By Nicholas Bariyo
KAMPALA Uganda--Zambia plans to more than triple royalties on
open-pit mines, the Finance Ministry said late Friday, in a move
likely to sour the already fractious relationship between the
government and mining companies.
Finance Minister Alexander Chikwanda said in a budget report
that starting in January 2015 royalties will increase to 20% from
6% for open-pit copper mines and to 8% from 6% for underground
mines, to achieve a more "equitable distribution of the mineral
wealth between government and the mining companies."
The new measures underscore a growing trend across the
continent, where governments from Tanzania to Guinea are changing
tax regimes and adjusting ownership structures to get a bigger
share of natural resources.
Mining companies with open-pit mines in Zambia include Canada's
Barrick Gold Corp. and First Quantum Minerals Ltd., while
London-listed Glencore PLC, Vedanta Resources PLC and China
Nonferrous Metals Co. operate underground mines.
The royalties will replace a 30% corporate income tax on mines,
because they are "easier to implement," said an official with the
Zambia Revenue Authority.
But the Chamber of Mines of Zambia warned that the royalty
increase would hurt investments in the mining industry, which
already has "one of the highest tax rates" the world.
Analysts also warned that the new measures are ill-timed. Copper
prices have slumped during the past year due to sluggish demand
from China, the world's largest consumer of the metal.
The royalty increases come amid simmering tensions between the
Zambian government and copper miners, which is threatening to
hobble the country's mining industry.
Zambia has withheld $600 million of tax refunds since last year,
insisting that copper miners must first present import certificates
from destination countries before claiming refunds as part of
efforts to curb tax avoidance. But miners say that they can't
provide documentation from importing nations because they sell to
middlemen and don't know the final destination of the metal.
Glencore and First Quantum have put on hold expansion projects
valued at more than $1 billion because of the spat.
Mr. Chikwanda said that government has embarked on efforts to
resolve the disagreement. He also said that despite operational
challenges at some mines, the Finance Ministry expects 2014 copper
production to exceed 2013 production of about 790,000 metric
tons.
Until 2012, Zambia was Africa's top copper miner, before it lost
its position to neighboring Congo.
Write to Nicholas Bariyo at nicholas.bariyo@wsj.com
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