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Friday, August 7, 2020

Zambia 2019 copper output drop due to new mining taxes-Chamber of Mines

Economy Zambia 2019 copper output drop due to new mining taxes-Chamber of Mines

Chamber of Mines Zambia President Goodwell Mateyo
Chamber of Mines Zambia President Goodwell Mateyo

Zambia’s copper sector, which dominates the country’s export economy, saw production drop in 2019 due to new mining taxes, which were also the primary cause of the drying up of investment, Zambia Chamber of Mines President Goodwell Mateyo told S&P Global Platts.

The Chamber of Mines said year-to-date copper production figures supported its long-standing prediction of a drop in copper output for 2019 of up to 100,000 mt, to around 750,000 mt from 857,847 mt in 2018, despite a generally favorable market outlook.

Last month Zambia’s mines and minerals permanent secretary Barnaby Mulenga said smelter shutdowns at copper mines in Zambia coupled with low power supply had forced the mining ministry to downgrade copper output by 100,000 mt in 2019.

The Chamber said the downward trend in 2019 is expected to continue in future years unless there are significant changes to the tax regime.

Last September, the government implemented a 1.5 percentage-point increase in minerals royalty taxes, with current tax rates ranging from 4-6% in relation to the copper price, with a 10% ceiling when copper prices go above $7,500/mt, while additionally, copper concentrate imports incurred a 5% levy. Zambia is Africa’s second-largest copper producer.

“There have been lots of breakdowns and interruptions, which is exactly what happens when there is little or nothing to reinvest in operations,” Mateyo said. “To avoid job losses, sustaining capital expenditure has dried up, with mine development deferred, and it’s this which ultimately leads to a drop in production levels.”

The CoM President said lower production meant lower mine revenues, “and therefore royalties to the government; with costs remaining relatively fixed, the result is lower profit margins and therefore reduced corporation tax collections.”

Mateyo said this was unsustainable and would inevitably result in further cost-cutting measures and the eventual closure of high-cost operations, while the Zambian copper mining industry continued to mature with grades decreasing or becoming harder to reach underground.

TAKING FULL ADVANTAGE

Mateyo said global consensus is that demand for copper will remain strong over the coming decade, with an additional 7 million mt of copper required by 2030.

The Chamber of Mines said preparing the Zambian industry to take full advantage of future demand requires long-term strategic planning to capture investment.

Last month, the CoM said mining companies had over the past year withheld over $650 million of investment.

“But the current direction of mining tax policy is focused only on government’s short-term fiscal needs, and is deterring further investment,” the Chamber of Mines said in a statement. “Zambia has a record of mistiming mining booms, and thereby squandering its mining endowment.”

Mateyo said an urgent rethink of mining tax policy was required to place the industry on a growth footing for the future, while “not reducing the export duty makes it difficult for capital to enter the country.”

“The long-term future should be bright for Zambia and its mining investors,” Mateyo said. “But it will count for nothing if we cannot service the demand, because our mines are — again — in a dilapidated state.”

FUTURE DEMAND

The Chamber of Mines said production and revenue forecasts, along with international experience, showed governments received significantly greater revenue in the long-run from increasing investment and production than from overtaxing existing investment and production.

“There is consensus on future demand, the country has a good, mixed investor base, and there are at least two major investment projects that could materialize — if the sense of balance between risk and reward, government and investor, is re-established,” Mateyo said.

Mateyo added: “A first step in this direction would be to review these proposed amendments from the perspective of our mutual long-term interest in a growing mining industry.”

The mines and minerals ministry was not immediately available for comment.

23 COMMENTS

    • On the other hand, the lower the output the better for the future of our country, we cannot rush to deplete the resources now forgetting about our children and their children. Diversification is the name of the game.

    • Frontier mine on the DRC mine was exporting 100 000 tones of metal in concentrate to Mopani, Chambishi Metals and Chambishi Chinese smelters. After the introduction of concentrate import tax, all this concentrate goes to China. The production & forex that was being made by Zambia (from DRC concentrate) in years past has been passed on to China. Sheer stupidity by our policy makers!!!

    • Bashi Chite, the reason why we have this liquidation at KCM is because of the same imported concentrates you are talking about,it became cheaper to import than to produce local concentrates there by depriving the locals with jobs and loss of revenue by the government. Konkola deep project almost became a white elephant.

    • I can’t imagine a Country in the world ripped out of it’s assets in the name of privatization. UAE can’t privatize its oil fields, never. Arm twisted or not.
      Zambia, a country pushed to dance to the dynamics of the happenings globally. Turmoil in the middle east directly harm us. Confusion in the copper prices directly hurt us. Zambia went into the globalization narrative diving head first. Bought and buys into the foreign investment stories head first. If privatization was meant to ease Zambia’s perceived economic owes of the 90s, guess what? It hasn’t. Then the begging question, Why did h² and the FTJ Government sell our mines in circumstances that according to Nawakwi seemed like they were at gun point?

    • @ Kapenga. Well let us wait and where liquidation will take KCM. I can assure you KCM is going nowhere. Aren’t contracts already going to PF inclined politicians. It will be be stripped to the bone and handed over to the Chinese to pay for Kaloba. And that is if the Chinese will be willing to take the risk of being embroiled in international court battles with Vendata. Yes Vendata was wrong investor, thanks to LPM, Magande and Lembalemba. They didn’t want to listen to advice like what every govt executive branch in power does in Zambia. Power goes to their heads. But the route taken to get rid of Vendata is costly, fraught with legal minefields and is a WRONG approach. Two wrongs do not make things right.

    • @ Kapenga. Coming to the imposition of concentrate import tax as means of coercing KCM to produce it’s own concentrate is tantamount to collective punishment for the sins of one company. Have you thought of the production and jobs lost at Chambishi metals, the productio losses and potential job losses at Mopani and chinese chambishi smelter? Above all have you considered the loss of of forex inflow for the country. 100K tonnes of copper is between 500 to 600 million dollars per year. Dollars not ZMW. Do you understand what 500m usd per year can do to the exchange rate?Let’s not throw the baby together with the bathwater!

    • Tax obligations must not be used as an excuse for poor performance, there must be a way to keep costs under control without necessarily targeting production.

  1. The major contributing mine which is KCM is not in full scale production and that also is a contributing factor.Chamber mines should also be proactive in dealing with the mines.

    • Haven’t you been having the scaling up or down of copper production interwoven in every call for Government’s push for tax review since time in memorial?
      Munadzigong’a mweka.
      Selling your mines was a heinous crime, unrecoverable national deadly mistake, a misleading error. A selfish pampered blunder.
      Zambian Gold Mines must wholly be Zambian if at all the claim that NW province has that precious metal is true.

  2. I used to be one of those who thought that the mines in Zambia were nothing but all greed. Then I took an interest in their type of investment to understand it better. I realised that we typically tend to look at the revenue side only when we make tax policies and other fiscal decisions. Yes the revenues are huge, but so are the required investments financed by long term bank loans. The loans are huge and can be expensive depending on the risk perception of international financiers. Both the investments and risks are long term and difficult to predict, ranging from local taxation to the whims of international politicians like Trump and his trade war with China. All these are difficult to predict over the long term return periods associated such huge investments. One makes a financial…

  3. …One makes a financial model and 10 yesr repayment plan based on current taxation and political assurances of tax stability. Then in year two or three, some politicians are starved of cash and make a dive for your revenue (not profit usually). Then the investor faces the ugly prospect of losing income and defaulting on his loans. These loans are huge and can only be sourced from international financiers. Zambian banks cannot make the money required but if they did, wiith their little capital base they would run out of cash to lend to local SMEs. So the politicians and investors run into long battles and by the time the matter is resolved both are losers, the former and their cadres who urged them on coming out worse usually. And the cycle starts all over.

  4. ..of course government has to look out for a few unscrupulous individual investors just like in any other business, even tuntemba one has to watch the business closely.
    Add to that corrupt politics which drains cash out of these ventures with endless requests for donations to their party and their pockets.
    Awe mwandi we have leaders kwena!

  5. I think the reasons given by the chamber of mines are inadequate. I know they would want to arm twist the government into believing that it’s entirely the change in tax regime which has resulted into lower production. KCM is not in full production so is Mopani…. The reasons for not being in full production for these two companies are not tax related. The chamber should have done better to highlight these reasons which I am sure they are aware of.

  6. We are ok with it if an increase in tax collection leads to a slight drop in copper output. After all this resource is not there to benefit the multinationals with increased output and profits at the expense of zambian. Pf would rather see increase in tax collection which we are using to help the less unfortunate groups and also infrastructure development. Pf is a party that stands for the poor people and his humble excellency is doing just that. Kz

  7. Can’t we?
    Yes we can.
    How?
    By replacing copper with other positive proeconomic revolutionary products that can equal or surpass copper production.
    What exactly is up?
    Diversification.
    What sector?
    A serious and aggressive revolutional agriculture policy and production.
    Why?
    The moment we monitor and support low production in copper, the infestors will begin to work and sit up.
    Where
    Here in Zambia.

  8. Rupiah and others warned you about those taxes you went ahead, look now making important decisions while drunk. This government is full of rookies who don’t want to listen, Sata even in his old age used to listen now these drunks and kaponyas we picked from the street behave like they know it all. Bad decisions have bad consequences lungu is going to have a tough time convincing those miners to vote for him again

  9. 750,000 by USD5000 per tonne gives us usd3,750,000,000.

    Ask yourself what this amount would do to our Zambian financial sector if this money was receipted in Zambia? Mitigate forex availability and cushion depreciation of the Kwacha.

  10. Ba Mateyo insoni ebuntu. Think about your country also. Where will any government be it PF or UPND when in power get money to develop the country?

  11. Why can’t we start new mines with equity partners 51/49% shares. Meanwhile let’s fix the privatization saga once and for all.

Comments are closed.

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