January 3, 2020 / 7:12 PM / 2 months ago

Exclusive: Canada's First Quantum weighs $1 billion Zambian copper mine expansion - document

TORONTO/LONDON (Reuters) - Canadian miner First Quantum Minerals Ltd is weighing investment of around $1 billion to lift output at Africa’s biggest copper mine in Zambia, a company document seen by Reuters showed, despite a feud with state miner ZCCM-IH over project funding.

FILE PHOTO: First Quantum Minerals Chairman, CEO and Director Philip Pascall looks on during their annual general meeting for shareholders in Toronto, May 9, 2012. REUTERS/Mark Blinch

The investment would add a decade of life and head off production declines at the Kansanshi copper mine, increasing annual production to 300,000 tonnes over time from an expected 235,000 tonnes last year, according to a company presentation given to Zambian government officials.

But securing board approval, which would be needed over the coming year, is likely to be complicated by disputes between miners and the Zambian government over taxes and assets, according to analysts and miners with knowledge of the country.

Western miners are on edge as Zambia and neighboring countries seek to increase their share of revenue from natural resources.

Zambia hiked copper royalty taxes by 1.5 percentage points last year and introduced a new 10% rate when global prices exceed $7,500 per tonne, consultancy Verisk Maplecroft said.

Mines Minister Barnaby Mulenga last month said copper miners would also have to account for the gold they produce to boost state revenue.

“We do not anticipate any fresh investments to extend the life of copper mines while this, and increased taxation, hangs over miners,” Verisk Maplecroft senior analyst Indigo Ellis told Reuters on Friday.

A source close to First Quantum said the plans will be presented to the company’s board this year but the project is unlikely to win approval without significant changes to Zambia’s tax regime.

Shares of First Quantum extended losses after the Reuters story and were down 6.3% at C$12.44 on Friday afternoon in Toronto.

First Quantum contemplated expanding Kansanshi in 2011 at a cost of $1.5 billion, but that project was shelved.

Without investment, output would drop sharply from 2022 to about 130,000 tonnes by the middle of this decade, the presentation shows.

Canadian-listed First Quantum is studying expansion amid a dispute with Zambian state miner ZCCM-IH over profits from the mine that have been set aside for the project.

ZCCM-IH owns 20% of Kansanshi Mining PLC, with First Quantum holding the balance.

First Quantum last month began arbitration proceedings against ZCCM-IH following a criminal complaint made by the state miner to Zambian police over a transfer by Kansanshi Mining to a First Quantum subsidiary.

At issue is a transfer of $520 million, a separate document seen by Reuters showed. Two sources said the money had been set aside in a high-interest account to help fund expansion at Kansanshi.

First Quantum was not available for immediate comment on Friday. ZCCM-IH did not immediately respond to a Reuters query.

Sources declined to be identified as the information was not public.

Reporting by Jeff Lewis in Toronto and Barbara Lewis in London; Editing by Denny Thomas and Matthew Lewis

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