June 18, 2015 / 11:26 AM / 2 years ago

First Quantum says optimistic of "rational" Zambia tax

* Executive calls for tax that will encourage investment

* Zambia has changed mineral royalty tax after sector outcry

By Chris Mfula

LUSAKA, June 18 (Reuters) - Canada’s First Quantum Mineral hopes Zambia’s government and mining firms will settle on a tax regime that will encourage investment in Africa’s No.2 copper producer, a senior executive said on Thursday.

Matt Pascal, First Quantum’s director of operations, said although it was “disconcerting” that there had been many changes to Zambia’s mining taxes over the last five years, he hoped a common ground between the two parties could be reached.

Pascal said Zambia faced falling ore grades compared with the Democratic Republic of Congo - Africa’s top copper producer - and needed to come up with a stable tax regime that would encourage mining exploration and discovery of new ore bodies.

“Zambia needs a lot of exploration. We don’t have the ore grades in Zambia that we have in Congo, so it does make it that much more difficult,” he told Reuters on the sidelines of a mining and energy conference.

“We are heartened by the fact that the current government has expressed the willingness to talk to the industry and come up with a rational tax going forward that will be conducive to further investments and the sustainability of the mines.”

First Quantum last year postponed $1 billion worth of investment in Zambia due to a tax dispute with the government.

“As it stands at the moment the projects are still on hold. We will review that as things develop,” Pascal said.

Zambia’s decision to increase royalties for open pit mines to 20 percent from 6 percent and those for underground mines to 8 percent from 6 percent in January met with an outcry from unions and producers, forcing the government to review the plan.

Initially, the government set the royalty tax rate for open cast and underground mining at 9 percent in April but on June 5 it said it would reduce the underground mining tax to 6 percent from July 1 as it was more expensive than open cast mining.

The fall in copper prices was a major challenge to First Quantum’s operations but that had been mitigated by lower costs of inputs such as fuel, Pascal said.

Other foreign companies running mines in the southern African nation include Glencore, Barrick Gold Corp and Vedanta Resources. (Editing by James Macharia)

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