Zambia Plans Price-Based Royalty for Ailing Copper Mines

  • Copper producers struggling amid lower prices, rising costs
  • New system will boost government revenues when prices are high

Zambian President Edgar Lungu’s cabinet has approved a plan to introduce a mine-royalties system that varies based on copper prices as it seeks to keep operations open and prevent further job cuts.

Levies will range from 4 percent to 6 percent, Amos Chanda, the president’s spokesman, said by mobile phone on Wednesday. That’s a narrower band than the 3 percent to 9 percent the government proposed in December. Royalties are currently 9 percent for open-pit mines and 6 percent for underground operations.

“This review in the taxation regime is deemed necessary to sustain continuous operation of existing mining companies and avert the continuation of suspension of mining operations and job losses,” Minister of Information Chishimba Kambwili said in an e-mailed statement.

Zambia, Africa’s second-biggest copper producer, has struggled to find a tax system that suits both the country’s revenue requirements while encouraging investment. The country last year backed down on changes that increased royalties that are charged on sales to as high as 20 percent, while removing profit tax, after operators threatened thousands of job cuts and closures. A mining lobby group proposed the sliding-scale royalty system as a way to protect the industry as prices linger near 6-year lows.

Job Cuts

Mines owned by Glencore Plc and Vedanta Resources have cut more than 10,000 jobs and halted output at some shafts as they struggle with prices that have fallen as low as $4,331 per metric ton in London. Power costs have also increased as Zambia faces its worst power shortage yet.

For minerals and base metals other than copper, royalties will be fixed at 5 percent, Kambwili said. Producers of precious metals and gemstones will pay a 6 percent levy. Cabinet also approved the suspension of a 10 percent export duty on ores and concentrates for materials where there are no processing facilities in Zambia, and removed the variable profit tax for mining operations. Corporate income tax remains at 30 percent.

In addition to ensuring mines are sustainable, the changes are aimed at “sustaining operations in the mining industry, securing jobs for the citizens as well as collecting more tax revenue in times of relatively high copper prices,” he said.

The changes need the approval of parliament before it’s dissolved in May ahead of the August general elections before they come into effect.

An official from the Zambia Chamber of Mines declined to comment on the changes immediately, saying the lobby group would issue a statement Thursday.

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