Mining Journal confirms yesterday's report that the mine houses will accept Zambia's new tax regime, without winning any concessions, and without legal action. Congratulations to the Zambian Government for standing firm, and to Zambian politicians and campaigners who, in a highly politicised time, recognised that the Government deserved support and have presented the mining companies with a united front, a situation I believe became the decisive factor in making up the companies' minds. The companies have made a political calculation as much as an economic one.
The journal reports that Finance Minister Magande said in an interview on Friday in the capital, Lusaka. "The law has changed and the mining companies will now be obliged to pay all the proposed taxes." Mining companies with operations in Zambia had requested that they not have to pay both the windfall and variable-rate taxes and asked the government to consider charging only one of the two. "None of the proposed changes was accepted by legislators," Magande said.
Zambia`s Chamber of Mines, which represents all of the major mining houses, some of which had threatened legal action should the taxes be imposed unilaterally, has announced that it will not continue fighting the government over the new law, although it warned that consequences from the "unilateral action" may damage future investment prospects. "We`ll comply with the new law," Fred Bantubonse, general manager of the chamber, told the Mining Journal in a telephone interview from Kalulushi on Friday.
2 comments:
I'm a small retail investor in Equinox Minerals (EQN). While I was all for increased taxes to ensure that the Zambian people get their deserved share, I think the attitude of the government and the amount of the increase will have have a negative effect on future investment, possibly erasing any gains from much of the new taxes. A few things to keep in mind.
First, many of these companies had signed agreements with the government. EQN, for instance, signed its development agreement in December 2005, when copper was already at 2.50 or thereabouts. The government knew where the price was and where it was headed. There was already a price participation clause in the agreement (though undisclosed). Moreover, EQN did not inherent any facilities like other companies. It was a green field operation, built from scratch. It cost hundreds of millions to build, and a lot of risk over the years. Small investors like myself have been burned because of the government's actions and attitude.
Second, the government attitude. At first, it was supposed to be a cooperative affair -- as all sides realized the need to change the tax structure. Then, it was a fait accompli -- too bad, and if you don't like it, get the hell out. There is no guarantee that this will not happen again, tomorrow, next week, next year, next election. It is this risk that will cause many companies and investors to think twice about ever investing in a country in which rules can be changed without any consultation. Though I still love EQN, I for one will not invest in any company ever again that does business in Zambia. I'm sure Chinese companies will continue to invest, given their ties between the two governments, but I'm not so sure Western companies will. Why would they?
I thought that the government's initial proposal was simply a starting negotiating position, but boy, was I wrong. More than the tax themselves, it is the attitude of the government and the lack of process that will keep investors away.
And not only will new investment be scared away, but what will existing companies do? If I had my way, I would forward sell as much copper as I could at between 2.50 - 3.50, as anything above that you only get 25%. You usually don't forward sell because of the possibility of losing out on higher prices, but in this case, it would be worth it when you take the possibility of a lower price into account. In addition, with any profits, I certainly wouldn't be looking to reinvest that money in Zambia. Not me, I'm headed to Mexico or somwhere else where, even if the taxes are a bit higher, there is more certainty that the rules will not change mid-stream.
This is all unfortunate, and I really do think the government has made a huge mistake, an avoidable one. Anyhow, good luck to all, and I really hope that the money that is made through the new taxes reaches the Zambian people.
justice for the people of Zambia. we are sick and tired of white companies getting rich at the expense of locals. thiose that think this is unfair can leave. go where you think you can do whatever you want
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