New Zambian president pleases miners: taxes may fall

Published by MAC on 2008-11-10
Source: Peter Koven, Financial Post (Canada)

Analysts are hailing the election of new Zambian president Rupiah Banda as potentially good news for mining companies like First Quantum Minerals Ltd.and Equinox Minerals Ltd.

Mr. Banda, who was sworn in on Sunday, comes from the same party as recently deceased former president Levy Mwanawasa. Like Mr. Mwanawasa, he is strongly in favour of foreign investment in Zambia's copper belt.

But he also has one difference from his predecessor: He appears to be opposed to the higher mining taxes that Zambia introduced this year. While he has said publicly that he will follow the policies of Mr. Mwanawasa, there is some hope he will make the punitive windfall profits tax less costly.

"It appears that the onerous tax rates enacted into legislation in Zambia earlier this year are likely to be significantly watered down. And this should enable the country's copper producers to regain a stable economic footing," TD Newcrest analyst Greg Barnes wrote in a note to clients.

Mr. Barnes calculated that the current windfall tax could top 70% at higher copper prices. But if it is reduced to a flat 25% tax above US$2.50 a pound copper, then it would decline to between 45% and 50%. At current copper prices, the windfall tax is irrelevant because prices are too low.

Mr. Banda barely beat out opposition party leader Michael Sata for the presidency. RBC Capital Markets analyst Cailey Barker considers this a "lucky escape," as Mr. Sata was looking to enforce 25% local ownership in mining projects (though this was unlikely to get pushed through because of opposition in the copper belt). Mr. Sata is contesting the vote and that may drag out the current proceedings.

According to Zambian news reports, First Quantum's Kansanshi mine was the only one in Zambia that paid the windfall tax in the second quarter. Equinox's Lumwana mine is going into production by the end of the year, but the company has a development agreement that it says will exclude it from the tax.