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LUSAKA, Aug 13 (Reuters) – Canada’s First Quantum Minerals (FM.TO: Quote, Profile, Research) said it had been ordered by Zambia to start paying a 25 percent windfall tax on a provisional basis as talks with authorities to clarify the controversial new tax continue.

First Quantum is one of a number of foreign mining firms which objected to a set of new taxes introduced in the copper-rich southern African country in April.

The windfall tax, introduced by the government for the first time in the mining sector, will apply whenever prices of metals increased beyond two times the cost of production.

Zambia also raised mineral royalty to 3 percent from 0.6 percent and introduced a variable profit tax at 15 percent on taxable income above eight percent and raised corporate tax to 30 percent from 25 percent. This effectively raised mining taxes to 47 percent from the previous 31.7 percent.

African copper miner First Quantum said in May it was awaiting word on how the newly enacted tax reforms would affect its projects in Zambia, and was seeking mediation on the taxes.

First Quantum had received letters from the Zambia Revenue Authority directing that First Quantum should immediately pay the windfall tax on a provisional basis at a flat rate of 25 percent for both copper and cobalt, the company said in a statement seen by Reuters on Wednesday.

It said the Zambian authorities had advised the firm the current tax arrangements would be ad hoc and that adjustments would be made at the end of the year.

“Currently, (First Quantum), with other mining companies operating in Zambia with similar agreements, is engaged in discussions with the (government) to find an alternative to arbitration or litigation,” the statement added.

First Quantum also said it was expanding its Kansanshi copper mine in Zambia to raise copper output in 2008. First Quantum said it expected to produce 185,000 tonnes copper from Kansanshi and 8,000 tonnes from its Bwana Mkubwa/Lonshi operation at the end of 2008.

First Quantum mines copper at Lonshi in the Democratic Republic of Congo and processes it at Bwana Mkubwa in Zambia.

First Quantum said the Kansanshi sulphide circuit expansion project which would increase processing capacity to 12 million tonnes of ore a year started in May in the flotation area plant.

Crushing of ore started in June and continued last month.

(Reporting By Shapi Shacinda)