December 9, 2011 / 1:58 PM / 8 years ago

UPDATE 2-Zambia could cut mine royalties if prices collapse

* Zambia could cut royalties in 2013 budget if copper price tumbles

* Had announced plans to raise royalties to six percent

* Miners warn on impact of revenue-based taxes

By Clara Ferreira-Marques

LONDON, Dec 9 (Reuters) - Zambia, which said last month its 2012 budget would increase mineral royalties, could cut back those rates if commodity prices collapse next year, the mines minister in Africa’s top copper producer said on Friday.

“For now (the royalties) will stay, but if it becomes a crisis, if prices crash, we might have to review the regime... not in 2012 but for 2013, in the next budget,” Wylbur Simuusa told Reuters on the sidelines of a London conference.

Zambia plans to double royalties on copper miners to six percent to bring in badly needed revenue to increase social spending and farming subsidies - a move miners have warned may cause them to scale back operations.

The World Bank has said the policy is unlikely to cripple the industry at current prices but could cause problems if copper prices fall. Copper prices are down almost 20 percent so far this year in the face of weakening demand.

Miner First Quantum, one of the largest investors in Zambia, warned the viability of newer projects in the country, especially a newer generation with lower copper grades, could be at risk at current royalty levels. It says its Kansanshi copper-gold mine is already among the most highly taxed in the world.

Adam Little, head of tax for First Quantum, told the London investor conference that the Canadian miner hoped reforms to improve Zambia’s tax collection would result in lower royalties.

These are based on revenue, not profit, and can be very punitive as prices fluctuate.

“We need to be thoughtful about the impact of revenue-based taxes. The recent 100 percent increase in mineral royalty taxes is damaging, especially for low-margin mines,” Little said.

“If other taxes can become more collectable, then Zambia’s reliance on the more damaging taxes can be reduced.”

Simuusa agreed there could be a re-calibration once Zambia has overhauled its tax and tax collection system.

Foreign mining companies operating in Zambia include Canada’s First Quantum Minerals, Vedanta Resources Plc, Glencore International Plc, Barrick Gold, Brazil’s Vale and Metorex of South Africa.

SPARKLING PROSPECTS

Simuusa also said he was expecting a long-awaited report on export licenses next week from a committee set up by the Ministry of Mines and the Ministry of Finance, as Zambia grapples with misreporting and tries to increase transparency.

Simuusa said the changes to the current system, which will be implemented immediately, would focus on accounting and on requiring tax payments to be made before the ore leaves Zambia.

Zambia temporarily suspended metal exports in October — shortly after the election that brought long-time opposition leader Michael Sata to power — to sort out irregularities, but lifted the ban two days later after Lusaka it would take time to come up with new guidelines.

Zambia hopes to boost its copper output, currently between 750,000 and 800,000 tonnes a year, to 1 million tonnes by 2015. But it also hopes to diversify into other metals, gems and even oil and uranium, and to increase manufacturing to supply the mining industry. Currently all inputs are imported.

Simuusa said the gemstone industry was a particular focus as Zambia had the potential to become a top producer and the sector could be worth an annual $700 million, according to the government’s calculation. Around a third of that could return to the government in tax and royalties, he said.

Zambia has significant deposits of emeralds, amethysts and other precious and semi-precious stones. Most deposits are currently mined only by small-scale, artisanal miners, with AIM-listed Gemfields one of the only corporations active in this area. It produces 20 percent of the world’s emerald supply.

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