First Quantum says Zambia royalty hike will hit investment, jobs

Tue Oct 14, 2014 5:01am EDT
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By Chris Mfula

LUSAKA Oct 14 (Reuters) - Zambia's largest foreign investor, Canadian mining group First Quantum Minerals, warned on Tuesday that the country's decision to raise mining royalties from 2015 would discourage future ventures and hit jobs.

Zambia will increase underground mining royalties to 8 percent from 6 percent from next year as part of an effort to revamp the industry's tax system, Finance Minister Alexander Chikwanda said in his 2015 budget speech last week.

"On the face of it, the new system doesn't incentivise investment in new capital projects," First Quantum Minerals Zambia government affairs manager John Gladston told Reuters.

Gladston said the new tax system in Africa's second-largest copper producer - affecting both underground and open cast mining - would inevitably lead to fewer new jobs and less opportunities for wealth creation for Zambians.

First Quantum had already delayed investment projects worth more than $1 billion in Zambia due to uncertainty over the fiscal regime, a director said in June.

"The budget address served to confirm the sagacity earlier this year of First Quantum's postponement of additional major capital projects in Zambia," Gladston said.

First Quantum would wait for the actual implementation of the 2015 budget in order to analyse the full impact of the new tax system, he said.

Zambia's Chamber of Mines said in a statement last week that the hike in royalties would have a negative impact on operations, as the mineral royalty tax was on gross revenue, not companies' bottom line. That means it does not take into account operating costs, which have risen sharply for the sector.   Continued...