December 8, 2009 / 9:33 AM / 10 years ago

INTERVIEW-Zambia faces uncertain mining outlook

* Foreign mining investors still sceptical

* Need for long-term contracts with mining firms

* Unchanged taxes not adequate incentive

By Chris Mfula

LUSAKA, Dec 8 (Reuters) - Zambia, Africa’s top copper producer, faces an uncertain long-term mining outlook despite a resurgence in copper prices and government assurances of stable mining taxes in 2010, an industry official said on Tuesday.

Frederick Bantubonse, general manager of the Chamber of Mines of Zambia, which represents foreign mining companies, said the country’s foreign mining investors were still sceptical about its mining prospects.

“The long-term outlook for copper mining in Zambia is still very uncertain despite assurances by the government. Investors don’t have sufficient confidence,” Bantubonse told Reuters in an interview.

Zambia abolished long-term development agreements it signed with mining companies last year and raised taxes, sparking protests among foreign mining companies.

However, the government scrapped the high mining taxes earlier this year to keep afloat mining projects following a fall in metal prices, amid criticism from the International Monetary Fund and World Bank, who said the country should not have dropped a 25 percent mineral windfall tax.

Bantubonse said the government needed to give foreign investors stable long-term agreements to restore confidence and boost output.

“To restore investor confidence, there is need to look at the laws, and that we haven’t done yet.”

He said there was insufficient liquidity in capital markets and borrowing was still difficult and expensive for mining companies wishing to invest in Zambia and other countries.

The southern African country of 12 million people has been waiving taxes, including a 25 percent import duty on imported equipment and 16 percent value added tax, for foreign companies investing in economic zones, in a bid to attract more investment and create jobs.

Bantubonse said the announcement by Trade Minister Felix Mutati last week that the country did not plan to raise taxes for mining companies in 2010 was not an adequate incentive, as “investor confidence goes beyond just taxation”. [ID:nGEE5B21F8]

He said foreign mining companies also believed investment into the country’s mining sector still faced political risk.

“We still have people saying that when I come into power, I will chuck that one out ... investors are very sensitive to that.”

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 Muchena Zigomo and Keiron Henderson)

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