London — Zambia's copper sector, which dominates the country's export economy, saw production drop in 2019 due to new mining taxes, which were also the primary cause of the drying up of investment, Zambia Chamber of Mines President Goodwell Mateyo told S&P Global Platts on Friday.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The Chamber of Mines said year-to-date copper production figures supported its long-standing prediction of a drop in copper output for 2019 of up to 100,000 mt, to around 750,000 mt from 857,847 mt in 2018, despite a generally favorable market outlook.
Last month Zambia's mines and minerals permanent secretary Barnaby Mulenga said smelter shutdowns at copper mines in Zambia coupled with low power supply had forced the mining ministry to downgrade copper output by 100,000 mt in 2019.
The Chamber said the downward trend in 2019 is expected to continue in future years unless there are significant changes to the tax regime.
Last September, the government implemented a 1.5 percentage-point increase in minerals royalty taxes, with current tax rates ranging from 4-6% in relation to the copper price, with a 10% ceiling when copper prices go above $7,500/mt, while additionally copper concentrate imports incurred a 5% levy. Zambia is Africa's second-largest copper producer.
"There have been lots of breakdowns and interruptions, which is exactly what happens when there is little or nothing to reinvest in operations," Mateyo said. "To avoid job losses, sustaining capital expenditure has dried up, with mine development deferred, and it?s this which ultimately leads to a drop in production levels."
The CoM President said lower production meant lower mine revenues, "and therefore royalties to government; with costs remaining relatively fixed, the result is lower profit margins and therefore reduced corporation tax collections."
Mateyo said this was unsustainable and would inevitably result in further cost-cutting measures and the eventual closure of high-cost operations, while the Zambian copper mining industry continued to mature with grades decreasing or becoming harder to reach underground.
TAKING FULL ADVANTAGE
Mateyo said global consensus is that demand for copper will remain strong over the coming decade, with an additional 7 million mt of copper required by 2030.
The Chamber of Mines said preparing the Zambian industry to take full advantage of future demand requires long-term strategic planning to capture investment.
Last month, the CoM said mining companies had over the past year withheld over $650 million of investment.
"But the current direction of mining tax policy is focused only on government's short-term fiscal needs, and is deterring further investment," the Chamber of Mines said in a statement. "Zambia has a record of mistiming mining booms, and thereby squandering its mining endowment."
Mateyo said an urgent rethink of mining tax policy was required to place the industry on a growth footing for the future, while "not reducing the export duty makes it difficult for capital to enter the country."
"The long-term future should be bright for Zambia and its mining investors," Mateyo said. "But it will count for nothing if we cannot service the demand, because our mines are -- again -- in a dilapidated state."
The Chamber of Mines said production and revenue forecasts, along with international experience, showed governments received significantly greater revenue in the long-run from increasing investment and production than from overtaxing existing investment and production.
"There is consensus on future demand, the country has a good, mixed investor base, and there are at least two major investment projects that could materialize -- if the sense of balance between risk and reward, government and investor, is re-established," Mateyo said.
Mateyo added: "A first step in this direction would be to review these proposed amendments from the perspective of our mutual long-term interest in a growing mining industry."
The mines and minerals ministry was not immediately available for comment Friday.
--Filip Warwick, firstname.lastname@example.org
--Edited by Jonathan Loades-Carter, email@example.com