The Zambia Chamber of Mines, a body representing mining and allied industries in Zambia has welcomed the removal of 7.5 per cent import duty on copper concentrates following a statement by the Minister of Finance, Honourable Felix Mutati.
The Chamber of Mines and its Members are committed to working with the Government to finding solutions that will allow the mining industry in Zambia to sustain operations, protect jobs, support local communities and contribute to Government revenue.
We note from inception that the Ministry of Finance and the Government at large are committed to fostering the sustainable operations of mining companies, as seen through its resolve to guide the line ministries, including the Zambia Revenue Authority on other issues such as Value Added Tax .This will surely help to continue contributing to job creation and poverty alleviation.
The Zambia Chamber of Mines is committed to working with all stakeholders to put in place a tax system that will:
- Increase revenue to the Government coffers for social and economic development on a sustainable basis,
- Encourage investment in the Mining sector for sustainability of the industry and security of direct, indirect and induced jobs,
- Be predictable and stable to enable long term planning by the mine operators and potential new entrants into the industry,
- Encourage efficiency in the Mines by optimising cost profiles
It must be emphasised that the year 2016 has not been a good year for the mining sector and Government must be commended for striving to make the mining sector stay afloat.
The mining sector in 2015 and 2016 faced challenges that were beyond the control of all stakeholders, including the low copper price and nationwide power deficit. It is our sincere hope that the Zambian Government and the mining industry can continue to have open and fruitful discussions going forward.
The removal of import duty on copper concentrates will help in stabilizing independent smelters, and finished copper output, in addition to employment and contributions to government revenue.
The Zambia Chamber of Mines requested for a waiver before the Parliamentary Estimates Committee based on the following reasons:
- Mining companies with excess processing capacity procure copper concentrates from DR Congo with the aim of utilizing capacity of their respective smelters. However, Zambia’s own concentrate production does not meet processing capacity. Some smelters are in ramp up mode and are yet to reach design capacity.
- Smelter operations need to have a minimum feed or material treatment rate at about 80 tonnes per hour. If this is not achieved, smelter wear and tear will increase and this will eventuate into frequent shut downs as opposed to the current maintenance shut downs which occur after every two years. The normal costs of such shut downs are estimated at US$10 million for legacy operations. Ideally such costs should only be incurred after 10 years. To operate at this minimum capacity, smelter needs steady rate of feed and currently Zambia does not have sufficient mining capacity to meet all the smelters capacity.
- To make a blend which optimizes smelting operations, Zambia needs a combination of chalcopyrite and chalcocite. However, availability of chalcocite in Zambia is limited. Only Konkola Copper Mines and Lubambe Copper Mines have high grade material suitable for optimal smelting. The deficit of such material necessitates outsourcing from Congo DR. Therefore, since there is a deficit in the total required Concentrates chemical composition of Chalcocite and Chalcopyrite, procurement of such material from outside Zambia is highly necessitated. If copper concentrates with less chacopyriote are used in the blend plan, operating costs will increase. This is so because Heavy Fuel Oil (HFO) consumption increases.
- The required design copper grade of 38 per cent cannot be sufficiently maintained with local copper concentrate material. To achieve or get closer to required copper grade, copper concentrates from Congo will have to be procured, whose grade ranges above 40 per cent. This pushes weighted average grade of copper closer to the required grade. This emphasizes the necessity of Congo concentrates. The proposed move will greatly diminish the amount of copper concentrates imported into Zambia. Consequently, this will hinder the operations of smelters in the country, especially for independent smelters that solely rely on acquiring concentrates. This will severely decelerate economic growth.
- Currently, Zambia has an immense deficit in terms of concentrates produced locally compared to the existing capacity to process. The present national processing capacity stands at being more than 3.6 million metric tons of concentrate per year and the output of concentrates in Zambia is around 2.9 million metric tons per year. This compels Zambian smelters to import concentrates from DRC.
- Stakeholders and the public may wish to know that some companies have already signed long term contracts with mines in the DRC, with fixed terms. If the duty was implemented, the companies would have not been able to execute these contracts because mines in DRC will not be able to afford the duty cost as well. This will have forced the producers of concentrated in the DRC to resort to selling their products to the Far East.
The introduction of this duty coupled with the imminent increase in the cost of electricity due to the migration to cost reflective tariffs, would have left mines and smelters with tough decisions to make. If there is insufficient supply of concentrates, finished copper output will be affected, in addition to employment and contributions to government revenue.
Acting Chief Executive Officer
Zambia Chamber of Mines