First Quantum Says Zambia Nickel-Export Levy Threatens Mine

First Quantum Minerals Ltd. (FQM), Zambia’s biggest copper producer, wants the government to waive a 10 percent levy on nickel-concentrate exports that the company said threatens its newest mine.

If the duty remains, the economics of the Enterprise project, located in the northwest of the country, are “borderline,” Tristan Pascall, an assistant general manager at the company, said on Jan. 25.

“To take nickel concentrate out of the country under the current export-levy arrangements pretty much kills this project,” he said in a speech at the Sentinel mine, almost 500 kilometers (311 miles) northwest of Lusaka, the capital.

Zambia, Africa’s biggest copper producer, introduced a 10 percent levy on the export of ore and concentrates in November 2011 as it sought to increase local value addition to mineral products. The government waived the levy for the export of manganese ore and concentrate in February last year.

The Enterprise operation, which will be the only nickel producer in the country after Albidon Ltd. mothballed its Munali mine in December, will produce 38,000 metric tons of the stainless steel raw material annually in its first phase, the company said on Dec. 12. Phase two could reach 60,000 tons yearly. There are no nickel smelters in Zambia and the scale of the mine First Quantum (FM) is building doesn’t justify constructing one, according to John Gladston, resource optimization manager for the Trident project, which incorporates the Sentinel and Enterprise mines.

Nickel Decline

Together with a 38 percent increase to the initial production rate First Quantum had planned at Sentinel, Enterprise will cost $275 million, the company said on Dec. 12.

Nickel for delivery in three months has retreated 16 percent over the past year. London Metal Exchange stockpiles rose to the highest since April 2010 last week. The corrosion- resistant material climbed 1.3 percent to $17,860 pound by 4:28 p.m. in London. Copper slid 3.9 percent over the same period, and gained 0.7 percent to $8,103.50 a pound.

First Quantum has a 60,000-ton stockpile of copper concentrate worth $100 million at its Kansanshi mine, about 10 kilometers north of Solwezi, Operations Director Matt Pascall said in a speech.

“We can’t export it because there is a 10 percent export levy on concentrate,” he said. “We can’t treat it here because the three smelters are chock-a-block, they can’t take another ton of copper.”

Trident Project

First Quantum, which announced a $5.1 billion hostile bid for Inmet Mining Corp. (IMN) on Dec. 16, is spending $2 billion on its Trident project, which will help increase its Zambian copper production to almost 700,000 tons yearly by 2015, said Matt Pascall, who is chairman and Chief Executive Officer Philip Pascall’s brother. Tristan is Philip’s son.

The company is also spending $1.3 billion to $1.4 billion on an expansion at Kansanshi, already Africa’s biggest copper mine, Matt Pascall said. That includes a $650 million copper smelter, and will lift the operation’s copper output by 60 percent from 2012 to 2015, he said.

The Zambian government has accused mining companies of avoiding as much as $2 billion in taxes a year. Chileshe Kandeta, spokesman for the Ministry of Finance, didn’t respond to an e-mail and two phone calls seeking comment.

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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