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Wednesday, 25 July 2007

The Cryptic Mr Henderson...

Mining Journal reports that MCM Chief Executive Tim Henderson accepts the logic of renegotiating the mining development agreements:

Henderson also said Mopani had in principle agreed to renegotiate development agreements with the government, which plans to raise mineral royalties to 3.0% from 0.6% and corporate tax to 30% from 25%. "In principle, mining companies are willing to renegotiate the agreements. Any future change in the rate of mineral royalties should be linked to copper prices," Henderson said.
I sense Mr Henderson is playing Jedi mind tricks. The last sentence "Any future change in the rate of mineral royalties should be linked to copper prices" can do with some clarification. Does he mean he favours existing mineral royalties but linked to future changes in copper prices? or does he mean he accepts the principle of a "windfall tax", in addition to the existing "mineral royalties"?

4 comments:

  1. Cho,

    Mining Journal reports that MCM Chief Executive Tim Henderson accepts the logic of renegotiating the mining development agreements:

    What does your friend say about Tim Henderson's 'anarchy'? :)

    Contracts are re-negotiated all the time, of course, and I was surprised that anyone would question that basic fact.

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  2. I'll ask him...

    I suspect he welcomes it with a broad smile :)

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  3. I suspect he welcomes it with a broad smile :)

    As any Zambian should. :) Sometimes it is good to be wrong.

    or does he mean he accepts the principle of a "windfall tax", in addition to the existing "mineral royalties"?

    In the mining agreements, there is something called 'Price Participation', which sounds to me very much like a windfall tax, in that it is related to increases in the price of copper. If copper rises above $2700 per tonne (as it did many years ago), the government should receive extra cash (I'm not to sure about the details.)

    http://www.minewatchzambia.com/reports/report.pdf

    These ‘price participation’ clauses state that if the price of copper at the London Metal Exchange exceeds a specific benchmark (US$2700 per tonne), then the Government starts to claim back a percentage of each sale made. However, the impact of price participation clauses is minimal because the payment to the government is again deductible by the companies for income tax purposes.

    However, this seemed linked to declared profits, which the corporations do not need to properly declare, because they can 'carry forward' costs. This seems like an inherent contradiction in the agreements, and something that should be looked at.

    I think the Zambian government has a very good case to demand that profits are properly declared, no matter what the agreements say.

    What would also be a good idea, would be to link high copper prices to greater share ownership. For instance, they could demand a stake of 25% of the shares to begin with, and the right to buy more shares at a low (below market) price in the future.

    This is roughly how ARAMCO became Saudi ARAMCO, and how they Saudis are benefiting from their massive oil reserves.

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  4. I am on the look out for thse new draft mining policy document....its critical to see what is in there :)

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