Debate on mining taxation under SI 89 continues

As Zambia seeks to raise enough revenue to meet various financial obligations including infrastructure development, renowned economic analysts contend the policy deprives the treasury of resources.

The Statutory Instrument (SI) number 89, which demands Government slapping a 10 percent export levy on copper concentrates by mining companies to allow maximising tax revenue to the treasury, has again come under debate with some commending that it be scrapped.

Recently, President Michael Sata directed that the policy, which suspended 10 per cent export duty on copper ores and concentrates for one year, be reversed.

On 21 March this year, Finance minister Alexander Chikwanda waived statutory instruments 33 and 55 which barred economic players from transacting in currencies other than the local one, the Kwacha and the SI 55 which demanded that mining companies should work with various bodies to monitor and regulate their export programmes.

However, the delays to review the SI 89 has raised eyebrows of some economic analysts with Lusaka-based business and economic analyst, Professor Oliver Saasa advising the Government to act quickly and revoke the policy as it was detrimental to the growth of the economy.

Saasa argued that it was unfair for the Government to treat mining companies as ‘homogenous groups’ with regard to their tax obligation and community social responsibility.

He urged Government to consider revoking Statutory Instrument (SI) number 89, and allow more tax revenue to be collected to beef up the treasury.

Government risks missing a clear opportunity to draw a distinction between firms which are compliant with meeting their tax obligation if it lumps them together and treat them as homogenous groups, he said in a case study report he undertook recently entitiled. `Economic Impact of the Trident Project’ done in March this year.

Saasa urged the Government to stop using averages in reporting the mining companies’ tax payments to avoid missing out on potential opportunities that can be generated from listed companies on the capital market and those who are operating outside the Lusaka Stock Exchange (LuSE) noting:
“There is a risk to miss the opportunity to draw a clear distinction between firms such as Kansanshi Mines that are publicly listed on the Lusaka Stock Exchange (LuSE) and that are more compliant with regard to meeting both their tax obligations and community social responsibility commitments,”

Mining companies meeting their tax obligations and community social responsibility commitment should be separated from those which are allegedly not fully complying with Government expectations and that a solution should be found to address the seeming stand-off between First Quantum Minerals’ (FQM) Trident Project in North-Western Province and Government authorities, Saasa argued.

He cited the Zambia Environment Management Agency (ZEMA)’s delays in approving the resettlement plan needed by the Trident Project to proceed with some of its major development as a cost to the mining company, FQM time and resources to make it proceed with its projects earmarked for Solwezi, where it operates.
He called upon the Government as a matter of urgency, address the challenges posed by the country’s lack of a single source of definitive copper production data and that this would help address the often heard of complaints that the mining companies are under-reporting on both production and export figures.

“More importantly, without accurate statistics on mining production levels, it has been difficult to project accurately revenue from the mining sector, let alone to efficiently collect it by way of taxes,”

Saasa further asked the Government to aim at maximising tax revenue to the treasury over the longer-term than focusing at shorter-term gains. This can be done by encouraging mining investments that support long-term profitability and the acquisition of advanced and appropriate technology.

The strategy, he added calls for the adoption of tax systems that are neutral and progressive in a manner that motivates corporate innovation and profit-seeking.

“In this regard and as an example, it is strongly recommended that, in addition to SI33 and SI55 that Government revoked in March 2014, Statutory Instrument number 89, which introduced the 10 percent export levy on concentrates is also immediately revoked,” Prof Saasa said.

Recently finance minister Chikwanda noted that the Government may lose income from Kansanshi following the revocation of the Statutory Instrument permitting export of copper ores and concentrates tax-free.

Chikwanda appeared before the expanded parliamentary committee on estimates in the company of Secretary to the Treasury Fredson Yamba and finance permanent secretary in charge of budgeting Pamela Chibonga recently.

Chikwanda said the Ministry of Finance had realigned Statutory Instrument 89 in line with President Sata’s directive that it be revoked although the move would result in revenue losses.

Mineralorogist and scholar who is also former deputy mines minister Marthius Mphande noted that Statutory Instrument 89 squarely rests on Chikwanda.

In response to lawmakers who had pressed the finance minister to categorically state if the President’s directive had been fulfilled, Chikwanda said: “We have realigned the SI which should have been in force up to next year September.

“It’s a complex issue on concentrates because Kansanshi Mine is building a smelter to process but it will take a year or more to complete and so there will be no income as concentrates will not be processed locally.”

Chikwanda said the government was aware of such an anomaly where Zambians were not benefiting from their mineral wealth.

The lawmakers in the committee also wondered whether the government could consider reintroducing windfall tax, which was a sure way of maximising profits from the mining sector which Chikwanda claimed there was extensive fraudulence in the mining sector, where players were quick in declaring losses even when they had made huge profits.

Government could no longer ignore concerns by majority Zambians that the nation was being ‘robbed’ of its mineral wealth by investors.

“Mines are not renewable like agriculture, and so we need our citizens to benefit more from this sector. We need to come up with a tax that will compel mining houses to pay whether they have made profit or not; that’s their own business,” Chikwanda said.

In Revoking SI 89, which Chikwanda signed on October 4, last year, President Sata admonished Zambia Revenue Authority commissioner general Berlin Msiska and commissioner of customs Dingani Banda for allegedly advising the finance minister wrongly.

The SI 89 reversed the November 2011 decision of the PF government to impose a 10 per cent export duty on copper ores and concentrates

KCM relocates 402 Chingola squatters

Vedanta Resources Plc, owners Konkola Copper Mines, a Zambian unit, has asked over 400 squatters living on a mine land and has disbursed K588, 000 to those farming in the same area earmarked for mine expansion.

The 402 residents who have encroached in Chabanyama area in Chingola, one of its mining areas, have set up settlements on the mine land which the miner has set up as a dumping site in its continued expansion programme.

Company spokesperson, Shapi Shachinda, concerned with the encroachments, urged residents around mining areas to avoid conducting any activity on mining land as this is against mining regulations. The mining company has since intensified patrols to ensure that no fresh encroachment occurs, the spokesperson said in a statement to the Mining news Zambia.

And the company has provided K588, 000 in compensation to squatters in Chabanyama who are carrying out farming activities as a support to the residents whose farming activities have been affected by the company’s decision to relocate them from the mining land which is now a dump site company’.

Zambia Consolidated Copper Mines Investment Holdings (ZCCM IH owns 20.6 percent of KCM and the other 79.4 percent is owned by Vedanta Resources. KCM is one of Zambia’s major integrated copper producing companies. It is primarily engaged in the exploration for, mining, production and sale of copper and copper by-products.

KCM aims to be a world class Copper Mining and Metals company and has therefore adopted a growth and efficiency strategy. Since 2008, over $2.5bn has been invested to upgrade equipment, build new facilities and expand capacity. These investments have increased reserves & resources and increased the life of the mines.

KCM currently produces 2 million tons of copper ore per year. The company’s US$1 billion Konkola Deep Mining Project (KMDP) will expand its capacity to 6 million tons of ore per year when completed by 2016.

Source: Mining News Zambia

Maamba mine’s 330 megawatt thermal power plant almost ready

The US$800 million thermal powered power plant under construction at Maamba Collieries is an advanced stage with Government hopeful that its commissioning and subsequent operation will ease power outages being experienced in Zambia, one of Africa’s top copper producers.

Zambia’s power generation, at an average 1400 megawatt which increases to 1800 during peak periods daily, has failed to meet the consumer demand in the country and for export markets as espoused by the Southern African Power Pool (SAPP), which promotes energy sharing among the 15 SADC member states.

The construction of the 300 megawatt thermal power is expected to reduce the inadequate power capacity generation by Zambia when connected to the national grid in collaboration with the state utility-Zambia Electricity Supply Corporation, or Zesco. The plant is planned for takeoff by 2016.

Commerce, trade and Industry deputy minister who is also Sinazongwe constituency lawmaker, where it is located, Richwell Siamunene, says, the thermal power plant, when completed, will ease power outages experienced in the Southern Province and Maamba area.

The connection to the grid will also benefit the entire country in which low energy capacity has stifled its envisaged economic growth rate averaged between 8-10% per annum as demand for power grows.

Xing Zhonghua the Site Manager for SEPCO Engineering, the company carrying out construction works says 60 per cent of the works on the project has been done.

And the Government is still looking for an equitable partner to take up Ndabwe Mine formerly Collum Coal Mine to resume operations at the 12000 tons per annum producer to resume operations after it was shut down by Government for various safety and environmental reasons when it was running under a Chinese company.

Owners of Maamba collieries and Singapore-based Nava Bharat Pvt, earlier projected to double coal output at Maamba mine by 2011 after modernizing the facility it acquired in 2010 for US$26 million.

The company acquired a 65% stake in Maamba, a key supplier of the heating substance to many of the copper mines and various private sector-driven companies in Zambia. A total 35% of the shares were retained by the state-run ZCCM-IH.

Earlier plans by the new owners were to build a new $12 million coal processing plant by the end of 2010. Maamba mine has 78 million tons of known coal reserves expected to last over 70 years.

The mine, produced 600,000 tones coal during peak production in the 1980s and had aimed to reach a maximum output capacity of 2 million tones of coal per year in the long term.

It was envisaged that the Maamba colliery at its peak capacity could reach 1 million tonnes of marketable coal and about the same tonnage of power grade coal to feed the power plant. The power project was estimated to cost $630 million of which 70 % was expected to be financed through debt and the remaining 30 % from equity by shareholders.

There are plans by the Government to eventually list 25 % of the shares in Maamba Collieries on the local bourse with a larger share of that coming from the government’s stake once the firm established a track record of profitability.

Source: Mining News Zambia

Mopani Copper Mine smelter upgrade completed ahead of schedule

The mining company has since taking over the unit pledged to cut down the emissions from the smelter a gas which will now be converted into production of acid which the company seeks to maximize in its production unlike releasing to the atmosphere.

The completion of the upgrade programme means that the smelter will now be able to capture 97 percent of the sulphur dioxide emitted to the atmosphere in conformity with the rules under the World Health Organisation (WHO).

Company Chief Executive Officer Danny Callow said in a statement to the mining News Zambia that the smelter had been completed 15 months ahead of schedule. The smelter was done in three phases to address the sulphur dioxide emissions which were at 100 per cent from 1937 to Glencore’s investment in 2000 since the company took over operations.

Mopani Copper Mines, he added was committed to upgrading the smelter to comply with international standards just after the acquisition of the asset in 2000. The company has to date invested over US$2 billion in rebuilding the mine, much of which is underground operated to meet the international mining and latest standards to maximize on its production of copper and cobalt.
At the time of acquisition, Callow stated, the Mufulira smelter was emitting 100 per cent of its sulphur dioxide emissions into the atmosphere. A decision was made to build a new smelter within the confines of the existing smelter, whilst increasing production and maintaining job stability, which were two key areas of government focus.

“One option we had involved closing the processing plant, which would have enabled us to complete the work earlier but would have resulted in around 900 job losses at the time, with a major impact on the local economy, which is heavily reliant on the operation.

“The second and more viable option was to keep the plant operational and upgrade the smelter in stages,” Callow stated and described the upgrade project as one of the biggest environmental projects ever undertaken in Zambia.

The first phase of the project was completed in 2007, which involved replacing the existing electric furnace and construction of an acid plant at a cost of US$ 213m, enabling the capture of emissions of 50 per cent. In the second phase, two new bigger anode furnaces and twin anode casting wheels were installed at a value of US$81million and were successfully commissioned in 2009.

“With the completion of phases one and two, the smelter capacity improved to about 625,000 tpa concentrate treatment from 420,000 tpa, whilst sulphur capture improved to 51 per cent. In the third and final phase which involved the installation of three larger converters, assorted gas handling equipment and a second acid plant, all costing US$206 million, was completed in March this year, 15 months ahead of schedule agreed with the Zambian government,” Callow added.

It is envisaged that the completion of the Mufulira smelter upgrade project would result in a greatly improved environment for the local community and Mopani employees.

There have been concerns from various stakeholders, civil rights campaigners over the emissions of sulphur dioxide at the mines with some of the residents, especially those living in areas closest to the mines like in Butondo, Kankoyo and Sections eight, F, E,D, C as being victims of the emissions.

They argued recently that the emissions and other mining blasting activities were affecting their livelihood as they were subjected to harsh and chocking fumes while their houses had developed cracks as a result and some, were even demanding compensation from the mining company over their respiratory problems arising from the fumes, commonly referred to as “Centa”, a Boer word meaning strong chocking fumes arising from untreated acid.

Last year, residents of Mufulira’s Kankoyo township, which was heavily affected by the emissions, had staged protests against the health risk sulphur dioxide emissions from Mopani’s Copper Mines-Mufulira smelter has been posing on many people, including children. They claimed they were suffering from serious respiratory infections due to pollution from the mine, although no notable deaths have been recorded to date.

THE Southern Africa Resource Watch (SARW), one of the civil right campaigners had recently argued that the emissions needed to be redressed to save people, animal and enivoronmental effects that characterized Mufulira townships especially those living near the mining areas. SARW, after assessing the recent efforts made by Mopani Copper Mines said it is now satisfied with efforts to mitigate the impact of sulphur dioxide emissions in Mufulira district.

SARW campaign officer for Zambia, Edward Lange said the organisation undertook a survey to observe the situation on a balanced basis, monitoring MCM readings from their community air monitors stationed at some health centres dotted around the district for the past 20 days, adding that the independent assessment showed that there had been drastic improvement on the quality of air in areas like Kankoyo township.

“It was important to note that sulphur dioxide emissions popularly known as ‘senta’ among the locals, was a legacy issue, which had been a challenge in Mufulira since 1937 and efforts by agencies and Mopani Copper Mines that had massively invested in projects aimed at improving the air quality must be commended”.

In the case of Kankoyo and Kantanshi residents, the problem had persisted for over 80 years. It was then that the company decided to redress the historical problem hence the modernisation of the smelter through the smelter upgrade project. Mopani proved its commitment to a clean and safe environment by investing approximately US $450 million to end the historical problem of sulphur dioxide emissions.

Source: Mining News Zambia

ZCCM_IH | Extension of Period for Trading


In compliance with the Listing Rules of the Lusaka Stock Exchange (“LuSE”) and further to the Declaration Announcement dated Friday, 11 April 2014 and Finalisation Announcement dated Tuesday, 15 April 2014, shareholders are advised that the period for trading or dealing in Letters of Allocation (“LAs” or “rights“) on the LuSE and Claw­back Rights Offer period, in regard to the ZCCM­IH Claw­back Rights Offer, has been extended to 27 June 2014

Download the full Circular to Shareholders below:

Extension of Period for Trading Circular

ZCCM-IH | Director’s Half Year Summary to 31 March 2014

In compliance with the requirements of the Securities Act, Cap 354 of the Laws of Zambia and the Listing Rules of the Lusaka Stock Exchange (LuSE), ZCCM Investments Holdings Plc (ZCCM­IH) announces the unaudited results for the six months period ended 31st March 2014.  

The Group achieved a turnover of K887.4 million during the six month period ended 31st March 2014 which was 527% above the turnover of K141.5 million for the six months to 31st March 2013. The turnover for Ndola Lime Company Limited (NLC) decreased by 26% to K79.1 million (2013: K 107.5 million).  

Total Dividend income earned was K757.8 million (2013:K8.9 million). Dividends were earned from Kansanshi Mining Plc (K 752.3 million) and Chibuluma Copper Mines Plc (K 5.5 million).  

Interest earned from placements and shareholder loans during the period under review amounted to K48.5 million (2013: K 25.2 million). Management fee income was K6.3 million (2013: ZMW 3.8 million).  

The cost of turnover increased to K149.6 million (2013: K 139.2million). This was despite a reduction in cost of sales at NLC. The increase was largely driven by operating costs at Nkandabwe Coal Mines Limited and Mawe Exploration and Technical Services Limited.

The Group’s operating profit for the period under review was K737.8 million (2013: K 2.3 million). Share of profits of associate companies was K77.8 million (2013:K204 million). As stated above a significant dividend of K752.3 million was earned from Kansanshi Mine. Under equity accounting dividends from associate companies are eliminated on consolidation. As a result, the Group retained profit for the period under review was K 277.8 million (2013: K 204.9 milion).  

Copper prices continued to decline from an average of US$ 7,249 per tonne in October 2013 to US$6,670 per tonne as at end of March 2014.      

The restructuring of Chambishi Metals Plc resulted in the formation of Nkana Alloy Smelting Company Limited (Nkana Alloy) and in April 2013 (i.e. subsequent to the period under consideration), ZCCM­IH retained a 10% shareholding in Nkana Alloy. Nkana Alloy is a company formed jointly by ENRC (BVI) Limited who own 90% of the total shareholding while ZCCM­IH holds the remaining 10%. The company was formed for purposes of processing the slag material from the Nkana Slag Dump situated in Kitwe, Copperbelt province of Zambia. The slag material will be processed into a copper/cobalt alloy. The Slag dump was previously part of Chambishi Metals Plc. As at 31st March 2014 operations at the company had not yet commenced.  

At the Extraordinary General Meeting of the members of the Company held on 24 February, 2014, the shareholders unanimously resolved to recapitalize ZCCM­IH via a Claw back rights offer transaction . On 25th March 2014, ZCCM­IH announced that it had concluded the restructuring of its balance sheet. This momentous achievement was the result of the efforts of the Government of the Republic of Zambia (GRZ), in its capacity and role as the majority shareholder, to strengthen ZCCM­IH’s balance sheet in order to reposition and attract new investment into the Company. As part of the balance sheet restructuring, GRZ converted the debt owed to it by ZCCM­IH into equity through a rights issue.   

By a Debt Settlement Agreement between the GRZ and ZCCM­IH signed on 25 March 2014, ZCCM­IH’s net indebtedness of ZMW 1,829,298,173.06 to GRZ was converted into equity, thereby satisfying the issuance and subscription for 87.52% of the new shares by GRZ.  

Simultaneously, ZCCM ­IH raised fresh capital on the 12.48 % portion of the rights offer amounting to K260,759,573 which was underwritten by the National Pension Scheme Authority (NAPSA) on a Claw Back basis. The Claw­Back arrangement allows the minority shareholders of ZCCMIH who before the rights offer held 12.48% shareholding in the Company to fully participate in the share rights offer at the same price as GRZ. Following the Rights Offer, GRZ owns 87.52 % of ZCCM­IH while the remaining 12.48 % is held by the minority shareholders.

By Order of the Board

C Chabala Company Secretary
11 June 2014

Download the full Director’s Half Year Summary to 31 March 2014 below:

Director’s Half Year Summary to 31 March 2014