Courtesy of Bloomberg News)
A new Zambian tax system that prompted Barrick Gold Corp. (ABX) to halt operations at its Lumwana mine may lead to 12,000 job losses in the industry next year, the country’s mines chamber said.
The system that takes effect on Jan. 1 may also push companies including Glencore Plc (GLEN) and First Quantum Minerals Ltd. (FQM) to cancel projects, and cut Zambia’s copper output by more than 158,000 metric tons next year, the Chamber of Mines said in a statement today. That risks further slowing economic growth in Africa’s second-biggest producer of the metal that the International Monetary Fund said yesterday may fall to a 12-year low in 2014.
Zambia’s parliament this week approved Finance Minister Alexander Chikwanda’s 2015 budget, which includes a law replacing corporate income tax for mines with higher royalties. Levies for open-cast mines rise to 20 percent from 6 percent and increase to 8 percent from 6 percent for underground mines.
“The 2015 budget will adversely impact tens of thousands of lives, and we ask government to pause whilst it reconsiders its implementation on Jan. 1,” the chamber said.
The government won’t reverse the tax changes as the system will allow the country to get its “fair share” of revenue from the industry, state-owned ZNBC radio cited Mines Minister Christopher Yaluma as saying today.
Barrick said yesterday it would start the process to place its Lumwana copper mine under care and maintenance because the new tax system made the operation unviable. Zambia lost its place as Africa’s biggest copper producer to the Democratic Republic of Congo last year, when output was about 790,000 tons.
“With the passing of the new mining fiscal regime in Zambia, there could be other marginal mines in Zambia that could be at risk of closing,” Patrick Jones, an analyst with Nomura International in London, said in an e-mailed reply to questions. The local units of Glencore and Vedanta Resources Plc “are likely now under greater pressure than before and thus could be at risk.”
Lumwana has about 4,000 workers, while the industry employs a total 62,236 people, according to the chamber’s website.
Chileshe Kandeta, a spokesman at the finance ministry, didn’t answer two calls or reply to two messages seeking comment.
Zambia will elect a president next month after Michael Sata died in London in October, and any changes to the new tax system probably won’t happen until after the new government is in place, Clare Allenson, a London-based analyst with Eurasia Group, said in an e-mailed note yesterday.
The increased royalties may cause the country to lose more than $1 billion of export earnings next year and $7 billion over the following five years, the Zambia Chamber of Mines said. The industry body also forecast mining foreign direct investment, which accounts for more than 86 percent of the country’s total, would be cut by half.