Mining companies have started to scale-down their operations significantly in response to the 2019 mining fiscal regime because they are struggling to cope with the tax policy, says Zambia Chamber of Mines president Goodwell Mateyo.
But Mateyo says the Chamber remains “cautiously optimistic” that the Ministries of Finance and Mines will respond favourably to the industry’s financial models that had been submitted earlier this year.
In an interview, Mateyo cautioned that mining companies on the Copperbelt had already started scaling down their operations in response to the hiked 2019 mining fiscal regime, a situation which he said is having a multiplier-effect on the local economy.
He cited examples of Chambeshi Metals as having been put on care and maintenance, while Konkola Copper Mines (KCM) had downsized its Nchanga Smelter operations due to low availability of concentrates.
The 2019 mining fiscal regime, which took effect from January 1, 2019, increased mineral royalty rates by 1.5 percentage points at all levels of the sliding scale.
It also introduced import duties of five per cent on copper and cobalt, while also hiking export duty on precious stones and gemstones to a rate of 15 per cent, a situation that had previously prompted mining companies to threaten massive job cuts.
“We’ve seen Chambeshi Metals’ operations being put under care and maintenance; we’ve seen KCM as well significantly scaled down the operations of their smelter because it is not viable for them to produce concentrates at five per cent. Unfortunately, (cutting down) labour is a very sensitive issue; what most mines have done is to review areas of the operations that are viable, they are simply closing! What’s happening is, areas of operation that are becoming non-viable are simply either being put on care and maintenance or closed down,” Mateyo revealed.
“Unfortunately, what that does is the entire value chain that surrounded that, for instance, truck and haulage businesses that were moving the (copper) concentrates; all the suppliers supplying them with the agents and chemicals are going to face significantly reduced income. Also, added to that, the power suppliers in CEC (Copperbelt Energy Corporation Plc) and Zesco, there will be a reduction in demand and, therefore, earning less income.”
He revealed that the Ministries of Finance and Mines had delayed to give a timely response to mining companies’ financial models that were earlier submitted to push for reforms in the controversial mineral royalties.
“The delay in feedback has affected mining entities because most of them are struggling and the expectation was to get some closure on dialogue and agreeing on the new mining tax regime,” he said.
But Mateyo, who is also a senior legal officer at Mopani Copper Mines, added that mining companies remained “cautiously optimistic” government would respond favourably to the industry’s concerns.
“We remain cautiously optimistic. We’ve shown the DNA of the financial state of our operations, and there’s no reason to doubt that it shows how it’ll be affected by the tax regime. But on a proactive basis, as a Chamber, we have also submitted counter-proposals,” said Mateyo.