Vedanta, the majority shareholder in Konkola Copper Mines (KCM), has stopped operations at its second copper mine over import duties on vital supplies needed for processing.
In a note to employees seen by Reuters, Konkala Copper Mines (KCM) said that it would be suspending operations at the Nchanga mine beginning last Friday (January 4) because acid concentrate was not readily available for its smelter.
In its national budget in September, Zambia announced it would increase the mineral royalty rates by 1.5%, introduce a fourth tier rate at 10% when the copper price exceeds $7,500 per tonne, and make royalties on minerals non-deductible for tax purposes.
In addition, it imposed new duties on imports which has already started to bit.
Citing a note from KCM to employees, Reuters said that operations at the mine would be suspended from January 4.
New import duties meant there was a shortage of acid resulting in the suspension of its Nchanga smelter.
“The introduction of 5% import duty on concentrates has made the smelting of imported concentrates commercially unviable,” said Vedanta.
KCM said it has to import concentrates for its copper smelter to operate at full capacity. While Nchanga has not been shuttered completely, operations have been pared back due to slower smelter production.
The import duty on concentrates is just one of a suite of measures introduced by the Zambian government to tackle government debt.
KCM operates another two mines in the country: the Konkola copper mine (which is its flagship) and the Nampundwe pyrite mine.
Zambia’s Chamber of Mines said on December 20 that the effective tax rate Zambian miners would be paying would range between 86% and 105% putting 27,900 jobs at risk. More than half of the country’s copper mines would be unprofitable this year, it said.
Zambia’s government is showing no signs of changing its stance, however, Paul Chanda, Permanent Secretary for Mines told Reuters that miners in the country had failed to demonstrate how the fiscal changes, which also include planned alterations to VAT from April, will hurt their profitability.
Chanda said his ministry had asked mining companies to provide financial models on how the new taxes would impact them, but none had done so. “We wanted them to show how the new taxes will affect production and profitability but so far we haven’t received anything,” Chanda told Reuters.
First Quantum Minerals, a Toronto-listed mining companies which produces copper in Zambia, said on December 21 that it would retrench 2,500 staff at its Zambian facilities in the first quarter of 2019 as a result of the higher taxes.
“Two mining companies have written to us asking us to give them more time but we haven’t heard anything from the others,” Chanda told Reuters.
Copper output will be flat this year and will start declininhg from 2020 as a result of tax increases, Sokwani Chilembo, CEO at the Chamber of Mines told Bloomberg News last year.
The industry group has forecast production of 820,000 metric tonnes for this year. Copper accounts for more than 70% of Zambia’s foreign-exchange earnings.