Falling copper prices threaten future operations of Zambia's mining firms

Mining firms in Zambia on Monday said falling copper prices on the international market and the country's new tax regime threatens the future of the industry in the southern African nation.

The Zambia Chamber of Mines, which represents large mining firms, said the price slump and the new tax regime will severely penalize the vast majority of the country's mining operations.

"Over half of Zambia's copper production is currently in a loss- making position following a consistent decline in the international copper price. This price slump, in addition to structural factors, legacy issues and a new tax regime will severely penalize the vast majority of Zambia's mining operations, " Shula Shula, the organization's economist said in a statement obtained by Xinhua.

Copper prices have plummeted on the international market in recent weeks and was trading at 5,353.25 U.S. dollars per ton as of Jan. 14, 2015, its lowest since July 2009.

On the other hand, the Zambian government has introduced a new tax regime for the mining industry in the 2015 budget which has seen mineral royalty increased from six percent to 20 percent for open pit mines and eight percent for underground mines, a move condemned by the mining firms.

The official said most Zambia's mines were high-cost operations, significantly higher than other copper-mining countries in the world, adding that the slump in copper prices as well as the new tax regime will jeopardize mining operations.

"At the current copper price, nine out of 11 of the country's large mines (both open and underground) is uneconomic," he added.

Considering that the mining industry accounts for over 86 percent of Zambia's foreign direct investment and about 80 percent of exports, this was alarming for the economic state of Africa's second largest copper producer, he said.

According to him, government's introduction of the new tax regime has failed to take into account the cost of production and unpredictability of the copper price trend and that this will lead to mine closures in both the short and medium-term.

"This will in turn lead to lost revenue for the country. The trend in copper price is, has been and will most likely remain highly unpredictable," he said.

Some mining companies have threatened to scale down on their production due to the introduction of the new tax regime.

Last week, Minister of Finance Alexander Chikwanda said the government will not rescind its decision to introduce the new tax regime as demanded by the mining companies. Endite