Equinox


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Posted: April 01, 2008 by David Pett

Equinox Minerals Inc. shares were down 10% on heavy volumes Tuesday as Zambia gets set for to raise mining taxes this month.

Zambia began enforcing its new tax code today that will see mining firms pay more in royalties and other taxes despite objections that the government has reneged on tax exemption deals with foreign investors.

All foreign firms in the copper-rich southern African nation are required this month to start paying the higher taxes, including Canadian-owned companies Equinox and First Quantum Minerals. 

Equinox’s copper production is exempt but its future uranium production would be subject to the tax.  

The mineral royalty has increased from 0.6% to 3%. and corporate taxes increased from 25% to 30%. The African country also introduced a 15% variable profit tax on taxable income above 8% and a minimum 25% windfall profit tax.

Equinox shares were down 50¢ to $4.38 at 10:30 a.m. ET, and First Quantum shares were down 3% or $2.57 to $80.67. 

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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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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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By Shapi Shacinda

LUSAKA, Jan 22 (Reuters) – Zambia’s copper producers trimmed daily output following a second nationwide power failure within 48-hours and they planned to import 210 megawatts of power from the Democratic Republic Congo (DRC), officials said on Tuesday.

Neighbouring Zimbabwe also saw its second nationwide power blackout in two days, paralysing industry and dealing a further blow to its ailing economy.

A senior industry official said Zambia’s state power utility Zesco was rationing electricity supplies to mines due to a “systems failure.”

The power disruptions plunged the whole of Zambia into darkness for the second time on Monday night, forcing the vast copper and cobalt mines to suspend production.

“The mines are not producing normally because we are only able to supply them with power to keep emergency operations as Zesco has limited power supply,” said Hanson Sindowe, the chairman of power distributor, Copperbelt Energy Company (CEC).

CEC purchases power from Zesco for distribution to all the mines in Zambia.

“Zesco can only give us up to 400 megawatts, while total demand for power at current production levels is 530 megawatts. We are now in the process of arranging imports from the Congo, which will be between 200 megawatts and 210 megawatts,” Sindowe told Reuters.

There was uncertainty as to when normal power supplies would resume because Zesco had not identified the cause of the blackouts, which started on Saturday night. Sindowe said mining operations had not yet returned to normal.

OPERATIONS STOPPED

Industry officials said they had stopped operations at some mines in the mineral-rich southern Africa country to avoid endangering lives of miners and damaging equipment.

“We could not send the night shift underground because there is no point endangering the lives of people. The biggest danger is the frequency of the power failures and we are not sure when this will be resolved,” said Passmore Hamukoma at Zambia’s second largest mining unit, Mopani Copper Mines (MCM).

A nation-wide power blackout over the weekend hit copper and cobalt output in Zambia and briefly trapped workers underground.

Mines in Zimbabwe also continued to suffer huge losses due to stalled production on Tuesday and the electricity outtage there forced factories to a halt, while there was no trade on the Zimbabwe Stock Exchange.

The power cuts worsened already erratic water supplies that have assailed the country for months, with large parts of the main cities of Harare and Bulawayo as well as other urban centres going without water on Tuesday.

Officials at state power utility ZESA were not immediately available for comment, but state media quoted a company executive as saying the blackout resulted from a recurring systems failure at its Kariba hydro electrical plant on the border with Zambia.

Power outages have also caused partial flooding at mines in the two countries as water could not be pumped out.

Derek Webbstock, the chief executive of Luanshya Copper Mines, which operates Baluba copper mine and Chambishi Metals Plc, Zambia’s leading cobalt producer, said it had suffered losses totalling $5 million after the two power failures.

He said hoisting of copper from underground and the transportation of ores had been disrupted.

Webbstock said operations at LCM had not returned to full capacity on Tuesday because of damage to equipment despite power being restored and the firm was realigning its operations.

“This is very serious because we are losing income and this will affect economic growth. It will also impact on the workers and the community too and currently there is no proper information how long this might continue,” Webbstock added. (Additional reporting by Nelson Banya in Harare; Editing by Veronica Brown)

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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, Jan 11 (Reuters) –
Zambia will introduce a windfall mining tax this year in a move it expects to generate $400 million in revenue, President Levy Mwanawasa said on Friday.
levy.jpgHe told parliament the new tax regime would effectively increase mining taxes to 47 percent from 31.7 percent.
Mwanawasa’s government has been pressured by unions over the past few years to spread the benefits of its copper wealth, the mainstay of its economy, to its citizens and workers in the industry who complained of poor wages.
Mwanawasa said the hike in taxes sought to address those concerns. “The new regime introduces a windfall tax and a variable profit tax that has been designed to work in periods of both high and low prices and for both high and low cost mining projects,” Mwanawasa told parliament, adding that the new system will start in the first three months of this year.
He blamed tax five to 20 years incentives awarded in recent years to firms for creating an imbalance in mineral wealth between the state and private sector.
Mwanawasa said Zambia in 2007 only collected $142 million in mineral royalty and company tax from earnings of $4.7 billion in copper and cobalt exports by foreign owners of its vast copper and cobalt mines, despite a 400 percent increase in global metals prices in the past seven years.
He added that foreign mining firms were expected to earn up $4 billion this year if metals prices kept at current levels. “Clearly, Zambia’s fiscal mining regime is extremely generous and provides the lowest revenues to the government. This to a large extent has been a source of public outcry,” Mwanawasa said.
Mwanawasa said additional resources from the new tax measures would enable mineral-rich Zambia to spend more on education and health and help achieve its aim to be a prosperous middle-income country by 2030.
Mwanawasa also said Zambia would introduce uniform tax measures for all foreign miners. “In view of this, there will no longer be any need for special agreements with investors in the mining sector and eventually all the sectors,” he added.
Mwanawasa said a new regulatory regime would be introduced to safeguard foreign investments in mining. “It will have a modern licensing system based on transparent procedures (and it) will provide for transparency in the accounting and utilization of mineral revenues,” Mwanawasa said.
Zambia has been in negotiations with mining companies since October last year about proposed increases in mineral royalties, corporate taxes and customs duties on imported equipment, as a way of boosting revenue from the sector. The copper mines are a major employer in this southern African country of 12 million people.
Source: Guardian Unlimited
(Reporting By Shapi Shacinda, Editing by Peter Blackburn)

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By Joseph J. Schatz The Associated Press

LUSAKA, Zambia: Resurgent global interest in nuclear power has made Zambia, a country better known for its vast copper reserves, into a hotbed of uranium exploration.

The search for uranium in Zambia is part of a larger wave of uranium exploration and mining across mineral-rich Southern Africa that is raising hopes of new jobs and tax revenue, but also sparking debate over safety and security.

Many countries are looking for cleaner and less-costly alternatives to oil and coal power, and uranium prices are high after a decades-long slump.African Energy Resources, an Australian-owned mining outfit, is drilling on the southern border with Zimbabwe.

Equinox, a Canadian-owned company, said in November that there was high-grade uranium in the Lumwana open pit copper mine in northwestern Zambia; it hopes to begin stockpiling it next year.

Zambia’s government is now completing new regulations to cover the mining, processing and export of uranium products, said Maxwell Mwale, Zambia’s deputy minister of mines and mineral development for large scale mining projects.“We are assured of a market in the sense that demand for nuclear power is increasing,” Mwale said.

“Now there are these global warming concerns and issues of reducing carbon emissions, so nuclear power is attractive.” Mwale added, “We had to put in place regulations that conformed to International Atomic Energy Agency standards.

Elsewhere in Africa, exploration is ramping up across the border in Botswana. Namibia’s uranium exporting industry has seen a revival, with a $112 million expansion of the long-running Rossing open mine and the opening of a new mine in 2006 by Paladin Energy in Australia.African Energy Resources has poured $8 million into its exploration project with Albidon Mining in southern Zambia over the past three years.

The exploration is the “biggest push on uranium exploration since the late ’70s,” said Alasdair Cooke, executive chairman of African Energy. With the global energy market coming under so much pressure from new economies, “uranium has become part of the mix.

Faced with domestic energy shortages, the government of South Africa released a draft nuclear energy policy in August pledging a rebirth in the country’s uranium mining, processing and enrichment industries, and the construction of new nuclear reactors over the next decade.

The region’s economic powerhouse, South Africa gave up its nuclear weapons program following the end of apartheid in the 1990s, but still has two nuclear reactors that produce 6 percent of the country’s power.

The scramble for uranium marks a stark turnaround after an industry slump brought on by the 1986 disaster at Chernobyl that made nuclear power a dirty phrase, and by the end of the nuclear arms race of the Cold War.

Concerns over climate change and pollution created by coal, along with high oil prices, have sent uranium prices from less than $10 a pound at the start of the decade to a current price of $88 a pound.

Many countries, including the United States, are planning to build new nuclear reactors, and China is looking to imported uranium for the many nuclear reactors it will use to help propel its rapid economic growth.Mining companies are looking to countries across Africa.

In Western Africa is a leading uranium supplier and produced 3,434 metric tons in 2006.In Southern Africa, the search focuses on the uranium-enriched crust of what geologists call the Karoo Basin.

Namibia and South Africa are believed to hold 6 percent and 7 percent, respectively, of the world’s recoverable uranium resources, trailing only Australia, Kazakhstan, Canada and the United States, according to the World Nuclear Association, a nuclear power industry advocacy group.Up-to-date estimates of Zambia’s potential are hard to pin down.

Here, long-standing uranium exploration started by Italian and Japanese investors ground to a halt in the 1980s.

“With the price increase we’ve seen in the last couple of years, the uranium resource is now quite economical” to mine, said Harry Michael, chief operating officer of Equinox Minerals, an Australian and Canadian venture that is running Lumwana Mine, along Zambia’s border with Congo.

At Lumwana, uranium deposits mingle with copper, and will be mined as part of the same process.Uranium mining could create valuable jobs in mining, transportation and other sectors in a country where about 20 percent of the work force is formally employed, Mwale, the deputy minister in Zambia, said.

Other than more developed South Africa, most nations in the region will remain, for the moment, suppliers of uranium rather than users of it. How much those countries will benefit from their exports will be a crucial question for policy makers.

The issue is sure get attention in Zambia, where the government has been promising for more than a year to increase taxes on foreign copper mining companies that secured minuscule tax rates early in the decade when copper prices were low, and are now reaping huge profits.

Even though nuclear power is seen by many as the environmentally friendly energy source of the future, industry officials still face opposition from some environmental groups and other skeptics.Just east of Zambia, in Malawi, the government’s grant of a uranium mining license to Paladin sparked complaints from the Center for Human Rights and Rehabilitation.

The Malawian government has a 15 percent stake in the project.While the group acknowledged that the almost $200 million mining project could create jobs and profits, in a recent press statement it questioned its effect on the environment and whether “the economic benefits to Malawi through the introduction of uranium mining operations outweigh the social concerns and hazards associated with them.

Experts in the industry say that while radon gas emitted by uranium presents some radiation risks, modern technology makes them negligible to workers and the public.

Radiation exposure is low in open cut mining, and can be further lessened by enforcing strict hygiene regulations on miners using uranium oxide concentrate, according to the World Nuclear Association.In an underground mine, modern ventilation systems are needed to keep miners safe, the association said.

In some regions, the increased demand for uranium has prompted security concerns, especially amid reports of illegal uranium mining across the border in Congo – the same area that produced some of the uranium used in the atomic bombs dropped over Hiroshima and Nagasaki during World War II.

Counterterrorism experts worry about extremists getting radiation materials through a black market for nuclear components that operates despite attempts to tighten security. Growth in mining and processing could make security even more crucial.Mwale, of the Zambia mining ministry, said that Zambia was being cautious.

“We are very particular, as a country, that there will be no lapses at any stage of the handling of the uranium product,” he said.

Source: International Herald Tribune  

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