Maravi

ZCCM-IH ready to buy shares from mines planning withdrawal

ZCCM-IH ready to buy shares from mines planning withdrawal
By Joan Chirwa
Friday June 13, 2008 [04:00]

ZCCM-IH will be more than willing to buy shares from companies that want to pull out of Zambia because of the new tax regime, company chief executive officer Joseph Chikolwa has said. But First Quantum Minerals country manager Chisanga Puta-Chekwe said mining companies were not against the new tax regime but the manner in which the law had been implemented, insisting that the government had breached legally binding agreements entered into at the time of investments.

During a discussion on Zambia's new mining sector in Lusaka at the just ended Euromoney Zambia Investment conference, Chikolwa said Zambia had for a long time been at the bottom of taxes for mining companies compared with other mineral rich countries in Africa.

"If some mining companies want to sell their shares because of the new taxes that government has come up with, ZCCM-IH will not hesitate to buy them off," Chikolwa said. "Zambia has been at the bottom in terms of taxes for the mines and that has not benefitted us in any way because copper prices now are very high. "Copper prices are very high, so why are the mining companies complaining?

I am likening the mining companies to farmers who complain when it rains and again complain when it doesn't rain. At the moment, no one expects the mining companies to pack up and go because they have made investments of up to US $3 billion in the sector."

Chikolwa further said none of the mining companies had paid dividends to the government through the Zambia Consolidated Copper Mines-Investment Holdings (ZCCM-IH).

"The business model that was developed for the mining sector did not work. The mining sector has not paid any dividend to the government through ZCCM-IH, so government's decision to revise mining taxes was in the best interest of Zambians," said Chikolwa.

But Chamber of Mines general manager Frederick Bantubonse said ZCCM-IH was aware of the reasons why mining companies had not paid any dividends to the government.

"The prices of copper went down significantly in 2001. When the price of metals started going up in 2004, mining companies had a backlog of carryover tax loses," Bantubonse said. "We also took advantage of the high prices to invest more in the mines. Dividends were not even declared, not that they were withheld."

The government a month ago implemented the three per cent royalty tax on gross revenue of the mining companies, with an initial collection of K29.7 billion at the end of May.

A windfall tax on copper has also been imposed on the mining companies, with government expecting to raise at least US $415 million (about K1.3 trillion) from mining taxes at the end of this year. Other mineral rich countries such as Chile are taxing the mines at five per cent of their gross revenue with collections of up to US$270 million in copper royalties (approximately K874 billion) only in the first quarter of 2007.

And Puta-Chekwe said the fundamental point was not the rate of taxation but the manner in which the new tax regime has been implemented.

"There was a breach of contract on the Development Agreements (DAs) which were signed between the government and the mining companies," said Puta-Chekwe. "Government abolished the DAs after the amendment of the Mines and Minerals Act last year before discussions could be held with the mines on the new tax regime."

Labels: MINING, WINDFALL TAX, ZCCM-IH

posted by MrK @ 3:24 AM