Will mine taxes affect investment?

The Chamber of Mines made some pretty extreme arguments at the recent parliamentary hearing on Zambia's new tax regime, suggesting increasing taxes on mines multinationals would lead to cuts in investment, job losses and indeed a recession in Zambia. That strikes me as profoundly unlikely. Any company struggling to source investment for mining in Zambia will probably find itself bought out by a firm with more capital and an ability to exploit high copper prices. The mines remember have been upping production at incredible rates in an effort to get as much copper out of the ground as quickly as possible while the price is high. Relatively conservative tax increases are most unlikely to make any difference to that. The government is betting that, with copper prices as high as they are (and remember most of the new taxes vary according to the price of copper), there are huge profits to be made in Zambia even with increased taxes, and thus that the companies will be able to draw in new capital to cover any profits now unavailable for re-investment as a result of the new taxes.

So, what evidence do we have so far from the companies about their investment decisions?

• Well, ZNBC report that the Konlkola Copper Mines (KCM) smelter almost ready and new operations will start in the next two months. The Smelter which is Africa's largest has been constructed at a cost of K320 million. KCM Smelter Projects Construction Co-ordinator, Kennedy Mwandamina told ZNBC in an interview that 90 percent of the work on the infrastructure has so far been completed. Meanwhile works on the Konkola Deep Mining Project (KDMP) which is expected to increase copper production at KCM by five million tones a year is also progressing well. KDMP 'package A' manager Billy Sakala told ZNBC that much progress has been made on both surface and under ground works that include development of infrastructure such as ventilation shafts and crusher systems. The Konkola deep project is scheduled for completion in 2010 and is expected to extend the life of Konkola Mine by at least 22 years.
• South Africa's Business Day reports that mining investment company African Rainbow Minerals (ARM) planned to raise funds shortly to advance promising projects in Africa. First results from drilling around the Konkola copper project in Zambia were "exciting". These projects would need "quite a lot of money", according to a company representative who was confident of their ability to raise the investment.
• The Post reported yesterday that Luanshya Copper Mines (LCM) is to invest between US $15 million and US $20 million in the Mashiba Open Pit mine project. LCM chief operations officer James Bethel said once the project was approved by ENYA Shareholdings, one of the major shareholders in LCM, operations at Mashiba mine would commence either at the end of 2008 or early 2009. Bethel said Mashiba mine had 18 million tonnes of copper materials and its lifespan was between four to five years. The mine will not be as big as the Muliashi open pit mine which is also under construction. LCM has acquired Muliashi mine which is expected to provide between 350 and 400 jobs to Luanshya residents once in full operation. An interesting aside on this story is that the Post also reports that LCM has faced protests from unemployed local youths seeking work at the firm, who are unhappy with the companies' hiring practices. The company responded by claiming the problem resulted from itis desire to move away from heavily criticised processes of casualisation. LCM's public relations officer Ruth Mulenga said at the moment, the company had stopped employing casual workers in line with government's policy.
  

• The Post reported yesterday that Mopani Copper Mines (MCM) has said the new mining fiscal regime will not halt the company’s intention to invest in development of the lower Kafue Gorge Hydro-power project with Copperbelt Energy Corporation. MCM chief service officer Passmore Hamukoma said the mining giant was committed to its earlier pledge to develop the power project which was expected to gobble about US $1 billion. “Nothing has changed,” Hamukoma said in an interview. “This is not a project that involves us (MCM) alone…there are other stakeholders in the consortium like CEC. So as far as we are concerned, the project is still active and nothing has changed.”
• In the same story, the Post also quoted First Quantum Minerals (FQM) country manager Chisanga Puta-Chekwe said expansion programmes for its Bwana Mkubwa mine might be restructured leading possibly to a loss of 600 jobs. Puta-Chekwe. “For example, plans to build a roaster at Bwana would have to be reviewed, leading possibly to a loss of 600 jobs.”

I will try to keep an eye on this last story.Does it tell us more about weaknesses in FQM's business model, the Zambian taz regime, or the political shenanigans of FQM trying to pressure the Government to reverse the reforms? My money is on the last of these explanations. I suspect the Government won't move, and the project will go ahead - because it will still be highly profitable.