The future is still mining

By Francis Lungu , Daily Mail,

The future is still mining

MINING has been key to Zambia’s economic fortunes for decades and tax issues around the sector always attract attention among stakeholders and would-be investors.  Despite a push to diversify the economy and move it away from being heavily dependent on copper, the sector has resiliently remained at the pinnacle of the country’s economic development.Zambia produced 882,061 metric tonnes of copper in 2020, up 10.8 percent from 796,430 tonnes produced in 2019, according to Mining.Com. In the latest revised targets, the country has moved from the one million metric tonnes annual production to an ambitious three million metric tonnes in the next decade, going by Minister of Finance Situmbeko Musokotwane’s 2022 national budget presentation of October 29, 2021. The global consensus is that demand for copper will remain strong over the coming decade, primarily because of the metal’s utilisation in new green technologies such as electric vehicles. A worldwide shift to electric cars, which use much more copper than cars using fossil fuels, is expected to boost production of the metal.According to global industry experts, an additional seven million metric tonnes of copper will be required by 2030 to keep pace with demand. Of course this is good news for copper producers like Zambia, ranked second in Africa after neighbouring Democratic Republic of Congo (DRC). Copper was discovered in Zambia in the late 19th century, and in the 1950s the Zambian copper belt dominated global production of the metal.In other minerals, Mining.Com says Zambia’s cobalt production, however, fell 21.8 percent in 2020, to 287 metric tonnes from the 367 metric tonnes produced in 2019. The drop down to reduced cobalt mineralisation was attributed to operational challenges at Konkola Copper Mines.During the same period under review, gold production fell to 3,579 kilogrammes in 2020 from 3,913kg in 2019 as ore grades at the Kansanshi mine fell, according to a statement of the Ministry of Mines. State-owned Zambia Gold Company, which buys and processes gold from artisanal and small-scale miners, sold 47.9 kg of gold to the Bank of Zambia at the end of last year as part of efforts to build the country’s gold reserves. Nickel production more than doubled to 5,712 tonnes in 2020 from 2,500 in 2019, and the production replication was attributed to restructuring and streamlining of nickel operations.Zambia’s manganese production jumped 79 percent to 28,409 tonnes in 2020 from 15,904 tonnes in 2019. With manganese mainly produced by small-scale miners, increased formalisation of manganese operations helped boost production.All these minerals and mining operations in Zambia are hinged on the country’s tax regime. In his budget presentation, Dr Musokotwane rationalised the mining tax regime to woo more investment and boost production. According to the Zambia Chamber of Mines, it is evident the country needed a different tax approach to take advantage of the strong demand and attract investment into new mines.The revised tax system is aimed at encouraging existing mines to invest in expanding their operations. This could be achieved by the country offering an equitable balance between benefiting itself from its resource endowment, and rewarding mining investors who are refining that resource into saleable commodities. “In determining that balance, policy-makers should have reference to comparable mining jurisdictions, acknowledging that capital is mobile and will move where the returns are most attractive,” the Mining Indaba hosted by the Zambia Chamber of Mines in April this year desired.In responding to the mining sector’s wishes, Government in the 2022 budget made some changes to the tax regime that cheered the country’s largest taxpayer. The 2022 budget, under the theme “growth, jobs and taking development closer to the people”, unveiled a key revision to the Zambia mining tax regime, namely the return to the approach followed by other global mining jurisdictions which enables companies to deduct mineral royalty tax payments against corporate income tax.The mining sector felt non-deductibility, imposed since 2019, led to “double-taxation” and it was believed to have thwarted some mining operations’ expansion plans.“The mining sector remains critical to the Zambian economy as it is the main contributor to foreign exchange earnings. This role is destined to grow in importance due to the rising demand for copper boosted by its vital role in a number of rapidly growing industrial sectors such as manufacturing of electric vehicles. The buzzword is that copper will be as lucrative as oil was in the mid-1970s,” Godwin Beene, First Quantum Minerals’ Zambia government relations said.Zambia must not depend just on the high copper prices of around US$9,324.71 per metric tonne, as in the second week of November, 2021, if it is to benefit from the expected copper boom, he says. Rather, if the new dawn administration is to achieve an increase in copper output from the current 882,061 to its stated annual ambitious target of over three million metric tonnes within a decade, existing mines must produce more while new mines must be built. Dr Beene, who is also Zambia Chamber of Mines president, says the 2022 national budget measures announced should be seen as a step in the right direction towards the full reform of the mining tax regime.According to Dr Beene, the minister of Finance prioritised the urgently needed removal of the mineral royalty taxes non-deductibility, a clear indication to the world that Zambia is once again open for business. “I am certain that the world’s mining investors will start to look at Zambia afresh…this is what is needed if we are to see minerals “germinate” and allow Government to reach its ambitious target of increasing copper production to three million tonnes per year,” he said in a statement in response to new mining tax changes. The Chamber of Mines also believes that further reform of the Zambian tax code will see renewed interest from investors and that it could lead to new mines reaching high  production levels over the next five to 10 years.  The sector looks at the Ministry of Finance’s immediate priority as that of stemming the outflow of reserves in order to meet the nation’s debt obligations. “But this is a refreshingly prudent budget, and most definitely a step in the right direction. Further work is needed on tax reform, along with guarantees of stability if we are to attract the investments necessary to triple copper production. But with this hugely positive early signal, the mining industry stands ready to work collaboratively with the Government in its endeavour,” Dr Beene said.The earlier National Mining Indaba was held as a condition of the Economic Recovery Programme 2021-2023, launched by Government in December 2020. The purpose of the indaba was to discuss what conditions would be necessary to initiate recovery and revitalisation in the mining sector. The theme was “Building for the future: Reflecting on Zambia’s mining taxation policy and looking towards sustainable investment in the sector”, with the focus on designing a mutually beneficial mining tax regime that would encourage investment and recovery. The result of the indaba was a constructive critique of the mining tax policies before the presentation of the 2022 national budget.After the budget presentation, answers to the many questions around the mining taxation were seemingly tackled, going by the Zambia Chamber of Mines reaction. Copper is the third most widely used metal in the world. Chile accounts for over a third of the world’s copper production, followed by China, Peru, United States, Australia, Indonesia, Zambia, Canada and Poland. The biggest importers of copper are China, Japan, India, South Korea and Germany.

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