MAJOR mining companies in Zambia and the Chamber of Mines of Zambia have rejected the new tax regimes for the mining industry, arguing that the development agreements (DAs) were still binding.

The mining firms have since threatened legal action against the Government, noting that they were not consulted before the new measurers were introduced.

Seven major mining companies that appeared before the expanded parliamentary committee on estimates, chaired by Itezhi-Tezhi member of Parliament (MP) Godfrey Beene, maintained that the DAs were still legally binding, thus tax could not be adjusted.

The Chamber of Mines of Zambia was represented by the president, Passmore Hamukoma, and general manager, Frederick Bantubonse.

The Government recently raised mineral royalty tax to three per cent from 0.6 per cent, pegging corporate tax at 30 per cent and introducing windfall taxes to be triggered at different price levels.

The mining companies that appeared before the committee were Mopani Copper Mines (MCM), Konkola Copper Mines (KCM), Chibuluma Mines, Lumwana Mines, Kansanshi Mines, Luanshya Copper Mines (LCM) and NFCA Mines.

Acting Secretary to the Treasury, James Mulungushi, when he appeared before the committee last week said the Government would not renegotiate the DAs with the mining companies and that a new mining regulatory law would be proposed which would, among other things, remove the requirement to enter into DAs.

Dr Mulungushi said section nine of the Minerals Act was being proposed for amendment by repeal and replacement.

Attorney General, Mumba Malila also told the expanded committee on estimates that the DAs could not stop the Government from making a Law and said all the good things in the DAs would be captured in the Law.

Mr Malila said in the event that the mining companies dragged the Government to court, the State was ready to proceed and defend its position.

The mines, however, yesterday told the committee that their doors were still open for re-negotiating the DAs to ensure that both parties got the best out of them.

Mr Bantubonse said the proposed tax was too severe and the action would trigger economic recession and consequences of unemployment and poverty.

Mr Bantubonse said the DAs were legally binding documents and any disputes arising from the breach of these should be settled in either London or Johannesburg depending on when the agreements were signed.

He said President Mwanawasa wrote to all mining companies and held individual meetings with some CEOs and indicated that the Government wanted to re-negotiate the DAs.

He said all mining firms with the DAs confirmed that they were willing to re-negotiate the agreements.

Mr Bantubonse said at the Zambia International Business Advisory Council (ZIBAC) conference that was held in Livingstone in July last year, mining companies informed the gathering that they were ready to re-negotiate the DAs.

At the same conference, Minister of Mines and Minerals Development, Kalombo Mwansa said that the negotiations would start in October last year.

“Mining companies were, therefore, surprised when Minister of Finance and National Planning, Ng’andu Magande, during his Budget address in Parliament announced new tax measures for the mining companies as they were still waiting for the committee to invite them to the negotiating table,” he said.

He said following the Budget address, the tax consultants worked through an example and found out that the effective tax rate came up to 79 per cent.

Chibuluma Mines general manager, Ed Mounsey said the taxation rate would increase from 22 per cent to 50 per cent over the life of the mine.

Mr Mounsey said the investment made by the key shareholders, Metorex, would not be recouped and that there would be no dividends to Metorex and ZCCM-IH.

He said the Chibuluma DA was a legally binding document both in Zambia and internationally.

He said there was need for an independent review of the proposed tax changes on the viability of mines.

First Quantum Minerals (owners of Kansanshi Mine) country manager, Chisanga Puta-Chekwe said if the Government proceeded with the new tax regime the company would have problems with the shareholders.

Mr Puta-Chekwe said the Government in that case would be liable for the costs to be incurred.

He said his company was not against the idea of introducing the new taxation but rather the manner in which the process was conducted.

In the presentation to the committee, Lumwana Mines stated that the DAs were signed at the end of 2005 at a time when copper prices were high and when the Government was not under duress.

The report states that economics of developing Lumwana were never robust and it took the mine two years to negotiate and close the financing for the project with 12 international banks.

The report states that the Lumwana DA formed a key project document, the fiscal and other obligations formed the basis of the financial model.

“Lumwana is now at an advanced stage at a rate of $1.5 million per day. This debt financing is the largest in the history of the African continent and will take nine years from the start of production to pay back under the agreement with the banks,” the report stated.

The report said Lumwana had never enjoyed any windfall profits and would likely be some years before it did, depending on whether copper prices ruse or fell.

Mopani Copper Mines (MCM) submitted that the new tax regime had the potential to destablise long-term plans of expansion and recapitalisation at MCM.

KCM director of operations, CP Baid said the new tax regime was detrimental and jeopardised the ability to generate surpluses and raise funds for infusion towards growth and extension of the mine’s life.

Mr Baid said the tax regime was contrary to the Fifth National Development Plan (FNDP)’s spirit and fundamental requirement for sustainable development and growth of the copper mining industry which had passed through a decline phase and was now in the phase of recovery.

[Times of Zambia]