Mine investors fear proposed mining royalties

MINING companies have threatened that government’s decision to increase mining royalties have the potential to deter foreign investments and also promote loss of jobs.

The Canadian owned mining group, First Quantum Minerals (FQM), has warned that raising underground mining royalties would discourage future investments into the mining sector, as well as encourage job cropping.

FQM Zambia government affairs manager John Gladston told Reuters that the proposed increment in the 2015 National Budget did not incentivize investment in new capital projects.

“The Budget address served to confirm the sagacity earlier this year of First Quantum’s postponement of additional major capital projects in Zambia,” he said.

Mr Gladston explained that the move would have a negative effect on both open cast and underground mining leading to fewer jobs and wealth creation for the Zambian people. He said FQM had already delayed investments worth over US$ 1 billion due to the uncertainty surrounding the fiscal regime in Zambia, especially that it affected gross revenue without consideration of the operational costs.

Last week, the Zambia Chamber of Mines indicated that raising mineral royalties would negatively impact operations in the mining sector on top of the high operational costs which had recently risen sharply in the sector. According to the company, the system would collect up to 30 percent corporate processing and smelting taxes at different stages of production, and that even open cast mining would be subjected to up to 20 percent as the final tax.

The Zambian government currently owes the mining companies up to US$ 600 million in Value Added Tax (VAT) refund in line with the requirements under VAT Rule 18, which prescribes that mineral exporters must produce certificates from destination countries.