Zambia Will Not Raise Mining Royalty to 20 Percent

Tuesday April 14, 2015, 4:15pm PDT
By Teresa Matich+ - Exclusive to Copper Investing News

Zambia Won’t Raise Mining Royalty to 20 Percent Roughly four months after Barrick Gold (TSX:ABX,NYSE:ABX) halted operations at its Lumwana mine in Zambia due to higher royalties in the country, the government is set to change its decision on the royalty hike.

Zambia’s cabinet has approved a proposal to drop the rate increase, according to a report from Bloomberg. Royalties will be set at 9 percent for both open-pit and underground operations, an unnamed official told the publication.

Royalties for mining operations switched from 6 percent to 20 percent as of January 1, while royalties on underground mines rose from 6 percent to 8 percent. The move raised the ire of a number of mining companies operating in Zambia and put as many as 12,000 jobs at risk.

However, things changed with the election of President Edgar Lungu, who has put more focus on bringing an end to the dispute between miners and the Zambian government in the wake of falling copper prices.

"The President hopes that the changes will promptly eliminate market anxieties in the mining sector and forestall any potential instability,” presidential spokesman Amos Chanda said this week.

To be sure, Barrick announced at the end of March that it would continue to operate its Lumwana mine following encouraging statements from the president, so it appears that the climate is already changing.

However, not all details of the revised changes have been released, and some are more hesitant than positive regarding the news.

"If the reports are correct, the revised tax proposals would arguably be worse for the underground mines,” Bloomberg quotes a note from TD Securities as stating. "This suggests that we are not getting a full picture of what the proposed changes to the flat royalty system will be.”

To be sure, while an unnamed official told the publication that the new royalty rate will be 9 percent, Zambian Mines Minister Christopher Yaluma did not confirm figures with the publication. He also stated that the government will reintroduce a profit tax.

For now, copper investors and market watchers will have to wait for further details to be released. The changes are set to be reviewed in Zambia’s parliament next week.

In addition to Barrick, miners such as Glencore (LSE:GLEN), First Quantum Minerals (TSX:FM) and Vedanta Resources (LSE:VED) have operations in Zambia. On the exploration side of things, Midnight Sun Mining (TSXV:MMA) has an option to earn a 60-percent interest in the Solwezi permits in the country, adjacent to Africa’s largest copper mine, Kansanshi.