JOHANNESBURG (miningweekly.com) – The Chamber of Mines of Zambia has expressed concern over several recent policy measures proposed in the country’s 2014 Budget, which it believes will substantially increase the cost of operating mining assets in the country and threaten the viability of the sector.

The chamber, which represents all major operating mines in the country, said in a submission to the Parliamentary Expanded Committee on Estimates that the combined effect of the various proposals would render the sector “extremely vulnerable” to collapse during the current volatile commodity cycle.

Describing Zambia as an “already high-cost mining province by most world standards”, the chamber called for a review of several mining measures, which it said would add to the cost of mining in the country.

“More importantly, the manner in which all these measures are being introduced – without prior discussion or consultation – is fuelling extreme uncertainty among operators of the mining industry in Zambia.

“While the industry appreciates the intent behind the pursuit of this policy direction, policy certainty is a very important factor in mining and we call on government to review these measures,” the organisation stated.

The specific measures proposed under the Budget included the introduction of an export duty on semiprocessed copper products; the introduction of an import duty on various copper products; the introduction of a new rule in the Value Added Tax (VAT) Act; the abolition of capital allowances for mining investment; and the impending roll-out of road tolling.

The chamber expressed objections to the introduction of an export duty on semiprocessed copper products on the basis that the duty would have a “huge and substantial” impact on the operations of companies that did not produce finished copper cathode.

Of the eight major copper mining operations in Zambia, only two had the capacity to process copper up to finished copper cathode.

“The rest rely on smelting facilities owned by other mining companies to treat their products. Introducing a duty that increases the cost of operation of these smelting facilities will inevitably result in these additional costs being passed on to the affected operations. This will have a major impact on the viability of these mines,” said the chamber.

In addition, the organisation believed that the enforcement of an import duty on various copper products would introduce an additional cost to the importation of feedstock for Zambian smelting facilities, which would be passed on to the customers on whose behalf the products were processed.

“If allowed to stand, this measure is likely to undermine, rather than grow, the mineral processing industry; therefore, it is difficult to see how it would contribute to employment creation or value addition,” it noted.

The chamber further held that the recently introduced Rule 18(b) under the VAT Act, which required proof of export for zero rating purposes, had resulted in the Zambian Revenue Authority withholding substantial amounts of VAT refunds for mining houses.

The organisation held that copper exports from Zambia followed a well-documented procedure, which was verified up to the port of exit by the Zambia Revenue Authority itself, rendering the requirement of further proof unnecessary.

“This not only adds a substantial regulatory burden, but creates a substantial cash flow problem for mining operations, which surely cannot be the intent of an organisation tasked with facilitating trade and efficiently handling transactions,” it averred.

Also identified by the chamber as a point of contention was the reduction of capital allowances in the 2013 Budget from 100% in the year of spend to 25% over a period of four years.

The chamber said that, although there had been new entrants to mining in the last few years, the bulk of Zambia’s mining industry comprised mining houses that were running mature assets, which required substantial ongoing investment to keep them productive.

Even in the case of new mines, capacity expansion was required to ramp up to optimal operating levels.

“By constraining the amount of capital allowances and delaying the timing of carrying forward losses, government may gain some transient cash flow, but this has to be measured against the substantial slowdown in brownfield and expansion investment that will result from the additional financial burden imposed by the new capital allowance regime,” it noted.

In addition, the chamber called for clarification from government over the recently announced introduction of road tolls on all major roads in Zambia, which was expected to be implemented from November 1.

The State had not yet clarified whether mine-related traffic, particularly inter-mine traffic involving companies transporting product between facilities for processing, would be subject to this toll.

“While we express disappointment about not having the opportunity to have discussed this with government, the industry wishes to advise that this latest measure is yet another addition to the cost profile of the industry,” the chamber concluded.