First Quantum Delays $1 Billion Zambian Spend Amid Tax Spat

Jun 25, 2014 5:45 am ET

(Updates with mine law review in seventh paragraph.)

June 25 (Bloomberg) -- First Quantum Minerals Ltd., Zambia’s biggest copper producer, said it has slowed down or postponed more than $1 billion of capital expenditure in the country as a tax dispute with the government escalates.

“There’s a pervading atmosphere which creates a bit of uncertainty,” Operations Director Matt Pascall said yesterday in an interview in Lusaka, Zambia’s capital. “Certainty is absolutely the critical thing that’s required if we’re going to look at any form of investment.”

Zambia is withholding more than $150 million in value-added tax repayments from the Vancouver-based company, according to Pascall. First Quantum, which says its the country’s biggest taxpayer and derived 70 percent of its 2013 profit from the Kansanshi Mining unit, has announced plans to invest about $2 billion in new mines and smelters in the country.

Africa’s second-biggest copper producer is trying to curb tax avoidance by requiring mining companies to present certificates from the countries that import its metal. President Michael Sata’s government, which blocked Vedanta Resources Plc’s plans to fire workers last year, is also reviewing its mining law amid reports of windfall taxes and increasing state ownership, Pascall said.

Withheld VAT

Zambia will release about $600 million in withheld VAT repayments once the import certificates are provided, Mines Minister Christopher Yaluma told reporters at a conference yesterday. Mining companies have said it’s difficult to comply because their copper is often sold to trading companies and they don’t know where it ends up. Pascall said the requirement is “impossible.”

A 10 percent duty on exports of semi-processed copper ore, known as concentrates, has also created the build-up of a $350 million stockpile at the company’s Kansanshi mine, Pascall said.

Zambia will present a draft of its mining law review to Parliament in two to three weeks, Yaluma said.

There is “continual talk of windfall taxes and state ownership” of mines in Zambia, Pascall said. “I presume a lot of this is covered in the new mining act. I do hope it’s not bad news.”

While First Quantum gets most of its revenue from its African operations, it has been expanding into other regions. On June 17 it agreed to buy Lumina Copper Corp. for about C$407 million ($379 million) to add a mine project in Argentina. It bought Inmet Mining Corp. last year to gain control of a Panamanian copper project.

Copper for delivery in three months was unchanged at $6,885 a metric ton at 10:43 a.m. in London.

If the Zambian government “continues to try and squeeze this mining rock for every last drop of money, it will end up killing the golden goose,” Pascall said.