Royalty tax hindering multi-billion Zambia Copper Mine Projects

According to the industry lobby group of copper miners in Zambia, 2 billion dollars of proposed investments have been halted because the royalty tax imposed last year rendered the projects unworkable.

The proposal of First Quantum Minerals Ltd. to spend $1 billion to prolong the life of its Kansanshi operation will not continue until the royalty has been abolished, said Sokwani Chilembo, Chief Executive Officer of the Zambia Mining Chamber. The same goes for the EMR Capital-backed Lubambe Copper Mine project to invest a similar amount in a new mining operation, he said.

“We need this royalty payment regime removed for progress to begin,” Chilembo said in an interview. “If the government thinking is otherwise, good luck.”

John Gladston, a spokesman for Vancouver-based First Quantum, declined to comment. A spokeswoman for Lubambe didn’t immediately respond to an email seeking comment. Earlier this month, Lubambe CEO Nick Bowen said Zambia’s changing tax regime makes investment difficult.

Zambia’s uneasy relationship with mining investors has deteriorated over the past 12 months, with the government clashing with Glencore Plc over the Switzerland-based company’s plan to mothball Mopani Copper Mines’ operations. Zambia’s increasingly aggressive stance over the nation’s key export industry may partly reflect manoeuvring by President Edgar Lungu as he struggles with economic challenges ahead of next year’s elections.

Zambia doesn’t get enough from its mineral resources but would be willing to consider mining company grievances over the royalty, Finance Minister Bwalya Ng’andu told state television on Sunday.

Zambia, Africa’s No. 2 copper producer, depends on the metal for about 70% of its export revenues. The chamber expects the coronavirus pandemic to cut output this year to about 764,188 tons, far short of Zambia’s target of 1 million tons.

More about Zambia economic challenges

The revenue-based royalty increases from a minimum of 5.5% to 7.5% when copper trades at $6,000 to $7,500 a ton, with a further jump to 10% should prices top $9,000. Copper has traded above $6,000 since the end of June.

The royalty represents double taxation of producers, which also pay corporate income tax, Chilembo said.

“This pushes up the effective tax rate and makes these projects unattractive given the cost of capital,” he said. “As soon as the double taxation element is removed, these projects become viable.”

The chamber wants the royalties to be deductible from profit tax.

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