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Monday, 4 January 2010

A Lumwana DA? 3rd Edition

"Foreign owned mining companies are currently expected to pay a 15 per cent profit variable tax, 30 corporate tax and 3.0 per cent mineral royalty. But last year, Zambia signed an agreement with Lumwana Mining Co., a unit of Equinox Minerals, granting it tax waivers up to 2017 to enable the company to pay back its debts and also still provides exemptions to other firms investing in established economic zones."
Reuters on the confused world of Zambia's mining fiscal arrangements. As I have previous noted when LPM initiated the Mines Development Act, it abolished all existing DAs. The idea was that all mining investment should now face the same fiscal rules. But alas, Lumwana maintains it's own DA (see previous discussions on this here and here). It also looks likes other new mines may also have their own DAs struck in dark corners. The situation is utterly confusing. To make it worse, there's no transparency on these DAs. The government should clarify where we stand on these new DAs. When was the last time you read the Lumwana DA?

In case you wondering why all of this matters, the following illustration by Dr Mpande should help :
Imagine a new running project in north Western Province producing 170,000 tonnes of copper, some amount of gold and silver. The area has no infrastructure and will require a public railway line of 640 km at K5 billion 1km and electricity up grading costing $5 billion, 100 graduate engineers, 500 technicians.
The economic parameters are that copper alone will sell at $5,000/tonne over 20 years. Costs of production is estimated to be $2,500/tonne. Revenue per year will be 170,000 x 2,500 = 4.250,000,000 or $85 billion over 20 years. The company borrowed the capital to invest in the mine and will therefore not pay substantial taxes even if it were making profits because it has a 10 year tax holiday.
The Zambian economy will forego the anticipated mining revenue and bear all the infrastructural costs. As a result of such investment, the net debt for the Zambia economy will not reduce and revenue to invest in education, health and infrastructure will not materialize.


  1. mathematic ! 170,000 x 2,500 = 425,000,000 or $8,5 billion over 20 years !!

    the sum is still important and the same for Kansanshi mining and less than for MOPANI and KCM !

    the foreign groups use the convenience of the GRZ

    The best problem is that the GRZ, the zambians, have 20 % in all these mines with ZCCM-IH.. but...the GRZ never ask to mines to give dividends to zccm-ih !! and ZCCM-Ih receive pinuts while foreign groups use this money to developp their activity in others country

    why ?? the question is still why convenience by GRZ ??

  2. Its such errors that tend to rise people's tempers and temperatures over nothing. 425 million suddenly becomes 4.25 billion and by the time people are making corrections, the damage has already been done. I hope the author will be big enough to re-evaluate his analysis.

  3. Lol!

    I took it for granted that the Doc had got basic arithmetic right! Lesson learnt!

    I am sure he did not intend to mislead. But General is correct emotions are high in this debate so accuracy is critical.

    The fundamental point though is that Lumwana breaks even on Uranium alone - as the National Post noted "it's a uranium star masquerading as a copper dot com"


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