Zambia plans incentives to stimulate mining

Mwanawasa also said the country needs about US $10.6 million to geologically map the whole country, only 65 per cent of which has been mapped so far.

Meanwhile, Zambia’s mines minister Kalombo Mwansa has said the state would soon convene a consultative meeting with miners in Zambia to discuss the pending review of the country’s mineral royalty tax, which is tipped to increase to 2.5 per cent from the current 0.6 per cent.

In a speech read for him by Mwansa, Mwanawasa told over 300 project promoters and prospective financiers that Zambia, known for her copper and cobalt output, had a myriad of other mineral resources that were waiting exploitation.

He gave an outline of some of the major mineral deposits that have been identified by the Geological Survey Department including manganese, nickel, coal, uranium and an array of gemstones including emeralds, amethyst, tourmaline and aquamarine.

Mwanawasa said to the discerning investor, the array of mineral deposits that Zambia offered presented numerous opportunities for investment in downstream processing of mine products.

He noted that most manganese and gemstone mining operations were operating at small-scale level, but that they could profitably operate at large-scale level.

Mwanawasa said to strengthen investment in the sector, his government has decided to extend all tax incentives enjoyed by copper and cobalt miners to other base metal operators.

These include duty-free importation of machinery and equipment for use in mineral exploration and mining, a value added tax (VAT) rate of 17.5 per cent for local sales and zero per cent for exports, no withholding taxes on dividends, royalties and management fees to shareholders or interest paid to lenders of money to mining companies and the negotiation of development agreements with the state.

Other incentives include increasing the exemption period in which VAT for pre-production expenditure for mineral prospecting from four years to five years, making costs incurred by miners for environmental restoration deductible for income tax purposes and introduction of indexation of loss carry forward and capital allowance for mining companies holding large-scale mining licences.

The Chamber of Mines in Zambia immediately welcomed these pronouncements saying they would help harmonise the cost structure in base metal mining in Zambia, which has pulled close to US $2 billion in new mine industry investments since privatisation. The investments have come through re-capitalisation as well new operations, notably Kansanshi mine and the about to come aboard Lumwana Mine.

“The outlook for the mining industry in Zambia is bright, more so that we intend to make this industry a highly competitive and risk free investment,” Mwanawasa said adding that once Lumwana Mine comes aboard, copper output would reach 700,000 tonnes ‘ a level last reached during the 1970s. Zambia last year produced 468,000 tonnes of copper, with 600,000 targeted for this year.

On the geological mapping of the remaining 45 per cent of the country, the Zambian presdident said: “At an estimate of US $80,000 per quarter degree sheet, Zambia needs about US $10.6 million for 133 sheets to cover 45 per cent.

And in an interview shortly after opening the Mines 2006 Conference sponsored by the EU-Southern Africa Development Community (SADC) Investment Promotion Partnership (ESIPP), Mwansa said increasing the royalty was already decided, with parties only expected to agree on how much.

“Government has decided to increase the mineral royalties and the new royalties will be announced either end of this year or next year. But this will be done after meeting with the mining companies. The current royalties are too small compared to the profits that mining companies are getting from their investments,” he said.

But Mwansa seemed to forget that miners in Zambia, especially those that bought ex-ZCCM assets, are yet to declare profits as they have been allowed to carryover losses up to 2008, a situation that has raised suspicion that the pending royalty hike intends to eat into miners’ revenues once they start declaring profits.

Charge dAffaire at the European Commission’s delegation office in Zambia Francesca Di Mauro urged mining companies to help alleviate poverty in the countries hosting them.

Di Mauro said every business should strive to ensure equitable sharing of benefits out of the mining operations while maintaining a globally competitive climate.

“The necessary supportive political environment for a thriving mining sector can only be sustained if there is a demonstrable win-win situation,” Di Mauro said.

She said the mining sector in the southern African region still faced considerable constraints despite the developments in the sector including “insufficient management and entrepreneurial skills, the lack of exposure and understanding of the mining markets and poor infrastructure in particular communication facilities so vital to establishing and maintaing links with investors and buyers, are further constraints.”

Di Mauro said through ESIPP, the European Union was supporting governments in the SADC region to address these constraints through different instruments and by bringing together investors and operators to stimulate the formation of joint ventures and to provide technical assistance.

December 2006
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