Mining companies are currently in negotiations with Government to reduce the mining tax burden. According to a "government official" at the mining ministry quoted by a recent Wall Street Journal report, the talks over incentives and tax waivers are progressing well but warned that "miners shouldn’t expect a lot of concessions".
What is clear is that there are concessions being made by Government. And the focus seems to be getting either deferring mineral royalties or getting rid of the 10% export levy introduced last year on unprocessed mineral exports. KCM recently upped the pressure by claiming that copper production at Zambia’s largest copper producing mine is facing a looming threat as stockpiles of unprocessed concentrates rise due to inadequate treatment facilities in the country. It values the stockpiles at around US$130m.
The levy on the export of unprocessed concentrates is intended to encourage value addition. It is in fact in line with a trend of restricting unprocessed minerals across the continent as resource-rich countries seek to benefit more from natural resources. Our neighbour the DRC is due to ban exports of unprocessed minerals from January 2014. It appears Mines Minister Christopher Yaluma is more keen to do the opposite by getting rid of the export levy.
All more baffling because Chamber of Mines president Emmanuel Mutati has already noted that "the current price won't lead to a reduction of copper production per se this year..it might just lead to a non-profitable situation and it's a question of how each mine assesses how long they can get into a non-profitability situation. How long can they sustain that situation". He went as far as to say there's no need to panic.
So where is the pressure to drop these mining taxes coming from? We can only await the Budget 2014 with trepidation!
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Chola Mukanga | Economist
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