Economy

Why a Tax Crusade in Zambia Worries Copper Miners

By Matthew Hill | Bloomberg

A system of conveyor belts lead through the concentrator plant at the Nchanga copper mine, operated by Konkola Copper Mines Plc, in Chingola, Zambia, on Thursday, March 17, 2016. Konkola Copper Mines is a unit of Vedanta Resources Plc, the mining company founded by Indian billionaire Anil Agarwal. Photographer: Waldo Swiegers/Bloomberg via Getty Images

Zambia’s government has long complained that it doesn’t derive sufficient revenue from its copper industry, Africa’s second-biggest and the world’s seventh-largest. President Edgar Lungu upped the ante in May, when he accused the local unit of Vedanta Resources Ltd. of lying about its expansion plans and cheating on taxes. A state-owed company is now moving to liquidate Vedanta’s assets. Lungu’s heavy-handed embrace of resource nationalism, which could be directed at winning reelection in 2021, has the potential to upend copper markets.

 

  1. Why is Zambia at odds with the mining industry?

There’s a fundamental disagreement over how Zambia’s copper spoils should be shared between the state and companies that mine them. Tensions have boiled to the surface whenever the government has sought to raise taxes and companies have responded with threats of shaft closures and job cuts. Vedanta’s relationship with the government has been particularly fraught since its local chief executive’s work permit was canceled in 2013. Other companies have also been targeted — First Quantum Minerals Ltd. was presented an almost $8 billion tax bill last year, while Glencore Plc has been ordered to surrender shafts it had planned to mothball to local companies so they can continue operating.

 

  1. Could more mines be seized?

Possibly. Lungu has said Zambia’s “divorce” with Vedanta was just a start. But his mines minister, Richard Musukwa, has given assurances that the case is an isolated one that arose because the company failed to comply with its license conditions. He insists the government isn’t embarking on a nationalization drive, as it did in the years following independence in 1964. Vedanta argues the government didn’t follow proper dispute-resolution procedures; its Indian billionaire owner, Anil Agarwal, has warned that the standoff will scare off investors. The wrangling has weighed on the share prices of other mining companies with operations in Zambia, including First Quantum and Gemfields Group Ltd.

 

  1. Is Zambia alone in this?

No. Acacia Mining Plc, majority-owned by Barrick Gold Corp., was slapped with a $190-billion tax bill in neighboring Tanzania in 2017 — a levy equal to almost two centuries worth of its revenue. And in 2018, the Democratic Republic of Congo, which also borders on Zambia, raised its mining royalties. Both governments argue that their tax take from mining is insufficient.

 

  1. What does this mean for the copper market?

The global market faces a production shortfall of about 190,000 metric tons this year and 250,000 tons in 2020, according to the International Copper Study Group — a deficit that would be exacerbated by any further disruptions in Zambia. Zambia’s Chamber of Mines, which represents the industry, warned that the nation’s output could fall by as much as 100,000 tons this year because of what it called an increasingly unbearable tax burden. Vedanta mined 90,000 tons of copper in Zambia in the 12 months through March. The escalating trade war between the U.S. and China, which alone accounts for more than half of global copper usage, has depressed demand for the metal and so far negated the effect any shortage may have had on prices. Copper, used in pipes, electronics and electric vehicles, accounts for more than 70% of Zambia’s export earnings.

 

  1. What happened the last time Zambia took over mines?

Zambia was one of newly independent African states swept up in a socialist wave in the 1960s and 1970s, and the government nationalized mines owned by companies including Anglo American Plc. Poor management, coupled with spiking oil costs and falling copper prices, resulted in the mines wracking up massive losses, and copper production plunged by two-thirds in the three decades through 1999. Output recovered after the mines were privatized again, and booming demand from China pushed prices to record highs. Production reached a record high of 861,946 tons last year. A production decline this year would be the first since 2014.

(Source: Bloomberg)

4 Comments

  1. SEE MIND

    Give chance Chinese take over dont cries Zambian Chinese they will fix it mine will come to back to normal !!!

  2. EMMAUS MULANDO KAFUNGAMINA

    Do not think rubbish to give our minez to stupid chinese ,i tel u we gonna suffer lik crocodiles living in a river without water,there going to humiliate us ,as if its their country ,pf do want to sale dis nation to foreigners? Do u think dis notion is yours? Think threease before u do anything i’ ve worked wit chinese i know wat there cappeable of doing our mother zambia shud nit be handed ova to foreign nations to rule ova

  3. Simfukwe

    The story is very saddening from. U. N. I. P. M. M. D and now. P. F zambia has not gained sufficiently from copper the so called investors have ripped of our economy to the extent that we have turned into a nation of beggars copper underground our soil actually belongs to foreign nationals such as India we need an investor who thinks about Zambia’s suffering oppotion political parties must not play a blaming game just for them to go to state house but to unite and all of us as a nation lockout these people who are so heartless that zambia becomes our grave yard only

  4. Tt

    Wow

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