Zambia Plans New Sliding-Scale Mine Royalty System in 2016

  • Royalties to range from 3 to 9 percent under proposed changes
  • Proposed system to shield mines during low metal prices

Zambia plans to introduce a new sliding-scale mine royalty system with the levy that operators pay determined by metal prices, presidential spokesman Amos Chanda said.

Royalties will range from 3 percent to 9 percent and “there is a strong possibility” that the system will come into effect in the first quarter of 2016, Chanda said by phone Tuesday from Lusaka, the capital. The cabinet has yet to approve the proposal and it will be presented to lawmakers for consideration once they do, he said.

“There is general acceptance within government that the proposed system will work,” Chanda said. “It appears there is consensus” between the government and mine-owners over the new royalties framework, he said.

Zambia, Africa’s second-largest copper producer, has struggled to find a royalty system that works for both the government and mining companies, having earlier this year abandoned changes after Barrick Gold Corp. said it would close its Lumwana mine. The Chamber of Mines proposed the sliding scale system in October, Nathan Chishimba, president of the lobby group, said in a Dec. 16 interview.

Prices Fallen

The country is facing a power shortage and copper prices that have fallen to the lowest level in six years, with operators including Glencore Plc and Vedanta Resources Plc having halted output at some mines. A sliding scale will help shield the industry in a low-price environment, Chishimba said.

“If it’s sensitive to price then at least that mitigates the amount of burden it imposes on mining operations,” he said.

Zambia in July scrapped a mine-tax system it introduced in January that dropped profit tax in favor of royalties as high as 20 percent. The government reinstated profit tax and pegged royalties at 9 percent for open-pit mines and 6 percent for underground operators. A system that charges different rates depending on mining techniques would be difficult to administer, the World Bank said in June.

First Quantum Minerals Ltd. is Zambia’s biggest copper producer.

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