Anil Agarwal


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By Geoffrey Kapembwa

March 26 (Bloomberg) — Zambia‘s parliament approved an amendment to the Mines and Minerals Act that will increase taxes and abolish existing agreements between the government and mining companies, the Zambian Chamber of Mines said.

The bill, which will be signed into law by President Mwanawasa on April 1, will lift royalties on sales fivefold to 3 percent and increase corporate income tax to 30 percent from 25 percent. That will raise the effective tax rate on miners to 47 percent from 31 percent.

The government’s “unilateral decision to dishonor existing development agreements” is disappointing, Fred Bantubonse, general manager of the chamber, said in a telephone interview from the capital, Lusaka, late yesterday. “This is arm twisting.”

Zambia, Africa’s largest copper producer, expects to earn $450 million in additional revenue this year from higher mining taxes as it seeks to benefit from the metal’s seven-year rally, Kolombo Mwansa, the southern African country’s mines and mineral development minister said on March 4.

The law will result in miners reconsidering any expansion projects because of poor returns, Bantubonse said.

“Any bad law always affects future investment,” he said.

Copper accounts for about 70 percent of Zambia’s export income and production has been rising since the nation sold off state-owned mines 1999, almost three decades after they were nationalized. The proposed increase in taxes comes amid record profits earned by companies including Vedanta Resources Plc., India’s largest copper producer, and First Quantum Minerals Ltd., a Vancouver-based miner of copper in Africa.

— Editor: Athol Bolleurs, Dylan Griffiths.

To contact the reporter on this story: Geoffrey Kapembwa in Lusaka via the Johannesburg bureau at +27- abolleurs@bloomberg.net.

Last Updated: March 26, 2008 06:44 EDT

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By Shapi Shacinda

LUSAKA, March 3 (Reuters) – Foreign owners of Zambian copper mines have proposed a 12.5 percent windfall profit tax, rejecting the government’s proposed 25 percent rate, a senior industry official said on Monday.

“I am not able to say whether we will make headway or not,” Frederick Bantubonse, head of the Chamber of Mines of Zambia (CMZ), told Reuters after the group offered counter-proposals on the mining taxes.

Evans Chibiliti, Secretary to the Treasury, was quoted by state media on Monday as saying the government would press ahead with new taxes despite the new suggestions from mining firms.

In January, the government proposed a windfall profit tax at a minimum of 25 percent and an increase in mineral royalty to 3.0 percent from 0.6 percent.

It also plans, from April 1, to introduce a variable profit tax at 15 percent on taxable income above 8 percent and to raise corporate tax to 30 percent from 25 percent.

Foreign firms could be prohibited from mining copper if they did not the taxes

The CMZ has also proposed a variable profit tax be raised to taxable income above 16 percent from the government-suggested minimum of eight percent.

“If (the government) desires to impose variable profit tax in preference to windfall tax … it should be considered as 16 percent in place of the proposed 8 percent in the (law),” the CMZ said in a proposal submitted to parliament.

CMZ said that instead of introducing a flat rate of 3 percent mineral royalty, the government should introduce the tax at 1 percent, graduating to 3 percent with price increases. The corporate tax rate should remain at current 25 percent.

The group said the money raised through higher taxes should be used to help generate more power, following the costly energy outages suffered in January, and waning capacity.

Mining companies say the government plans would result in excessive taxes and also argue that they were not consulted on the proposals.

(Reporting by Shapi Shacinda; editing by Chris Johnson)

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IMF Report A little too late, Zambian Chronicle Already Warned GRZ
click here: Zambia’s Short To Medium Term Outlook – Extremely Encouraging …
By Shapi Shacinda
LUSAKA (Reuters) – Zambia has made strides in growing its economy but needs to handle commodity price windfalls prudently and develop infrastructure to avert a possible recession, the International Monetary Fund said on Monday.

IMF board members were in Zambia to assess economic progress made since the fund, the World Bank and other western financiers reduced the southern African country’s foreign debt to $502 million in 2006 from $7.1 billion.

“We acknowledge that despite the impressive economic performance and positive medium term outlook, challenges and risks remain,” the IMF directors said in a statement after a meeting with President Levy Mwanawasa.

Zambia’s economy has grown by an average 5 percent in the past six years and it has brought inflation to single digits for the first time in three decades.

The Fund said Zambia needed to manage windfall from higher commodity prices wisely to maintain steady economic growth. Copper mining is the cornerstone of the Zambian economy.

Video Clip Add By Us – Underground Mining in Chingola

“We would note two important challenges … the first being how to manage the macro impact of large foreign exchange inflow,” said Miranda Xafa, an IMF director.

“You certainly do not want to get into a boom (and) bust cycle that others have found themselves in, in that while the boom and bust lasts, they try to spend it all at once and while commodity prices fall, they slow down in possible recession.”

Treasury data showed Zambia received nearly $1.5 billion in foreign direct investments while earnings in copper exports were around $4.7 billion in 2007.

“The second challenge is building the infrastructure and removing impediments to private sector development . . . to improve the business climate by facilitating investments and growth,” Xafa said.

The IMF also discussed a new financing package of a “small” undisclosed amount with Zambia after the expiry of the $320 million three-year poverty reduction growth facility.

The IMF warned Zambia about managing its debt.

“We are aware that the government is now seeking a sovereign credit rating that will facilitate access to international capital markets and we are confident that the government will use these funds wisely,” Xafa said.

“We would caution that after this debt forgiveness, it is important to maintain debt sustainability by using non-concessionary borrowing to finance viable projects (that) have a rate of return high enough to justify the borrowing.”

Mwanawasa told the board members that Zambia would continue with prudent macroeconomic management and economic reforms to attract further foreign direct investments.

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Posted: January 14, 2008, 2:10 PM by Peter Koven

The government of Zambia has proposed higher taxes on mining companies, and that affects two names Canadian investors follow closely: Equinox Minerals Ltd. and First Quantum Minerals Ltd. UBS analysts Alec Kodatsky and Tony Lesiak have tried to break down the new tax regime and what it means for those companies. The government is expected to increase the corporate tax rate from 25% to 30% and the royalty rate from 0.6% to 3%.

In the case of Equinox, the company has already negotiated  a 10-year development agreement for its Lumwana project, and believes it is exempt from higher taxes for the length of the agreement. Mr. Kodatsky is keeping that as his base-case assumption. But if the government decides to implement higher taxes at Lumwana right away, his net asset value forecast on Equinox would drop 7.3%, from $6.06 a share to $5.62 a share. He is maintaining a “buy” rating and a target of $6.75 a share.

First Quantum, on the other hand, could see an immediate tax and royalty hike at its Bwana Mkubwa and Kashime projects if the tax changes are implemented. It has a long-term tax stability agreement at the Kansanshi project, but Mr. Lesiak is already assuming higher royalty rates on that one.

Mr. Lesiak has cut his earnings per share estimate for 2008 from $11.78 to $11.50, and he lowered his 2009 forecast from $13.64 to $13.30. He is maintaining a “buy” rating on the stock but reduced his target to $120 a share from $125 a share.

Source: National Post

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By Shapi Shacinda

LUSAKA (Reuters) – Zambia plans to raise electricity tariffs for its copper and cobalt mines after the southern Africa nation increased domestic power charges by 27 percent, officials said on Thursday.

Hanson Sindowe, chairman of the Copperbelt Energy Company (CEC), the sole distributor of power to Zambia’s vast copper and cobalt mines, said tariff rise negotiations were almost concluded with various foreign mining firms.

“We are currently negotiating with the mines and we are almost there,” Sindowe told Reuters.

He declined to say how much the tariffs would rise.

Officials say that plans to raise power tariffs were aimed at making state power utility Zesco economically viable and to ensure Zambia reaped greater benefits from profits foreign mining firms were reaping from higher global metals prices.

CEC purchases power from Zesco and distributes it to the mines.

Industry analysts say the copper and cobalt mines pay lower rates compared with most industries after they negotiated lower tariffs at the time Zambia was privatizing its copper mines in a bid to keep them running, after decades of under capitalisation caused some mines to be on the brink of closure.

Last week, the International Monetary Fund (IMF) Board proposed that Zambia should raise electricity tariffs in its end of year review of the country’s economic performance.

The IMF said raising tariffs would enhance the development of the energy sector.

Zambia agreed with the IMF and the World Bank in the early 2000s to reduce state participation in the state-run power utility Zesco in order for the country to continue to receive financing from multilateral institutions.

“They (IMF board) emphasized the importance of raising electricity tariffs to levels consistent with full cost recovery, and of strengthening the corporate governance and efficiency of the public utility,” the IMF said in a statement.

The state Energy Regulation Board (ERB) said separately that it had allowed Zesco to raise power tariffs for domestic users by 26.8 percent and by 1.3 percent for other industrial users, state media reported on Thursday.

“The ERB would approve a further increment in residential tariffs by 16.6 percent and 11.9 in 2009 and 2010,” respectively, the state Zambia Daily Mail quoted ERB chairman Sikota Wina as saying.

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MUMBAI: The Anil Agarwal-controlled Vedanta Resources is close to increasing its stake in Konkola Copper Mines in Zambia to 79.4% by buying out a portion of the Zambian government’s holding.

The London-listed Vedanta, which owns 51% stake in Konkola, wants to increase the stake by buying out Zambia Copper Investments’ (ZCI) 28.4% stake in the largest copper mine there. The state-run ZCCM Investment Holdings holds 20.6% stake in Konkola.

“For the acquisition of 51% stake, Vedanta had paid $48.2 million in 2004. As the valuation of the copper mines doubled in three years, it will be curious to know how much Vedanta would be paying for ZCI’s stake,” said a source close to the development. Senior Vedanta officials said the process of acquiring the stake is on. They declined to reveal further details.

Vedanta has been discussing with ZCI the call option, which was agreed when Vedanta bought a 51% stake from the Zambian government in 2004. The company could not exercise the call option as the two parties failed to agree on the valuation of ZCI’s shares.

Adding fuel to fire, Zambian economists and investment analysts have voiced their opposition to Vedanta’s buy-out of national resource. ZCI has only Konkola stake as its asset at present. Vedanta chairman Anil Agarwal recently announced that the two parties had resolved their differences and that an independent valuation is in progress.

While ZCI chairman Tom Kamwendo was quoted by a Zambian daily, “With the resolution of differences over valuation, the next step for the company is to offer its interest to Vedanta.”

Vedanta shares were hoverng below 2,030 pence on London Stock Exchange on Tuesday, down 1.36% on speculation that ZCI may sell its stake through the Lusaka Stock Exchange. On November 23, the share had shot up 12% on market buzz that a Chinese mining company may buy out the promoters’ stake in Vedanta.

“ZCI’s shares in Konkola are being offered to Vedanta rather than being sold through the Lusaka exchange or sold in any other way because that is the provision of the legal agreement that was reached at the time Vedanta was acquiring its current 51% shareholding in Konkola,” said Mr Kamwendo. On public misgivings about the stake increase, Mr Kamwendo said such concerns were better resolved between the Zambian authorities and Vedanta.

Source: Economic Times