June 17, 2010 / 10:00 AM / 10 years ago

Zambia foreign miners seek stable mining laws

* Stability key for future mining investment

* Consultations ongoing over long-term policies

By Chris Mfula

LUSAKA, June 17 (Reuters) - Zambia, Africa’s top copper producer, needs stable laws governing the mining sector for the country to continue attracting investment even after scrapping a controversial tax on revenue, a senior industry official said on Thursday.

Frederick Bantubonse, the general manager of the Chamber of Mines of Zambia, a group representing foreign mining companies, said that future investment into the southern African country’s mines would depend on stability in legislation.

Zambia plans to increase its copper production to 1 million tonnes next year, from just below 700,000 tonnes in 2009, after rising investments in the sector over the last seven years, following a rally in global metals prices and increasing metals demand.

“The potential for mining in Zambia is good but people must understand that mining is long-term and requires stability in terms of the total legislation covering mining,” Bantubonse told Reuters, but he gave no further details.

Bantubonse said mining companies were happy with the government’s withdrawal of a controversial revenue-based windfall tax, which made them liable to pay tax even when they were recording losses.

“With the existing tax regime the outlook is good but it will also depend on the outcome of ongoing consultations with the government where we are looking at the entire mining sector.”

Finance minister Situmbeko Musokotwane said in April Zambia would not bring back the tax on revenue it introduced in 2009 after cancelling the long-term development agreements it had with foreign mining firms because it discouraged investment.

Foreign mining companies have been demanding the restoration of the development agreements, whose cancellation caused loss of incentives for the mines.

Zambia in 2008 increased company income tax to 30 percent from 25 percent, raised mineral royalty from 0.6 percent to 3 percent, introduced a 25 percent windfall tax and separated hedging income from mining income for tax purposes.

But following protests from mining companies, the government last year removed the windfall tax but kept the other taxes.

Some of the foreign mining companies operating in Zambia include Canada’s First Quantum Minerals (FM.TO), London-listed Vedanta Resources Plc VED.L, Equinox Minerals <EQN.TO)>EQN.AX, Glencore International AG [GLEN.UL] of Switzerland and Metorex MTXJ.J of South Africa. (Reporting By Chris Mfula; Editing by Alison Birrane)

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