(Bloomberg) — Michael Sata’s victory in Zambia’s presidential election may unsettle mining companies facing the prospect of higher taxes, placing billions of dollars in potential copper investments at risk.
While the 73-year-old leader, known to his supporters as “King Cobra” after one of the world’s most venomous snakes due to his aggressive campaigning style, has backed down on threats to nationalize foreign companies he has pledged to extract more money from miners in Africa’s biggest copper producer. The government will seek a meeting with companies about how it can earn more from the industry, Sata’s spokesman Miles Sampa said by phone from Lusaka today.
“Sata’s upset will have dramatic consequences for the country’s copper-dominated mining sector, as well as for the foreign policy and mining-sector policy direction of the southern Africa region,” Sebastian Spio-Garbrah, managing director of New York-based DaMina Advisors LLP, a frontier- market risk adviser, said in an e-mailed note.
The win ends two decades of rule by the Movement for Multiparty Democracy as a surge in new young voters, enticed by promises of jobs and a bigger share of mining wealth, reversed Sata’s three narrow loses in previous attempts. He won 43 percent in the Sept. 20 election to incumbent Rupiah Banda’s 36 percent with more than 90 percent of constituencies counted and was sworn-in as president in Lusaka today.
Banda’s three years in power had continued predecessor Levy Mwanawasa’s policy of luring investors with favorable taxes and regulations that helped boost copper production to more than 700,000 metric tons last year. Output will probably climb to 1.5 million tons by 2015, according to the previous government. The country may become the world’s fifth-largest copper-miner by 2013, Sophie Chung, an analyst at Wood Mackenzie’s metals research unit, Brook Hunt, said in July as producers, including First Quantum Minerals Ltd. and Vale SA inject more than $6 billion.
A Sata presidency may lead companies to rethink their investment plans, Charles Cooper, a mining analyst at London- based Oriel Securities Ltd. said by phone today.
“This is clearly concerning for companies like First Quantum who are looking to invest a couple of billion over the next few years,” he said. Sata’s win is “going to play fairly badly against markets, particularly amidst the market turmoil as it is.”
Vancouver-based First Quantum plans to spend $1.9 billion on the Trident mine, a smelter and to expand output at Kansanshi mine. “We welcome the new president and look forward to working with him,” said Brian Cattell, London-based spokesman for First Quantum, by e-mail, declining to comment further.
Glencore International Plc proposed investing $323 million on its Mopani mine and another $145 million on a smelter, according to its website. Simon Buerk, a spokesman for Glencore, declined to comment on the election when called by Bloomberg News.
London-based Vedanta Resources Plc, which runs Konkola, the country’s biggest mine, plans to spend $1 billion over the next three years. Barrick Gold Corp. the world’s largest gold producer, owns Lumwana Mining Co., after buying Equinox Minerals Ltd.
“There will be attempts to extract taxes from mining companies, they will probably be paying more,” Gus Selassie, senior analyst for Africa at IHS Global Insight in London. “There may be some alarm.”
Sata’s Patriotic Front said in its manifesto that mining companies aren’t paying their fair share of taxes. It doesn’t call for the reintroduction of a windfall tax that was scrapped in 2009 after criticism from companies.
Previously, Sata has suggested foreign miners limit their ownership of assets in the country to 51 percent and in campaigning for past elections threatened to expel Chinese workers from the country. China hopes to work with the new government, Hiahan Zhao, first secretary at the Chinese embassy in Lusaka, said in an interview today.
He has toned down his rhetoric this year and it’s unclear what form policy changes will take, Leon Myburgh, Citigroup Inc.’s sub-Saharan Africa strategist in Johannesburg, said in e- mailed comments.
“Sata is somewhat of an unknown quantity, having in the past made some extreme comments regarding foreign investment,” Myburgh said. “This leaves an element of uncertainty about what the new government will do.”
First Quantum plunged 6.3 percent in London, extending losses over five trading days to 33 percent, more than double the drop on the Bloomberg metals and mining index, according to data compiled by Bloomberg. Vedanta fell 22 percent in the past five days, the biggest five-day drop since August 2008.
Zambia’s kwacha weakened as much as 3.4 percent to 5,160 against the dollar, the biggest decline in more than a year.