First Quantum Minerals Ltd. is continuing to pile the pressure onto Zambia over its contentious new mining duties and increased royalties, linking them to potential expansions at its Kansanshi project and warning other African countries about the need for stability amid the lower grades and margins of copper deposits.
Bloomberg News reported in August that Zambia is delaying the implementation of new taxes to January 2020 from September 2019, after companies including First Quantum, Vedanta Resources Ltd. and Glencore PLC criticized plans for a 9% tax on all sales of goods and services.
First Quantum Director Exploration Mike Christie told the Africa Down Under conference in Perth, Australia, on Sept. 6 that the latest changes were the third attempt in the 11 years he's been with the company that Zambia has changed its tax regime, and used Kansanshi as the "case study" of what could be at stake this time around.
First Quantum has already blamed Zambia's regulatory changes for its move to cut 2,500 workers in the country.
![]() |
| First Quantum Minerals' Mike Christie at Under 2019. |
While taxes paid accounted for US$3.53 billion of Kansanshi's US$8.5 billion cash distribution from 2005 to 2017, Christie said "what may not be apparent to a lot of the African countries" is how much of its cash flow needs to be reinvested to keep such operations sustainable for the future.
He said US$3.97 billion of Kansanshi's entire cash flow over that period went into capital reinvestment for the smelter, pre-stripping of new pits, mining equipment and plant upgrades, while exploration is particularly important to keep resources topped up for future expansions.
Christie said Kansanshi is noted as having one of the world's largest copper smelters and for being a very high-grade operation, having mined 38 million tonnes at 1.2% copper for over 250,000 tonnes of copper in 2018, making it what he believes to be Africa's biggest copper producer.
Yet he warned that while it has been very high margin, "it's getting lower margin, so we're now talking about mining 0.6% instead of 1.2% copper."
Some of Zambia's other newer mines are even lower grade, Christie added, citing the Sentinel mine First Quantum built which is 0.5%, and the not-so-new Lumwana mine which Barrick Gold Corp. is reportedly trying to sell.
Thus industry's margins from such operations are getting tighter, and need to be built to an enormous scale to try to get the economies of scale.
"The end result is if you start squeezing those profit margins to the point where they really don't supply the sort of investor returns investors want, then you stop the capital inflow," Christie told delegates.
"Sadly for many of the miners in Zambia, that means they either pull the pin on exploring and developing, or like us we have some decisions to make about whether to go to the next phase and expand Kansanshi ... and it's a hundreds-of-millions-of-dollars investment to try continue our production at today's levels as we get into the deeper, lower grade parts of that mine."
First Quantum wants to double the size of the flotation plant at Kansanshi's sulfide deposit at depth, but Christie warned that the company needs a return on investment to do so.
"If you change the royalty regimes to the point where the return just isn't there, then basically you'll just keep running that mine down over time," he said. "It has a long life, but as the grade gets lower you produce less and less copper every year."
Positive note
However, Christie said First Quantum is "continuing to have some very constructive discussions" with the Zambia government about what its needs are to keep operations sustainable going forward.
Christie said Zambia compared favorably to Tanzania, where he spent much of his previous professional life exploring for gold in the 1990s.
He said Tanzania has "really killed the golden goose" with its regulatory changes since parts of Western Australia's Mining Act were given to the Tanzanian government to incorporate into the African country's laws.
"Sadly all that investment in exploration and development [since Australia helped build its regulatory regime] has been killed, and it will take Tanzania a decade to recover," Christie said.
"Zambia is not in that position, but the goose is being strangled, and that really does not promote investment in future development."

