LUMWANA MINECLOSURE RISK: IT IS ON THE WALL Just read that Lumwana risks being closed due to the pending increase in Mineral Royalty Tax. I once posted on this page that economics is not emotional; emotions dont solve economic problems regardless of how one feels and Zambians are quite expectedly very emotional about the mines; largely because we dont have other major sources of revenue. I have discussed the issue of Mining Taxes in my book and my arguments are still very valid even in the current circumstances. This is because they are anchored on economic theory! Having been the Economist for the Chamber of Mines of Zambia, I have a little bit more than the average expert on mining economics. I anticipated that Lumwana Mine would be the first to close should copper prices fall or costs rise (taxes, oil, electricity, labour or any other costs for that). The reason is simply that Lumwana is a big mine but a very marginal mine. It has large copper ore body but low copper content so it becomes a high cost mine, pretty much operating at the margin. The proposed mineral tax regime will certainly add to the costs because it is on revenue, thus reducing the profit margin and the mine risks closure. It must be understood that some mines can withstand this new royalty tax even though I would be unprofessional to name them. What i noticed while at the Chamber was that there is little understanding in Government (Ministry of Mines and Ministry of Finance); the NGOs and even the Bank of Zambia of what happens in the mines. So often and unfortunately important policy measures may be taken in the absence of an informed study; there are hardly comprehensive even two page analysis on the costs and benefits to the economy of measures taken on mining. I have seen some presentations on mining which are really out of this world; by people without much of an idea as long as they have a forum. I suggest that experts must be engaged to do snap short-term, say one week studies to give a more in formed position. They was appointed a Forensic Audit Team headed by Professor Mwenenchenya but it is long and no results yet?
Posted on: Thu, 30 Oct 2014 11:37:47 +0000
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