LUSAKA – Zambia’s largest mining company, First Quantum Minerals (FQM), has welcomed Government’s move to revamp mining royalties as a “step in the right direction” but has called for more to be done to ensure long-term competitiveness and renewed investment in the sector.
The new Mines and Minerals Development (Amendment) Act 2015 was passed by Parliament today (May 5) and will bring into force the new tax regime, back-dated to April 1, once it is signed by the President.
“This is a courageous move by Government; I commend them for taking this step. This new tax regime means Zambia is continuing its trajectory towards becoming a competitive mining jurisdiction. In the current economic climate, competition for foreign investment remains fierce and Zambia still has some way to go; however we do applaud this latest adjustment to the tax regime. Uncompetitive tax regimes place the sustainability of the industry at risk; this latest change will serve to provide some security to thousands of directly and indirectly employed Zambians in the mining sector,” said FQM Government Affairs Manager John Gladston.
The new law puts mineral royalty rates at between 4 and 6 percent depending on the London Metals Exchange price of copper, for both open-cast and underground copper mines. Royalties will be 4 percent when the copper price is below U$4,500 per metric ton, 5 percent when it is between US$4,500 and US$6,000, and 6 percent above that.
The new law further reduces the rate of mineral royalty for other base metals to 5 percent for both underground and open-cast mining operations.
The new law represents a bold move by the Government to mitigate the financial hardship that stifled investment, threatened mine closures and resulted in lay-offs in the sector when the mineral royalty tax was increased to as high as 20 percent. It was then reduced to 6 percent for underground operations and 9 percent for open pit mines accompanied by a 30 percent profits tax and 15 percent variable profits tax.
“This move by government is important because it continues the trend towards the global norm of a flat 3 percent mineral royalty tax and 30 percent profits tax. We are not quite there yet and it is equally important that polices continue to be remain responsive to prevailing trends in the industry. Contrary to some commentary in the financial press recently this latest adjustment has sent a positive message to investors ,” added Mr Gladston.The new royalty structure is positive because it takes into account the huge costs associated with running of mines, both in terms of capital investment and operating costs and will help protect the industry and jobs when world metal market prices are low, he explained.
Zambia’s new royalty system remains above that in most other countries. Australian mines pay between 2.5 and 5 percent; Brazil 2 percent; China 0.5 – 4 percent; Ghana 5 percent; Indonesia 4 percent; South Africa 0.5 – 7 percent; and the Democratic Republic of Congo 2 percent.
FQM operates the two open-pit mines: the Kansanshi Mine, which is the largest copper mine in Africa and became operational in 2005 in Solwezi, North-Western Province; and the Sentinel mine in Kalumbila, which is still ramping up its production, some 150km west of Solwezi.