Once again proving that Africa is not for sissies, South African miner, Metorex's CEO Charles Needham last week explained the firm's interactions with the governments of the Democratic Republic of Congo (DRC) and Zambia, where it operates copper mines, and assured investors that he felt confident about the company's standing in both countries.

Speaking at the company's results presentation, in Johannesburg, Needham said that it had received a letter from the DRC's Department of Mines regarding its mining contracts in that country and that it had now asked for an extension of 30 days to respond.

It received the letter on February 18, which was dated February 11, and response was requested from the company by February 20, which the company viewed as impossible.

"I think they understand that we can't get back to them in two days with our necessary documentation. We, however, would like to get back to them in about a week, so by the end of next week our responses will be through to them. I think the Minister is aware that there is enormous international pressure on him to finalise this process," added Needham.

"We stand by what we have been saying all along and that is that Ruashi has been doing exactly what it said it would do. We have met all of the various thresholds, we have brought one mine on stream, we are commissioning a second plant, which will probably be the most modern and efficient plant in the country and we are confident that we are not at risk of losing title, and I don't believe we are at risk of changing our equity ratios," Needham stated positively.

The letter raised three issues to be addressed.

The first was that the government requested the Ruashi feasibility study so as to assess whether or not the returns to respective shareholders, namely Metorex, Gecamines and the government were equitable.

Needham said that the company had "done some models" on taxation going forward, considering company taxes, royalties to Gecamines, royalties to government, employee tax, and import and export taxes. "The number that we came out with indicates that they are not 20% participants, but they are probably close to double that figure. We think that we could illustrate to them they are not being prejudiced by their holding in Ruashi," he added.

The second issue was about the social programme in the past and going forward. Metorex confirmed that it had provided power and water to the Ruashi village, had entered into a relocation programme with the artisinal miners that were there, had sponsorships in terms of the local community.

"We have done an awful lot for that local community, and going forward, we have the funds for future social development programmes. We are very comfortable that they [the DRC government] will be satisfied with what we are doing," stated Needham.

The last point dealt with Gecamines day-to-day involvement with operations. Needham emphasised that high level Gecamines employees already sat on the Metorex board of directors, they meet on a quarterly basis and they were exposed to everything that was happening from a capital perspective, operational perspective, future operations at Ruashi. Gecamines also attended monthly meetings on operations. "So we are not concerned about the Gecamines day-to-day involvement," he affirmed.

Zambian tax question

Meanwhile, commenting on the changes Zambian mining tax regime, Needham said that the propositions were more than doubling its current tax rate, but that the company believed that the propositions could be adjusted through negotiations.

Zambia recently proposed changes to its mining tax regime. The initial agreements were signed in 1997 when the copper price was significantly lower than current prices, and so profits generated by mining were now higher than the financial models reflected.

"We have looked at the effect of what they are proposing, and it more than doubles our current tax rate, which is unacceptable to us, we are protected by international law," Needham explained.

Metorex's Chibuluma mine in Zambia was protected for a period of 15 years by a taxation stabilisation clause in the Development Agreement signed in 1997 under the Zambian Mining Industry Privatisation process, governed by English law and established in conjunction with the World Bank.

The mining industry in general had opposed the changes.

"The government understands that there is a development agreement that protects the companies, and they could potentially run into legal problems. And, if this were implemented, there are a number of new prospects that are not going to come on line, and I think is probably the closest would be Equinox. They are spending enormous capital to get that prospect up and running, and if that tax regime comes in, it is our understanding that they fall foul of their arrangements before they even start," Needham indicated.

"We are clearly of the view that the government is open to negotiation on this one and we are going back to government as a united force, (all the mining companies in Zambia) and we are saying we understand where you are coming from, and the prices are higher than we envisaged in our feasibilities, so what we would like to propose a variable tax rate at variable copper prices, which we think is equitable both to the fiscus and to the company," Needham said.

He was, however, adamant that the increase in funds going through to the government should go into the community closest to the company's mines.

* To watch a video on Metorex CEO Charles Needham discussing the Zambian government's tax proposals and mining companies' objection to the proposal, log on to www.miningweekly.com and click on 'Video Clips'.