Friday, March 15, 2013

We've complied with govt's new tax regime - FQM

We've complied with govt's new tax regime - FQM
By Kabanda Chulu
Thu 14 Mar. 2013, 16:30 CAT

FIRST Quantum Minerals says its Zambian subsidiaries have complied with the government's new tax regime without prejudice to the company's rights under the Development Agreement.

And construction of a 1.2 million tonne smelter has reached an advanced stage at Kansanshi Mines, a project that will result in the mining company becoming self sufficient in treating copper concentrates.

Meanwhile, the board of FQM that owns Kansanshi Mines has approved the second phase of the 400,000 tonne annual production capacity expansion project of the sulphide treatment plant facilities.

FQM stated in its financial and operational report for the three months and year ending December 2012, that the 2011 adjustment to mineral royalty from three per cent to six per cent was in breach of the Development Agreement it signed with the government at the time of investment in the country's mining sector.

"Government announced in 2008 a number of proposed changes to the tax regime in the country in relation to mining companies. FQM, through some of its Zambian subsidiaries, is party to Development Agreements with the government for its existing operations which provide an express right to full and fair compensation for any loss, damages or costs (including interest) incurred by FQM by reason of the government's failure to comply with the tax stability guarantees set out in the Development Agreements and rights of international arbitration in the event of any dispute," it stated.

"Following the change of government in 2011, the first Budget of the new government introduced a further increase in the copper mineral royalty tax from three to six per cent, effective April 2012, in breach of the Development Agreements. In the 2013 Budget, delivered in October 2012, the government has decreased the rate of Capital Allowances from 100 per cent per annum to 25 per cent per annum. This will impact the timing of the tax benefit from FQM's significant capital programs at Kansanshi and Sentinel. Until resolved differently with the government, FQM is recognizing and paying taxes in excess of the Development Agreement, resulting in an effective tax rate of approximately 43 per cent at Kansanshi."

According to highlights of the report, Kansanshi's concentrate was currently treated at smelters in Zambia.

"However, existing domestic smelting capacity will be insufficient to process the substantial increase in production resulting from the Kansanshi expansion and the Sentinel project hence the construction of a new copper smelter designed to process 1.2 million tonnes of concentrate to produce over 300,000 tonnes of copper metal annually," it stated.

"The smelter is also expected to produce one million tonnes of sulphuric acid as a by-product at a low cost which will benefit Kansanshi by allowing the treatment of high acid-consuming oxide ores and the leaching of some mixed ores. The additional acid is also expected to optimise the expansion of the oxide leach facilities and allow improved recoveries of leachable minerals in material now classified and treated as mixed ore."

It stated that detailed design works on the smelter were well progressed and all of the major equipment packages have been ordered.

"On site, earthworks construction is approximately 85 per cent complete and concrete pouring is 20 per cent complete. Mechanical installation commenced in January 2013. The project is scheduled for construction completion in mid-2014 followed by commissioning and ramp up," stated FQM.


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