Feb 23, 2011 (Dow Jones Commodities News via Comtex) -- A draft audit into Zambia's second-largest mining concern, Mopani Copper Mines, says the company inflated costs and evaded taxes at its units--claims which officials at the miner and its parent company rejected.

The audit, commissioned by Zambia's government last year, concluded that there were inconsistencies in production and revenue figures submitted by Mopani for tax administration between 2006 and 2008, according to a summary of the draft document seen by Dow Jones Newswires.

Tax consultancies Grant Thornton and Econ Poyry said that Mopani uses its relationship with its parent company, Swiss commodity trader Glencore International AG, to carry out practices such as inflating operational costs, underpricing of copper, irregular hedging and "transfer pricing" with Glencore's unit in the United Kingdom, according to the summary. Transfer pricing usually refers to allocation of assets between related entities, sometimes at non-market prices.

A spokesman at Glencore's Zambian unit said Wednesday that the company rejects the conclusions of the audit.

Mopani Chief Executive Emmanuel Mutati said late Tuesday that the audit is "flawed and incomplete."

"The draft report fails to recognize that Mopani is a tolling facility where 50% of the copper it produces comes from its own mines and the rest is made from third-party concentrates," Mutati said. "This failure explains the inconsistent results and is one of the main reasons why the draft report has been unable to reconcile figures."

Mopani is 73% owned by Glencore, while Toronto-listed First Quantum Minerals Ltd. (FM.T) holds a minority stake.

Mopani operates the Mufulira smelter and underground mine in Zambia as well as the Nkana mine. In addition to concentrates from its mines, the Mufulira smelter also treats concentrates from First Quantum's Kansanshi mine.

The audit said that Glencore, which is also the sole purchaser of Mopani's copper, determines prices and that some copper from the mine was sold between 2006 and 2008 under an old contract, in one instance 25% below the London Metal Exchange price.

Mutati said that Mopani conducts transactions in an open and transparent manner, and the Zambian government as well as state mining companies have seats on the company's board and are involved in decision making.

Mopani has output capacity of 250,000 metric tons of copper a year, making it Zambia's second-largest miner by installed capacity.