Uncertainty in fiscal regime coupled with bureaucracy have forced Toronto listed and leading copper and gold miner, First Quantum Minerals to ‘hold on’ to its planned US$1 billion capital outlay to Zambia.
While there has been remarkable investment at its flagship and US$2 billion Trident Kalumbila mine in Solwezi in north western part of Zambia, the company has been forced to ‘wait and see’ the outcome of some of the fiscal applications by the Government.
On March 21, finance minister Alexander Chikwanda announced the waiver of two statutory policies, SI33/55 which ostensibly stifled the smooth operations of not only the mining sector but other economic players.
The SI55 meant that mining companies were forced to follow various regulatory procedures in their metal mining, exports, taxation and receipts of the metal sold and mined.
According to First Quantum Minerals director of operations Matt Pascal, while the firm has recorded remarkable growth rates at Kalumbila and Kasanshi mine projects, there has been a lot of challenges faced by the company including uncertainty on the fiscal regime and bureaucracy.
“On the fiscal front, there has been a lot of uncertainty on the fiscal regime, obviously this started with application of development agreements and continued couple of years ago with doubling of royalty rate,” said Pascal during the ZIMEC indaba in Lusaka, June 24.
“……… and now there’s continued talk on resuming windfall taxes,”
The case in point is the change in regime related to the export rate on concentrate. While other mining firms have not yet recouped the initial amount on capital costs, and not yet affected by the corporate tax regime, it is not the case with Kansanshi which is severely penalized every time there is a tax rate change.
“Ironically, the change in the export tax rate (SI 89) on concentrates, though this was partly government response to claims by existing smelter operators that they have spare capacity on players like FQM that they should not be allowed to export.
“The 10 percent export levy on concentrate export has effectively tied up 350 million tones of working capital and has delayed tax payments in order of K80 million to Government,’’ he said.
A stable political and fiscal regime is fundamental for huge capital investment decisions.
“There has been a lot of uncertainty in the fiscal regime. First Quantum has either slowed down or postponed over $1 billion in capital expenditure because of this uncertainty,” Pascal said. “If this chorus against the mining industry continues it will end up killing the golden goose,” The Chamber of mines, a consortium of mining companies operating in Zambia, while supporting the Government for its liberalized economy, are not amused with the instability in policy formulation as it has raised concern over the security of tenure on their investments in Zambia.
Speaking on the sidelines of the mining conference, chief executive officer, Maureen Jangulo-Dhlamini reiterates the chamber’s desire for a predictable regime to ensure investor confidence in the sector. “This generally gives an air of uncertainty……there should be room for investors to feel secure on the security of tenure on their investment,” she said.
However, mines energy and water development minister Christopher Yaluma, recent assured the mining sector that the Government was willing to dialogue over various concerns. It is his desire and commitment to ensuring that the sector succeeds and committed himself to “being ready to resign if the sector does not grow to his expectations”.