Kolwezi as a prime example of corruption using nationalized resources but the real story of Kolwezi should be the shell companies used to negotiate with the Government of Congo whose accounts would show exactly how much they make without paying tax. Zambias problem is those in power are sick with…

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  21. Zambias problem is those in power are sick with greed and are quick to take bribes instead of investing in manufacturing while ensuring Zambian businesses are given priority and a percentage of all work and tenders like other countries do. Good luck to Panama.

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  22. St Sweet Angus, I have no words because you have spoken my thoughts and let iterate the forgoing. After 1991, Edward Shamutete became CE for ZCCM. Emmanuel Hachipuka became Director of Finance. Charles Milupi was transferred to the Technical Directorate from being a manager at Nchanga mine. Hanson Sindowe now the biggest share holder at CEC was transferred to Kalulushi as Consulting engineers. These including Hakainde are the criminals who betrayed mother Zambia with even sending their children on ZCCM schorlaships meant for Zambian boys and girls. I was there when professor Beene came back but was maligned to the pit latrine. Edgar Lungu is not stealing because money was stolen by a very few people who hail from certain tribes. I will not bite my tongue because 95% were tongas and lozis…

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    • HH did not betray Zambia. How can any reasonable government depend so much on a person who does not fully understand mining business. As a consultant, you do not make decisions, but advise. Most of the Zambian individuals who were a team on selling ZCCM did not know the value of the mines or data of the mines. It goes back to appointing authority to appoint right people with right experience. Just because one has a doctor (Masters} in Engineering do not mean he understands mining business. You may be Technical Services Manager you may not understand all mining business which is concealed by key owners save technical aspect.

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  23. Has GRZ ever sent a technical team to Tanzania to learn how the Magufuli government dealt with the mines?
    Magufuli and his Technocrats made sure they had Solid irrefutable DATA on what was going on. They went on to come up with a comprehensive plan to realize Maximum value from the mines. They did this not through raising taxes but increasing Government Shareholding in the mines to 50:50 minimum! What is clear is that just relying on Royalty Taxes is a bad strategy! Most of our mines have majority or 100% foreign ownership! We need to appoint technical teams to come up with a better strategy! Politicians will only politic without solid data instead of doing in-depth analysis!

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  24. Many comments have been made. I find it hard to believe some of the comments. Zambian government through ZCCM failed to run the mines profitably. The reason is that it was uneconomical to run the mines at that time. If the mines were uneconomic, how did the buyers manage? Today look at ZESCO, ZAMTEL, ZRL, TAZARA, ZAFFICO, Lusaka City Council, Kitwe City Council, Ndola City Council etc., is a sad story in terms of the companies performances. City councils being given money to pay salaries. Even the little we get from mine taxes have not been used to make industries that would generate more income that would be used to make other industries. Zambia tourism which has great potential, only less than one million tourists come each year. We speak so loud, but no plans to run the mines. I wish…

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  25. So emotional that we cannot see the value of Pascal’s comments? Very much like trib.als, refusing to see or smell sense and truth even when it is right under their noses, or even right inside their large nostrils.
    Wait for economic armageddon and our children sleep on plain cibwantu, never to recover for a long long time.

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  26. Very few comments here are based on real data. Mostly the comments are feelings. Pascal has no duty to the average Zambian, never had nor pretended to have. GRZ has duty for the Zambian. Just ensure that the interest of Zambians are preserved. The irony is that Pascal has all the aces. GRZ tolerated him too long, now he is very powerful. His foot print is now global. GRZ can literally not touch him.

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    • Is that you Pascal? Zambia and Africa are fed up. Go on with your vitriol and evil, it shall soon come to an end. Zambians are awake. kikikikiki

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  27. Gents, these are low grades mines that survive on leverage. High throughputs make them profitable which zccm failed to do. Fqml accounts for 40% of the total copper production in Zambia and they have grown from a small tailings treatment at bwana. This is commendable mr Pascal and the Zambian government for the favorable fiscal policies that fuelled the growth in the sector over the years. However, the proposed tax regime threatens to reduce the net profits by 67% and that is a blow in the face because it comes at a time when mines are struggling to find economical grades to treat. This means no further growth in the sector largely due to unstable fiscal policies. I foresee a situation where government fails to collect the expected revenue due to reduced production. Let’s not tax…

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    • Lies lies lies. We are tired of your lies. You make supper profits you guys. Why should you cry over a 1.5% increment of tax?? You are just criminals.

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