Kansanshi nets ‘super’ tax

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By CHISHIMBA CHISHIMBA

KANSANSHI Mining will have contributed K2 trillion in taxes by the end of this month to the national treasury since January as the mining sector continues to hold the fort in the economy.
According to the K20.5billion worth 2011 national Budget, about K15 trillion will be raised from taxes, with the mining tax expected to contribute K1.8 trillion, mineral royalty tax K404.7 billion while K554.8 billion will come from mining tax arrears.
Kansanshi Mining therefore is yet again in the race to net the highest contribution in form of taxes to the national treasury considering that the K2 trillion will be realised within the first six months of this year.
This follows therefore that more taxes would be paid to the Government in the other six months starting July.
Last year, Kansanshi won the Zambia Revenue Authority (ZRA) largest tax payer award after contributing in excess of K5 trillion from 2006.
The debate on the mining sector’s contribution in terms of taxes has taken centre stage as the copper prices are hovering around $9,000 on the international market.
Some quarters have contended that the mines should contribute more since they are making super profits while the Government believes that the current tax regime should be maintained to sustain investment in the sector.
Whereas copper output in 2000 in Zambia was as low as 200,000 tonnes, last year the country recorded more than 700,000 tonnes and the figure is expected to hit 1,000,000 tonnes next year.
The high demand for the red metal from rapidly growing economies such as China, Brazil, India, and Indonesia has pushed the prices up three-fold in the last decade.
Depending on economic trend, copper prices can swing either way.
Therefore, in debating mine taxes, industry players and other partners should all the time take into account that firstly mining is capital intensive and secondly that the prices do fluctuate and could at times plummet steeply.
As for Kansanshi, it started operations in 2005 and the following year begun contributing taxes because it realised a reasonable return on investment even before the lapse of the tax holiday.
It is among Zambia's giants in the mining sector where innovation and increased output at this particular time are key in order to sustain operations and recoup maximum profit.
The First Quantum Minerals (FQM) subsidiary 10 Km North of Solwezi is in the process of completing its value addition circuit with the planned expansion in which a smelter will be established.
Mining which is wasting in nature, requires innovation and focus to sustain operations that would ultimately ensure that an enterprise gets a return on investment.
More importantly, the legal regime should be user-friendly for mining enterprise to thrive to sustainable levels.
The Government has thus committed itself to ensuring that the mining industry continues to thrive while at the same time focusing on diversifying the economy to agriculture, tourism, manufacturing, and construction sectors.
The country will have to maintain an attractive investment climate in order to lure more international and local firms while those already established will continue enjoying existing incentives coupled with a peaceful environment as well as a user friendly regulatory framework.
So far, mining firms in the country have shown a forward-looking investment culture able to trigger the much-needed increased and sustainable production levels.
Kansanshi Mining finance manager Hayward Muller says mining is an undertaking which should remain cost effective in terms of operations.
“At Kansanshi we ensure that we remain focused and don’t lose money. We make mining less expensive,” he said in his presentation at the mine offices on Friday last week.
Mr Muller says production should always be at optimum with minimum costs so that the mining enterprise is able to meet all its obligations including taxes to the Government.
Public Relations Manager Godfrey Msiska notes that apart from providing jobs, currently at 5,500 employees, Kansanshi is alive to the fact that it has to plough back into the community it operates, hence its Corporate Social Responsibility programmes in Solwezi.
There are development programmes in the health, education, and road infrastructure, Mr Msiska says.
Kansanshi has commenced phase one project to expand capacity from the present 250,000 to 400,000 tonnes per year by 2015. It has stepped up exploration works to update reserve and resource by the end of this year.
The mine is undergoing production capacity expansion in the first phase to include oxide circuit treatment capacity to be commissioned in the last quarter of this year.
In the second phase, the putting up of the new concentrator will start next year and will be commissioned by 2014.
The mining firm is evaluating the technical details on the establishment of a copper smelter so that the concentrates could be processed within Kansanshi and cut down on costs related to transport and payment of services to processing firms.
It is important to note that Kansanshi produces copper concentrates from the sulphide ore while the copper cathode is produced from the oxide ore. Gold is a by-product from the ore.
Cathodes (complete copper) are produced on the mine site while concentrates are sent to smelters on the copperbelt for further processing into cathodes.
Kansanshi senior production geologist Chris Beaumont said the mine has a lifespan of about 50 years.
Mr Beaumont said though that the lifespan mostly depends on economic trends and geological techniques.
In many discourse, there has been misrepresentation of facts in identifying the copper processing stages.
In particular, some people have used the terms concentrates and cathodes interchangeably. These are two different products.
The concentrates are the darkish product which should further go through a smelter to be processed into a finished product or copper cathode.
On the whole, not all the mining firms have had it rosy in terms of tax contribution to the Government.
It is important to appreciate that Governments world over employ a tax regime which provides stability for investors to be able to plan in a more forward-looking fashion and also contribute reasonably to the treasury.
A good tax regime therefore should always be user-friendly and predictable not only for investors but also for the implementing government.
For the mining industry in Zambia whose fast-selling commodity is predominantly copper, it would not be feasible to re-visit the tax regime haphazardly as the move could stifle the industry.
One of the reasons why for instance Windfall tax was done away with was because it was based on revenue as opposed to profit, without due consideration to production costs.
Secondly, copper prices fluctuate depending on the demand for the commodity and at times suffer steep price downturns for long spells.
The price structure could be affected by both local and international shocks.
The mining firms should however continue being cost effective and upscale their corporate social responsibility programmes.
Kansanshi is on course: it has netted ‘super’ tax.