- General Sales Tax on 1st April, which is likely to increase our costs by at least 20% on procured items
- FQM hopes that in the future the tax regime will be adjusted to consider investors ROIs
Canadian First Quantum Mining – FQM Zambia subsidiary Sentinel mine has announced a throughput productivity reduction following higher proposed tax costs for 2019 by the Min Fin. This was contained in a memo circulated by Operational Director Matt Pascall on 18 Dec to staff.
Following the 2019 Budget announcement on 28th September, Kalumbila Minerals Limited (“KML”) has conducted a thorough analysis with respect to the Budget’s impact on the Sentinel Mine. First Quantum Minerals (FQM) and KML are mindful of the concerns expressed by various observers and other stakeholders about reducing the number of employees at the mine, the memo carried.
Pascal stated that KML costs such as taxes; electricity; maintenance spares; reagents and consumables (diesel); and wages and salaries have been subject to steady increases over the past 7 years, even where such increases are in contradiction to signed agreements.
With the low grade of ore at Sentinel Mine (0.5% Copper which is the lowest being mined in Zambia) and the historic low copper prices of 2016/17 the mine has done, and continues to do, everything possible to minimize its costs and consumption of reagents, consumables, maintenance spares and labor. The sole remaining avenue to reduce consumption is by reducing the tonnage throughput. Once the new tax measures take effect it will no longer be economically viable to continue to run Sentinel’s operations at full capacity, FQM stated in the memo.
KML will reduce operational output which will trigger a reduction in headcount with those affected being notified in due course through their line managers. However, the imposition of General Sales Tax on 1st April, which is likely to increase our costs by at least 20% on procured items, will necessitate the full manpower reduction to be in place by that date, Pascall said.
Various government spokesmen have commented that KML should have dialogues with government and not simply resorted to “strong arm tactics”. We, and I personally, have met with numerous Honorable Ministers and other government officials from the very early dates that the various tax changes were proposed. We discussed in detail the implications, including reducing work forces, and even left them with written confirmation of our concerns. Unfortunately, despite all efforts (not only by FQM but also the whole of the mining industry) to objectively and transparently inform decision makers on the inevitable consequences of the proposed measures, our message seems not to have been heard, and the tax changes have been implemented.
Sentinel Management will do its best to mitigate the impact that these changes will have on our employees and the broader Kalumbila community. We would hope that at some time in the future the tax regime will be adjusted to take into account the requirement of investors to make satisfactory returns on their investment, and would like to assure any affected workers that wherever possible they will be reemployed once it becomes viable to revert to full production.
In anticipation of a future return to full production and throughput it will be management’s critical responsibility to ensure that the entire plant for this wonderful, world-class, mine is maintained in first class, ready-to-work, condition. It is hoped that threats to reduce access to expertise required to ensure this condition is maintained will not eventuate, the memo carried.
Africa’s second largest copper producer, Zambia proposed a mining tax regime that is aimed at assisting the state shore up revenues to meet its fiscal needs. This comes at a time the nation is implementing austerity as it grapples with risk of high debt distress which the MinFin hopes to cure with a medium term expenditure framework (MTEF) program. Despite stalling talks, Zambia is still hopeful that talks with the Washington based lender will yield fruit in due course for a $1.3 billion bailout package.