Mining firms ask for reduced royalties to cope with slump

October 8, 2015 8:25 AM

"The meeting went very well although there were no firm commitments from the government team on some of the demands from mining companies," the source said late on Wednesday.

A mine worker is pictured at the Freda Rebecca gold mine in Bindura town February 7, 2015. REUTERS/Philimon Bulawayo

Mining companies in Zambia have asked the government to set mineral royalties for both underground and open pit operations at 6 percent to mitigate the negative impact of falling copper prices on the industry, sources said.

The government of Africa’s No.2 copper producer in June cut mineral royalties for underground mines to 6 percent from 9 percent and those of open cast mines to 9 percent from 20 percent following an outcry by mining firms.

An electricity shortage and weaker copper prices due to slower growth by top consumer China have put pressure on Zambia's mining industry, threatening output, jobs and economic growth in the southern African nation, and put its currency on the back foot against the dollar.

The sources who attended a meeting of government officials, including finance minister Alexander Chikwanda, mining companies and labour unions on Wednesday said mining companies also asked the government to quickly pay them their Value Added Tax (VAT) refunds estimated at a total of $700 million.

Zambia's mines minister said on June 29 that the government had started paying VAT refunds to mining companies, aiming to put an end to a long running dispute in which mining companies were then owed about $600 million.

A second source who also attended the meeting said mining firms demanded adequate supply of power at competitive prices and the government said it would do so by March next year.

"The government team assured that electricity coming from new generation projects like the 300 megawatt Maamba thermal power station would be given to the mines as a priority," the source said.

Zambia's power generation capacity stands at 2,200 MW, with the bulk produced from hydropower, but supply is often erratic.

Global miner and commodities trader Glencore's Zambian unit Mopani Copper Mines (MCM) has said it plans to lay off more than 3,800 workers due to lower metal prices and high production costs.

Chief government spokesman Chishimba Kambwili told reporters the government was committed to paying the VAT refunds owed to mining firms and had so far paid out 120 million kwacha.

"It was resolved that the job losses in the mining companies must be kept at the barest minimum and that before any worker is retrenched, the mining companies must negotiate with the unions," Kambwili said late on Wednesday.

Other foreign mining companies operating in Zambia include First Quantum Minerals, Barrick Gold Corp. and Vedanta Resources.