Thursday, 11 June 2015

ZAMBIA CAN STILL GET MORE OUT OF ITS MINERALS

<<BUT IT HAS TO LOOK BEYOND TAX BENEFITS>>

PART1
Barrick Lumwana Mine in Solwezi
By Nyalubinge Ngwende
The uncertainty over one of Zambia’s mining operations closing down has been settled and put behind the country’s concerns.
Lumwana mine in Solwezi of North Western Province faced closure. This followed indications by Barrick Gold of Canada that it was pulling out and placing on care its open pit copper mine in the first week of January due to unfavourable tax measures announced by government.
Government last December introduced new royalty taxes of up to 8 percent for underground mining and 20 percent for open-pit operations, claiming the measure was intended to give the country more benefits from its mineral wealth.
However, government made a last ditch, reversing the tax regime in a move that State House announced was intended to serve 4,000 jobs that were going to be lost if the mine was forced to close.
 Now Zambia’s copper mining has been deemed as curse by several social movements. This is because the country that has most of its mines in private hands of multinationals has been getting less tax.
There is no argument that government should get the most benefits from its mineral wealth, which remains a major contributor to the country’s GDP.
In case of Lumwana, the mine owners are yet to pay a dollar to government over rescheduled tax declarations on excuses that government has not yet made public. Nevertheless, the closure of the mine was going to spell disaster in the economy of North Western province and the country at large.
On the other hand Lumwana is one of the mining operations enjoying innovative mining technologies applications to harvest lower copper grades for processing.
The mine also has over 4,000 direct jobs, and all these people who were by now going to be on the street. It was not only the direct workers were going to be condemned into unemployment and consequently poverty, contractors and suppliers of goods and services employing close to 7,000 were going to be forced out Solwezi.
Job losses aside, the closure of the mine was also going to signal unstable poor policy structures in Zambia, especially being exacerbated under the populist policies of the Patriotic Front government.
President Edgar Lungu’s decision to reverse the new mining tax royalties may have come too slow, but in the long run may help to reverse the eroded investor confidence that led to the country’s Kwacha to nose dive against major exchangeable currencies.
The banking sector today is thriving because of the same mines that use the financial services and pay huge bank charges. The workers in the mines also use the same banks and the banks are adding to the expansion of the financial sector, reaching un-bankable populations and increasing savings.
The Brutal Journal has always said that national policy is something on which government must spend much time thinking through. It is not something that you do in response to the motions of one’s gut, but the pain of fixing one’s butt to the stool and using the head and not vice versa.
The choices of policies should not be about silencing the voices of those who are calling from the terraces and have very little time to understand and know the functioning of economic sectors or fill lazy to take time to do so.
Fiscal policy choices should not just be a calculation of tax and how much hard cash will enter the government coffers. The best policy choices should at the end of the day look at the broader picture that sustain diverse economic activities
These economic activities do not just happen. There are business interests, financing, providing the technology and getting the right people with capabilities to deliver the output. That is at internal business level. Then there are also external social and economic benefits that may not be calculated in cash, but contribute to the national output. These external benefits put income in the hands of people who are making the economic activities of North Western province to thrive.
We are aware that those who come to invest in the extractive industries of our country prioritise profit interest, dodge paying tax through several corporate tricks. But it is not a harsh tax regime that can resolve the problem of Zambia getting the best out of its mines.
There is need to start re-looking at the agreements that the country has been entering into with these multinationals and rephrase them to clauses that puts a smile on both the people of Zambia and the multinational owners.
Why don’t we have Zambians being given an opportunity to have a stake in these operations? It is not just stakes that matters at the end of the day, but what those stakes or shares are intended to produce in the long run.
The other thing is to look at how government, through the ministry of mines and commerce, can come and understand fully what quality value chain is required for to be linked to these mines. 
From there it can encourage and support Zambians through financing technology and building capacity for local owned companies to fully occupy the value chain. 
It is not only the bats that eat the fruit of the tree that grow fat, the wheat on which the guano falls yield so well with the rye so health.
What is necessary sometimes is not to seek direct benefits and try to get them aggressively or forcefully. It is easier to get the benefits of the mining industry through value of other things like a processing chain and supply of equipment owned by our own people.  
What we are not doing with the stakes that Zambia has in some of these mining operations, like in the case of Kansanshi mine, is laughable.
The Kansanshi mine, the largest copper mine in Africa, is 80 percent owned by Kansanshi Mining PLC, a First Quantum subsidiary. The remaining 20 percent is owned by a subsidiary of ZCCM—ZCCM Holdings.
What ZCCM Holdings has been doing with the 20 percent share in terms of reinvestment so that it can build mining related enterprises remains an unanswered question.
Kansanshi mine has been in the news that it produces 120,000 ounces per year of dole-gold. That is an average of 43,904 ounces of gold per quarter, accounting for 25% of the precious mineral produced by FQM's global subsidiaries, says the Mining Review (https://www.miningreview.com/first-quantum-minerals-agreement-on-ebitda-covenant/).
This is gold mined and processed up to 96 percent high-grade concentrate ready to be smelt into gold bullions. The mine decides to sell the dole-gold to South Africa’s Anglo or Ashanti Gold for the 4 percent final refining. It is the South Africans who get the full price for the gold from Zambia.
The question is why has ZCCM-Holdings allowed such a bad gold marketing trend to continue? What has it been doing with its 20 percent shares from Kansanshi mine that it has failed to invest in infrastructure needed for smelting this precious metal to pure gold and produce mints that it can sell to collectors?
Commemorative gold coins and articles for Zambia’s 50th Anniversary were going to be produced in limited number not for circulation, but raising money for important causes.
USA mints gold and raises money through auctioning. 
“Since the modern commemorative coin program began in 1982, the United States Mint has raised more than $506,301,189 in surcharges to help build new museums, maintain national monuments like the Vietnam War Memorial, preserve historical sites like George Washington's home, support various Olympic programs, and much more”, says www.usmint.gov/mint_programs, an online
The site adds that “Congress authorizes commemorative coins that celebrate and honour American people, places, events, and institutions.  Although these coins are legal tender, they are not minted for general circulation.  Each commemorative coin is produced by the United States Mint in limited quantity and is only available for a limited time”.
The Chinese are also using the Panda gold coins to celebrate their national heritage while people also buy these coins at premium prices as a store of value.
China ranks first in terms of Reserves of foreign exchange and gold (US$) 3,236,000,000,000.00 (three thousand two hundred and thirty-six billion), USA lies is ranked number 18 with 148,000,000,000.00 (one hundred forty-eight billion) while Zambia is in the 116 position with a paltry 2,324,000,000 (two thousand three hundred and thirty-four million).
The Bank of Zambia can do more in minting copper and gold coins that are not meant for circulation but can be auctioned at higher value. When rumour went round that there were people buying coins and smelting them, Bank of Zambia looked at the crime side and not at how they could find a way to utilise the demand that coins had.
NN