Zambia Warns of More Copper Mine Closures After Royalty Rise

Higher royalty fees for copper mines in Zambia may result in the closure of several mines in Africa's second-largest copper producer, the Chamber of Mines warned Friday.

Plans to more than triple royalty fees for open pit mines, effective January next year, will make several of them inviable, threatening jobs and output, said the chamber, which represents mining companies that operate in the country, including Glencore PLC (GLEN.LN) and First Quantum Minerals Ltd. (FM.T), Vedanta Resources PLC (VED.LN) and Barrick Gold Corp. (ABX).

Several copper expansion projects may be halted as a result, it added.

Earlier this week, the country's parliament approved the 2015 budget, under which open pit mines will pay up to 20% in royalties, compared with a current level of 6%. Royalties for underground mines also will be raised to 8% from 6%.

"The imminent implementation of the 2015 budget measures may make a number of other operations economically inviable, potentially leading to further mine closures" the chamber said.

The warning highlights increasing tensions between the government and the mining industry as the former seeks to benefit more from the country's natural resources.

The International Monetary Fund on Friday warned that the Zambian economy would expand to its slowest pace in more than a decade during 2014, partly due to the government standoff with miners over royalties.

"Lower world copper prices and the announced shift to a royalty-only mining tax regime, with high rates, are likely to adversely affect the mining sector," IMF said

On Thursday, Barrick said it would close down its Lumwana copper mine, a day after the 2015 budget was approved, saying the new royalty doesn't take into "consideration the profitability" of operations. It said it would record the impairment charge related to the operation in the fourth quarter.

The chamber said that the closure of Lumwana now threatens at least three copper smelters that have been treating concentrates mined at the open pit mine.

A government spokesman could not be reached immediately for comment.

Write to Nicholas Bariyo at [e-mail]

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