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First Quantum Minerals (FQM) has announced plans to invest US$650 million, to double copper output and extend the life of Kansanshi Mine, to 24 years
However the mining firm has cautioned shareholders that the expansion project can only go ahead if the company is confident of a competitive fiscal regime, which will in turn dictate capital availability.
In addition commodity prices will also be a factor in the project timing.
FQM Country Manager General Kingsley Chinkuli said that the most important element of restarting the project and making Zambia’s mining sector attractive to investors was the need for a competitive tax and royalty regime, and that fundamental to long-term private sector investment was knowing what costs would be for the life of the investment.
The company this week filed an updated National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) Technical Report based on 1.5 million metres of resource expansion drilling and resulting assay data to provide an updated Mineral Reserve and Resource estimate showing an increase of 70 percent and 40 percent, respectively, of reserves and resources reported in the last update in May 2015, and extending the mine life to 24 years.
“Mines across the world need constant investment, in hardware, exploration, and modernisation. When the global economy presents challenges, as it can be depended on to do so, whether as part of the global financial crises or else through the so-called commodity super-cycle, it falls to governments to make their jurisdictions the most attractive in which to place their investment,” said Chinkuli.
He further said that the mining firm’s annual tax contributions without S3 expansion and MRT non-deduction remaining in place, is estimated to be around US$200 million, but if the expansion project goes ahead and MRT non-deductibility is removed, the tax contributions could be well in excess of US$300 million and possibly much higher depending on market conditions. Indeed, tax contributions over the five-year period are expected to be up to 45 percent higher with the S3 project, but this would require a competitive tax code for its approval.
“Once the project has been completed in 2024, the mine is expected to be producing between 220,000 and 280,000 metric tonnes of copper per annum from 2024 to 2028 but this is contingent on some badly needed tax reforms in the mining sector,” he said.
FQM paid over K7 billion in taxes and royalties to the Zambian government in 2018, representing almost 40 percent of total payments made by the extractive industry, cementing its position as the nation’s largest taxpayer.
According to the 2018 Zambia Extractive Industry Transparency Initiative (ZEITI) report the majority of the mining giant’s taxes, amounting to K4.47 billion, were paid by its Kansanshi Mining plc subsidiary. This payment alone accounted for around a quarter of the country’s extractive payment receipts for that period of K17.98 billion based on figures reported by the industry.
FQM’s newer Kalumbila Minerals Limited subsidiary paid K2 billion in taxes while the mining giant’s operations unit, First Quantum Mining and Operations’ paid K658 million; accounting for 11.2 percent and 3.7 percent of the government’s total revenue from the sector respectively.
