And Chishimba says the mining firm is still awaiting a response from government after it submitted a detailed financial model to show how the controversial changes in Mineral Royalties Taxes (MRT) would negatively impact its operations.
Meanwhile, the mining giant has not experienced any job losses yet as a result of the increased cost of production, but remains concerned with the forthcoming Goods and Sales Tax (GST), which government wants to take effect from July 1 this year.
Speaking during Lumwana’s maiden quarterly press briefing at the company’s mine site, Tuesday, Chishimba said the 2019 mining fiscal regime, which introduced changes to the mineral royalty rate, was now a matter of life and death for the mining firm.
He explained that the changes made in this year’s tax regime would negatively impact the company’s operations as one of the entities that mined low-grade copper.
The 2019 mining fiscal regime, which took effect from January 1, 2019, has seen an increase in mineral royalty rates by 1.5 percentage points at all levels of the sliding scale, among other punitive measures.
“I cannot pretend that Lumwana is comfortable with the 2019 budget changes, we are mining copper at 0.5 per cent. The way numbers are looking, I see a lot of red because they will definitely hit our bottom line! So, our plea to government is help us stay in business so that we can continue being your partner, providing the jobs, revenue and all economic benefits that we have been talking about going into the community. So, for us, it’s a matter of life and death!” Chishimba said.
“Government needs to look at this issue from both sides: if we are in business, it helps the government, and certainly, if our operation is compromised, that does not help government. That’s not a threat; it’s just the reality of the situation.”
He illustrated how punitive the new mineral royalties were for Lumwana, being a low-grade copper operation.
“We know that when a tonne of copper is put in the mill, it costs the same that it costs a person who is mining a grade of say…one, two or three per cent. And what we’ve shown the government is that the impact on a low-grade mine like Lumwana, which is mining 0.48, 0.5 (per cent) is that, that difference in grade becomes very sharply highlighted,” Chishimba explained.
“A mine which is processing low-grade ore will incur the same cost, but recover less copper! Now, the royalty is levied on the amount of copper produced, not the amount of cost that it cost you to produce that copper and that’s where our grief is. As a low-grade mine, we are very vulnerable to a royalty, which is just looking at copper production and levying tax on the copper production as a gross figure rather than looking at our costs.”
And Chishimba, the former Zambia Chamber of Mines president, revealed that Lumwana was still awaiting a response from government after it submitted a detailed financial model on the negative impact of the tax changes.
“So, we’ve submitted financial models to the government, and hopefully, they will be coming back to us on what their view is. But we have demonstrated using the numbers that we have and said ‘at this level, our mine is severely impacted’,” he narrated.
“We have assured government that we are their partner, we will work with them, talk with them candidly. But, we believe that in the end, a royalty rate that is just a blunt rate at the top is not a very good thing for companies like Lumwana. My plea is that government policies should protect the vulnerable and make sure they recover something from the ones who are doing better, we don’t think that balance has been struck in the case of the royalties.”
He also feared the unknown implications of the controversial GST, which Finance Minister Margaret Mwanakatwe pushed back for a proposed implementation on July 1.
“It’s a double whammy! There’s another aspect to this: the proposed GST. It’s got a lot of uncertainty in terms of how it’s going to be rolled out and we are concerned that if there’s no clarity provided, definitely, Lumwana will be impacted negatively,” cautioned Chishimba.
In January 2019, Barrick’s chief operating officer for Africa and the Middle East, Willem Jacobs said Lumwana had made detailed proposals to the Zambian government about a partnership approach, which would provide the State with an improved share in the economics of Lumwana without overburdening the mine.
“Finding a win-win solution between the industry and government would without doubt increase investor confidence in Zambia and safeguard the long-term prospects of its mining industry,” Jacobs stated in a statement released on January 21.
At the time, Jacobs had described as untrue media reports that Barrick had sold Lumwana, emphasizing, however, that given the challenging conditions the mine faced, all options would have to be considered.