Copper miners in Zambia have halted US $2Bn of planned investments due to a royalty tax introduced last year. The royalty tax hinders the viability of projects, according to an industry lobby group.
Sokwani Chilembo, chief executive officer of the Zambia Chamber of Mines says that not until the royalty is deductible from other corporate taxes, that First Quantum Minerals Ltd. will invest $1 billion, extending the life of its Kansanshi operation. The same goes for EMR Capital-backed Lubambe Copper Mine’s project to invest a similar amount in a new mining operation, he said.
“The extension project can deliver enormous benefits for Zambia and its people,” says CEO Nick Bowen. “The concessions needed are not material compared to the benefits of Zambia.”
Zambia would be willing to consider mining company grievances over the royalty, Finance Minister Bwalya Ng’andu told state television on Sunday. Mining investors are pushing for tax cuts after Zambia approached external creditors for as much as US $1 billion in debt-servicing relief as the government seeks to restructure its foreign loans.
Zambia depends on the copper 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.
The revenue-based royalty increases from a minimum of 5.5% to 7.5% when copper trades at US $6,000 to US $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.
According to media report, this pushes up the effective tax rate and makes these projects unattractive given the cost of capital. Chilembo further adds that as soon as the double taxation element is removed, these projects become viable.