Copper production in Zambia, a mineral-rich Southern African country may not reach the projected two million metric tons at the close of this year after all because of a number of factors, not least the continuing drop in prices of the red metal on the international market, according to sources Tuesday.
However the Institute of International Finances (IIF) predicts that copper output will reach 740,000 metric tons this year citing operations on the Copperbelt and the North-Western Province as being behind the projected increase. But fears that continued load shedding, sluggish global demand and low copper prices may hound the anticipated increase.
The institute has predicted that copper production due to First Quantum (FQM’s) Sentinel-Kalumbila project in the North-Western Province will push up production from 710,560 mt/y to 746,000 mt/y. Official copper tonnage has been put at 1.5 million metric tons. It further anticipates copper prices to rise steadily over the next few years.
All the same the fall in copper prices on the London Metal Exchange (LME) from the near all-time high of US$10,000 per tonne in 2011 to less than $5,000 this year has had an adverse effect on the general operations of the foreign-owned mining companies in that country resulting in reduced production of the metal.
Major mining firms such as FQM, Vedanta Mineral Resources plc, Glencore and others have been forced to scale down on their operations because of the same downward trend of copper prices on the world market. This has in turn seen a reduction in their labor force with thousands of workers being laid-off.
However despite the volatile market situation mining companies have continued to invest in the minerals sector of that landlocked African country while taking several measures to cut down on obvious production costs which unfortunately has culminated in the slicing off excess labour.
Not only that many mining companies have resorted to the use of state-of-the-art technology in the extraction and processing of copper products as a way of improving on efficiency in order to optimise mineral production from their operations.
According to Vedanta’s Konkola Copper Mines (KCM) vice president for local economic development Mr David Paterson cost reduction measures and the application of of modern technology have helped to increase copper production at the mining company’s operations on the Copperbelt.
“Cost-cutting measures have in a way helped to increase copper ore production at various KCM operations,” Paterson stated. He particularly pointed at the new business strategy which the Vedanta mining subsidiary put in place as being the cause for the improved copper output at the moment.
So far KCM, as one of the major mining outfits in Zambia after employing one of the best modern technologies in the world has seen its production costs go down by 15-18% while copper ore production has increased by another 5-7% in the past two years from 60,000 mt/y in the 2014/2015 period to 70,000 mt as at now.
In any case the Konkola Deep Mine Project (KDMP) located in Chililabombwe on the Copperbelt and on the border with the Democratic Republic of Congo is a key mining town which is a major contributing factor to the increased copper production at the mining company.
Sunk at a cost of $600 million ten years ago the 1.5 kilometer deep shaft has an annual capacity of 8 million tonnes and has an estimated lifespan of fifty years from the time it became operational in 2014.
Vedanta of India listed in London has since invested $3 billion in Zambia’s copper industry from the time it bought off the mining operations on the Copperbelt in 2004 at about $25 million and has since made super profits while paying less taxes, the source of ongoing wrangles with the government which has even sued it to the high court in London for non-payment of taxes amounting to $100 million.
The other foreign mining giants Glencore which owns Mopani Copper Mines (MCM), China Non-Ferrous Mining Corporation (CNMC) on the Copperbelt and FQM in the North-Western Province have all made huge investments in the mining sector of Zambia totaling more than $6 billion.
Hence the mining operations of these mining firms in the two provinces are responsible for the expected increase in copper production in Zambia. the investment of the same mining companies which stretch way back to the year 2000 up to 2014 is expected to convert into profitable and sustainable venture at the turn of 2020 and beyond.
Foreign mining companies in Zambia continue to face an uncertain future as government pandering to political pressure from its citizens and the opposition has failed to come up with a definite and acceptable mining policy, more especially on the tax regime which keeps changing with time.
For instance at the beginning of 2015 copper mining almost came to as standstill when government tried to arbitrarily increase mining taxes from 6% to 20% for open-cast mines and 8% for underground operations. All the foreign mining firms rejected the increases citing insufficient power, high oil prices, huge labour force and other costs which ate up their profits.
Just as government threatened to withdraw the licences of mining firms which refused to pay the increased taxes so did the mining companies threaten to stop their mining activities. The stalemate however did not continue for long.
In order to save whatever income it derived from mining and minerals taxes and also the sustenance of workers on the mines, the revenue for local contractors and suppliers the government was forced to concede and came up with a revised variable tax of 3-9%. But then talks are ongoing on the matter.
The Zambian government has since proposed to implement a 3-6% band for both floor and ceiling tax rates pegged to the value of the minerals on the LME. But then this sounds almost like returning to the windfall tax which was abandoned in 2009 at the insistence of foreign mining companies.
Commenting on the proposed tax bands chief executive officer of the state-owned Zambia Consolidated Copper Mines-Investment Holdings (ZCCM-IH) Mr Pius Kasolo said it will help to remove the mineral revenue sharing mechanism as demanded my the Mines and Minerals Act of 2015 which imposed 6% tax for underground operations and another 9% for open-cast mines.
Kasolo hoped that mining firms have slept over the issue so that when the new administration comes into place after the ongoing court petitions following a stormy and violent general election on August 11 will come to terms on the matter. “We hope the new proposed taxes will be acceptable to the mining companies,” he said.
So far the Zambia Chamber of Mines (ZCM) has also supported the new proposed taxes after recognising the need to balance increased tax revenue with continued employment and investment for new mining ventures, according to its official Mr Nathan Chishimba.
On the contrary some Non-Governmental Organisations and Civil Society Organisations still feel the government proposed taxes are too low and are investor-led which will not help to maximise revenue from the mining and minerals sector of the country. They strongly feel government should collect most of its revenue from the mining firms during the time of commodity boom.
The organisations together with some unions and the opposition who have always favoured a return to the windfall tax regime which is higher than what the foreign mining companies are demanding and they want higher taxes slapped on the mines. The fact that foreign mining firms have invested so much in the mining sector means they are aware of its profitability.
Officials with the Zambia Tax Platform believe that one cannot separate mining tax revenue from mining investment. To them it is mining investment which should determine the tax threshold and strongly feel the present taxes being levied on the mines are just too low and not sufficient to maximise on revenue from the sector in time of high commodity prices. “A good tax regime is one which balances between two competing interests, in this case the government and mining firms,” an official said.
Despite many issues surrounding the mining sector Zambia continues to be the second largest copper producer in the world. But with more than 68% of the population living in abject poverty and with copper for the past fifty-two years accounting for 75-80% of the total export and foreign exchange earnings the mining and minerals taxes is quite an emotional issue which needs to be handled with a lot of care.