First Quantum Minerals (FQM) has announced that its subsidiary, Kansanshi Mining Plc, will downsize its operations, including implementing the planned job cuts arising from the 2019 mining fiscal regime, with full effect by April next year.
Last week, FQM announced that it will cut its workforce by 2,500 local and expatriate employees during the first quarter of 2019, in addition to an unspecified number of contractors, in response to the hiked mining fiscal regime.
According to a press release issued from PR agency, Langmead & Baker, FQM will lay off its workforce in a phased manner during the first quarter of the New Year, triggered by government’s new mining fiscal regime.
The 2019 mining fiscal regime will see an increase in mineral royalty rates by 1.5 percentage points at all levels of the sliding scale.
Government will, among other key measures, roll out import duties of five per cent on copper and cobalt, while equally introduce an export duty on precious metals including gold, precious stones and gemstones at the rate of 15 per cent next year.
But FQM, the Canadian miner, which runs Kansanshi Mining Plc in Solwezi and the Sentinel in Kalumbila District, stated that the hiked tax rates have triggered a “difficult and sad decision” to make lay-offs.
“…Critically, mineral royalties will cease to be deductible from corporate income tax; a measure not seen in other copper mining jurisdictions. FQM’s lay-offs will affect 1,250 direct employees at the company’s Kansanshi Mine in Solwezi and a further 1,250 at its Sentinel Mine at Kalumbila. Both local and expatriate staff across all departments will be impacted and employees will receive redundancy pay in line with statutory requirements,” read the press release, Friday.
“FQM has said that it is with deep regret that the tax measures will lead to a reduction in employee headcount. However, FQM has also been clear that it will do its upmost to mitigate the impact the measures will have on its employees and on the broader communities around its mines.”
And in a letter addressed to Kansanshi employees dated December 21, FQM director of operations Matt Pascal stated that the planned layoffs will fully be in place by April.
Pascal added that the job cuts also coincided with the introduction of the Sales Tax due to take effect from April 1, 2019.
“It is with deep regret that these changes will also lead to a stepped reduction in employee headcount. These reductions will take place over a period of some months and those affected will be notified in due course through their line managers. However, the imposition of general Sales Tax on 1st April, which is likely to further increase our costs by at least 20 per cent on procured items, will necessitate the full manpower reduction to be in place by that date,” Pascal stated.
He explained that Kansanshi will no longer be economically viable with the new tax measures in place.
“With the rapidly declining grade of ore at Kansanshi Mine (with plant ore feed-grade decreasing from above 1 per cent to low as 0.6 per cent in the current 5-year plan) and the historic low copper prices of 2015/16, the mine has done, and continues to do, everything possible to minimize its costs and consumption of reagents, consumables, maintenance spares and labour. Sadly, once the new tax measures take effect it will no longer be economically viable to continue to run Kansanshi’s operations at the current level,” Pascal added.
He further bemoaned that government had not listened to the mining company’s submissions on the dangers of imposing the draconian measures.
“We discussed in detail the various implications, including work force reductions, and even left them with written confirmation of our concerns. Unfortunately, despite all efforts to objectively and transparently inform government decision-makers on the inevitable consequences of the proposed measures (not only by FQM, but also by the Zambian mining industry), our message seems not to have been heard, and the tax changes have been implemented,” stated Pascal.
FQM, Zambia’s largest taxpayer, has invested US $5.7 billion in its Sentinel and Enterprise mines, and Kansanshi mine and smelter, and has paid more than US $3 billion in taxes in the last 10 years, transforming what was once a rural-based economy in the North-Western Province and creating employment for more than 8,500 people.