Home > Market change > Zambia suspends permits to export metals

Zambia suspends permits to export metals

October 7, 2011

“Zambia’s new government has suspended metal export permits as it prepares new guidelines for the sector of Africa’s biggest copper producer. The decision followed concerns that copper exporters had not been paying their full duties to the state and is seen as an attempt to improve transparency in the industry. But it is also the latest in a number of sweeping measures by President Michael Sata’s administration, including the threat of higher mining taxes, as he looks to stamp his mark on the country after winning September 20 elections.

Frederick Bantubonse, general manager at Zambia’s Chamber of Mines, the industry body, said he was ‘terribly worried’ by the suspension. ‘At the current copper production level, you are talking over 2,000 tons of copper per day … you have contracts with exporters, you have contracts with the transporters,’ he said. However, an official at the Ministry of Mines and Minerals Development said the guidelines were merely following a presidential directive that all exports need to be cleared by the central bank.”

Source: Wall Street Journal, June 3 2011

Observations:

  • Zambia’s new president promised to strengthen control over the country’s mining sector, responding to unrest in the country about the actions of foreign mining companies.
  • Zambia accounts for approx. 5% of global copper production with a significant potential to grow. First Quantum’s Kansanshi copper mine is among the world’s top 20 in terms of output. Only one-tenth of the tax revenue comes from copper, though three-quarters of export earnings are from copper.

Implications:

  • Resource nationalism is a key issue in the mining business this year, driven by high commodity prices and economic uncertainty. Just this week the news featured Vale’s potential agreement with the Guinean government about Simandou ownership and the request and withdrawal of the same request of Mongolia’s government to review the ownership of Oyu Tolgoi, developed by Rio Tinto.
  • The concerns of the chamber of mines about contractual obligations with exporters and transporters are not very fundamental. All the parties in the mining value chain benefit from high copper production, making it easy to find a modus operandi while the uncertainty lasts. However, the industry in Zambia will have to prepare itself for negotiations about higher taxes as the new government will try to gain popular support by transferring more of the profits from the country’s natural resources to the people.

©2011 | Wilfred Visser | thebusinessofmining.com

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