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Zambia Tax Paid by Glencore, Vedanta to Rise as Projects End

Mining companies such as Glencore International Plc (GLEN) and Vedanta Resources Plc (VED) will pay three times more tax in Zambia than they did in 2010 once they finish expansion projects in Africa’s biggest copper producer, the Chamber of Mines said.

“With a little bit of patience from the government and tax collectors, in the next couple of years there is going to be a very rapid ramping up of taxation,” Fredrick Bantubonse, the general manager of the chamber, said in a Dec. 17 interview in Lusaka, the capital. “I can see it quite easily reaching $1.5 billion.”

Zambia plans to introduce stricter laws that will apply to companies including Barrick Gold Corp. (ABX) and First Quantum Ltd. (FM), Deputy Finance Minister Miles Sampa said last month. The country’s laws allow mining companies, which paid $500 million in dues in 2010, to deduct capital investment from tax, curbing the government’s revenue from the industry, Bantubonse said.

The country is losing as much as $2 billion annually because of corporate tax avoidance, Sampa said.

“Even if you put the taxation at 40 percent, it would require a profit of $5 billion” to justify tax of $2 billion, Bantubonse said. “You cannot make $5 billion profit on $6 billion of exports.” Sampa’s estimates are “unbelievable,” he said.

Zambia produced about 700,000 metric tons of copper in 2010, generating roughly $6 billion in sales, Bantubonse said. The metal declined for a fifth day, losing 1.3 percent to $7,919.50 a ton on the London Metals Exchange by 3:01 p.m. in London.

Tax Payments

About $8.8 billion left Zambia in illicit financial flows from 2001 and 2010, Global Financial Integrity, a Washington- based research company, said Dec. 13, citing its own research.

Mopani Copper Mines has paid $425.1 million in taxes and royalties to Zambia since Glencore bought 73.1 percent of the operation in 2000, the world’s largest commodity trader said in an April submission to a parliamentary committee in the U.K. In 2011, it paid $104 million, and Mopani will have an effective tax rate of 52 percent in 2012, Baar, Switzerland-based Glencore said.

First Quantum paid $224 million in Zambian taxes in June last year and $80 million in 2010, according to its 2011 annual report. Its effective tax rate at the flagship Kansanshi mine is 43 percent, the Vancouver-based company said.

“There is no real benefit if you are going to avoid tax,” said Jeyakumar Janakaraj, chief executive officer of Konkola Copper Mines, in which London-based Vedanta has a 79.4 percent stake. “It’s not a long-term strategy for anybody,” he said in a Nov. 30 interview in Livingstone, near the Victoria Falls in the southwest of the country.

Audit Co-operation

If the Zambian government believes mining companies are not paying the correct amount of tax, it should undertake an audit, Bantubonse said. The industry in November 2011 volunteered to co-operate in such an inquiry, he said.

“People become very sensational when it comes to copper,” he said. “It is very emotional. When you sit down with a cool mind and try to reason about it, then you find fault in those figures.”

Zambia plans to cut the capital expenditure deduction rate for mining companies to 25 percent from 100 percent, Finance Minister Alexander Chikwanda in his Oct. 12 budget speech. Companies would only be able to claim for deductions once the asset is brought into production, he said.

To contact the reporter on this story: Matthew Hill in Lusaka at mhill58@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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