Surging copper prices push mining activities in Zambia with tax change expected
Saturday, 10 April 2010
Hai Mingwei and Elias Shilangwa
High copper prices on the international market recently have resulted in increasing mining activities both in production and investment in Zambia, Africa's top copper producer while debate on whether to reintroduce windfall tax on mining firms also surges in the country.
Copper prices at the London Metal Exchange crossed the key 8, 000 U.S. dollars a ton barrier on Tuesday this week, the highest level since August 2008 and up 90 percent over the last year.
Zambia, Africa's top and the world's fourth largest copper producer, has this year projected to produce 750, 000 tons of copper, up from 660, 000 tons produced last year. Further, the country is targeting to increase its production to 1 million tons next year.
Along with the high price, prospects by mining firms in Zambia to increase production are high. Some of the mining firms that closed down due to the global economic recession have started production while the existing ones are currently engaged in expansion programs.
The country's biggest copper firm Konkola Copper Mine (KCM) recently announced that it had spent about 1.6 billion U.S. dollars for expansion programs and is expected to increase production from 500 million tons to about 600 million tons this year.
Lumwana, another major mine in Zambia, has recorded a 37 percent rise in copper production during the first quarter of 2010.
China Nonferrous Metal Mining Group (CNMC), which revived Luanshya Copper Mine (LCM) which was closed amid world financial crisis, has promised to invest 300 million U.S. dollars in LCM to boost the operations of the mine.
According to the country's investment agency Zambia Development Agency (ZDA), foreign direct investment for the first quarter of this year reached 1.3 billion U.S. dollars, with the mining industry attracting the largest bulk of that investment, spurred by resurging international metal prices.
According to ZDA Director-General Andrew Chipwende, the mining industry recorded investment flows totaling 100 million U.S. dollars for the month of March alone and that there is a likelihood for increased investment in the sector.
His views were supported by Finance Minister Situmbeko Musokotwane who said there are a lot of activities in the mining sector with the reopening of closed mines.
Given the facts mentioned above, experts in Zambia believe the mining firms should remain expediting their plans to increase production in order to reap the benefits of the current high prices.
On the other hand, Zambia's revenue earnings from copper sales last year tumbled to 2.9 billion dollars from 3.6 billion dollars recorded in 2008, representing an 18 percent decline due to the effects of global economic meltdown but the situation seems promising this year.
Already stakeholders in the southern African country are angry that the country is not benefiting from the high copper prices due to the government's refusal to reintroduce windfall mining tax.
In 2008, the Zambian government changed the mining taxation regime and abandoned the development agreements entered into with the mines which had incentives. The government imposed a 25 percent mining windfall tax, along with a 15 percent profit variable tax to raise revenue. The government also raised its mineral royalty to 3.0 percent from 0.6 percent and corporate tax to 30 percent from 25 percent.
But the government lifted the windfall tax in January last year amid the global financial crisis which saw copper prices plummeting in order to save the mines which brings about 70 percent of the southern African country's foreign earnings.
Already, the government has maintained that it will not reintroduce the windfall mining tax, a move that has spanked a blow to stakeholders who had been calling for the reintroduction of the tax.
Musokotwane told journalists this week that though the government was discussing with mining companies on development agreements on issues related to incentive obligations that were in the agreements, there was no consideration for reintroduction of the windfall tax.
However analysts feel that increasing copper production would allow the mining firms to pay more taxes to the government through increased exports.
"If the government cannot reintroduce the windfall tax, then the meaning of investment is meaningless to the local people. The concern of every Zambian is that the improved copper prices on the international market should benefit the locals," former lecturer of development studies at the University of Zambia (UNZA) Dr. Fred Mtesa told Xinhua in an interview.
— Xinhua
High copper prices on the international market recently have resulted in increasing mining activities both in production and investment in Zambia, Africa's top copper producer while debate on whether to reintroduce windfall tax on mining firms also surges in the country.
Copper prices at the London Metal Exchange crossed the key 8, 000 U.S. dollars a ton barrier on Tuesday this week, the highest level since August 2008 and up 90 percent over the last year.
Zambia, Africa's top and the world's fourth largest copper producer, has this year projected to produce 750, 000 tons of copper, up from 660, 000 tons produced last year. Further, the country is targeting to increase its production to 1 million tons next year.
Along with the high price, prospects by mining firms in Zambia to increase production are high. Some of the mining firms that closed down due to the global economic recession have started production while the existing ones are currently engaged in expansion programs.
The country's biggest copper firm Konkola Copper Mine (KCM) recently announced that it had spent about 1.6 billion U.S. dollars for expansion programs and is expected to increase production from 500 million tons to about 600 million tons this year.
Lumwana, another major mine in Zambia, has recorded a 37 percent rise in copper production during the first quarter of 2010.
China Nonferrous Metal Mining Group (CNMC), which revived Luanshya Copper Mine (LCM) which was closed amid world financial crisis, has promised to invest 300 million U.S. dollars in LCM to boost the operations of the mine.
According to the country's investment agency Zambia Development Agency (ZDA), foreign direct investment for the first quarter of this year reached 1.3 billion U.S. dollars, with the mining industry attracting the largest bulk of that investment, spurred by resurging international metal prices.
According to ZDA Director-General Andrew Chipwende, the mining industry recorded investment flows totaling 100 million U.S. dollars for the month of March alone and that there is a likelihood for increased investment in the sector.
His views were supported by Finance Minister Situmbeko Musokotwane who said there are a lot of activities in the mining sector with the reopening of closed mines.
Given the facts mentioned above, experts in Zambia believe the mining firms should remain expediting their plans to increase production in order to reap the benefits of the current high prices.
On the other hand, Zambia's revenue earnings from copper sales last year tumbled to 2.9 billion dollars from 3.6 billion dollars recorded in 2008, representing an 18 percent decline due to the effects of global economic meltdown but the situation seems promising this year.
Already stakeholders in the southern African country are angry that the country is not benefiting from the high copper prices due to the government's refusal to reintroduce windfall mining tax.
In 2008, the Zambian government changed the mining taxation regime and abandoned the development agreements entered into with the mines which had incentives. The government imposed a 25 percent mining windfall tax, along with a 15 percent profit variable tax to raise revenue. The government also raised its mineral royalty to 3.0 percent from 0.6 percent and corporate tax to 30 percent from 25 percent.
But the government lifted the windfall tax in January last year amid the global financial crisis which saw copper prices plummeting in order to save the mines which brings about 70 percent of the southern African country's foreign earnings.
Already, the government has maintained that it will not reintroduce the windfall mining tax, a move that has spanked a blow to stakeholders who had been calling for the reintroduction of the tax.
Musokotwane told journalists this week that though the government was discussing with mining companies on development agreements on issues related to incentive obligations that were in the agreements, there was no consideration for reintroduction of the windfall tax.
However analysts feel that increasing copper production would allow the mining firms to pay more taxes to the government through increased exports.
"If the government cannot reintroduce the windfall tax, then the meaning of investment is meaningless to the local people. The concern of every Zambian is that the improved copper prices on the international market should benefit the locals," former lecturer of development studies at the University of Zambia (UNZA) Dr. Fred Mtesa told Xinhua in an interview.
— Xinhua