Ven 30 Jan 2015 14:51
Vedanta Reviewing Zambia Mines Hit by Copper Slump, Royalty
Copper prices fell to the lowest in 5 1/2 years in London on Thursday. In Zambia, a new tax system that increases mineral royalties to 20 percent from 6 percent for open-pit operations and to 8 percent for underground mines, became effective this month. The government withheld more than $600 million in value-added tax refunds to mining companies including Vedanta it says haven’t supplied required documents.
The company is “reviewing our operations in the light of lower copper prices, the VAT refund issue and the changes to royalty regime,” Vedanta said in a statement on its website.
Any production or staff cuts at Vedanta’s Konkola Copper Mines Plc unit will pose a challenge to President Edgar Lungu’s government that won elections this month on a populist platform of job creation and poverty reduction. Vedanta didn’t say what the operation review entailed or how long it would take.
KCM is “a going concern and we have a couple of initiatives in place to stop the negative cash bleed,” Steven Din, the chief executive officer of the unit, said on a conference call Friday. “We are looking at restructuring assets and I’ll be speaking to government officials next week on how we can try to implement some of those projects to maintain our cash flows.”
Layoffs and capacity shutdowns wouldn’t be well received by the new government, Patrick Jones, an analyst at Nomura International Plc in London, said in reply to e-mailed questions. “After several previous attempts at labor cuts, KCM faced significant government resistance and would likely do so again.”
Already Barrick Gold Corp., the biggest producer of the metal, said in December it would start the process of putting its Lumwana mine in northwestern Zambia under care and maintenance because of slumping copper prices and the new tax system.
The increased royalties would have an impact of about $15 million on pretax profit in the three months through March 31, Vedanta said.