By Alexandra Wexler
LUSAKA, Zambia--Zambia's government will roll back contentious
mining taxes next week, backing down from a standoff that hit
profits and production in Africa's second-biggest copper
producer.
A return to lower levies should be a windfall for foreign
miners, including Glencore PLC and Barrick Gold Corp., that slowed
operations in Zambia as the taxation dispute raged and global
copper prices tumbled. At the same time Zambia's government, which
derives a third of its revenue from the sector, is likely to take a
sizable hit to its coffers, making it more difficult to meet
development goals.
Zambia's running feud with these companies has become a litmus
test for dozens of African countries seeking to balance
compensation for their mineral wealth with conditions that will
attract investment.
Mines fuel about half of Zambia's economy and 67% of exports,
according to the Extractive Industries Transparency Initiative, but
contribute just 30% of the government's tax revenue.
In a bid to increase that stake and narrow a yawning budget
deficit, Zambia scrapped corporate income taxes in October, but
required open-pit mines to pay up to a fifth of their revenue in
royalties, up from 6% previously. Underground mines were told to
pay 8% royalties, also up from 6%.
Glencore and First Quantum Minerals Ltd. shelved expansion
projects worth $1.5 billion. Barrick threatened to close its
Lumwana Copper Mine, and overall copper production dropped 10%
annually in the first quarter of 2015, Zambia's central bank
said.
As of July 1, the government is expected to revert to a 30%
corporate tax--which many companies avoid because they say they
aren't profitable--and softer royalties of 9% on open pit mines and
6% on underground operations.
"We listen very, very well to the mining industry," Christopher
Yaluma, Zambia's mining minister, said at a copper industry
conference earlier this month in Zambia's capital. He added the
negotiations had included "some not very, very lovely notes," from
mining executives.
But one point of contention remains unresolved.
The Chamber of Mines of Zambia says major copper miners are owed
nearly $800 million in value-added tax refunds stretching back to
2013. "Clearly it's unhelpful, there's no doubt about that," said
John Gladston, head of government affairs for First Quantum in
Zambia. He said First Quantum is owed about $250 million in VAT
refunds.
Steven Din, chief executive of Konkola Copper Mines PLC, a
subsidiary of Vedanta Resources PLC, said the withheld VAT costs
the company about 16% on everything it produces. That means
Konkola's smelter has been operating well below capacity, said
David Paterson, the company's vice president of local economic
development.
Still, Mr. Din said the mining industry's relations with
Zambia's newly elected government are improving. "A lot of good
work has been done," he said.
President Edgar Lungu, who inherited the tax dispute when he was
elected in January, made resolving the clash a priority. In his
maiden address to his cabinet, Mr. Lungu directed the Zambia
Revenue Authority to expedite talks with miners and resolve the
impasse.
Write to Alexandra Wexler at alexandra.wexler@wsj.com
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