Maputo seeks capital gains taxes from mining majors

22nd April 2016 By: Keith Campbell - Creamer Media Senior Deputy Editor

Mozambique’s Tax Authority has confirmed that it is holding negotiations with Vale Mozambique, the local subsidiary of major Brazilian mining group Vale, on the payment of capital gains tax. Vale Mozambique is one of a number of major companies with which the tax authority is currently having such talks. Vale Mozambique owns 95% of the Moatize coal mine and 70% of the Nacala Logistics Corridor.

In the case of Vale Mozambique, the tax is being imposed because of the company’s sale of 15% of its shares, as well as half its share in the Nacala Logistics Corridor, to Japanese group Mitsui. These parallel deals were announced in December 2014 but have not yet been concluded. Mitsui is buying its share in Vale Mozambique for $450-million, plus $30-million, in terms of an ‘earn out’ clause. As the deal also includes a ‘claw-back’ clause worth up to $120-million, the actual cost to Mitsui could range from $330-million to $480-million. The acquisition of 35% of the Nacala Logistics Corridor will cost the Japanese group another $313-million.

Tax Authority chairperson Amélia Nakhare told the O País newspaper that her agency did not regard these deals as completed yet, although the intention to sell was public knowledge, and therefore she could not specify the amount of tax to be levied. She did say, however, that “it would be significant”.

Vale took an impairment of some $2.4- billion on its Mozambique coal operations last year, reducing their value to $1.729- billion, because of the decline in forecast future coal prices and increased logistics costs. These have reduced the estimated net recoverable quantity of coal from the Mozambique assets. Further, the Moatize mine suffered losses of $506-million in 2014 and $508-million in 2015.

The Tax Authority is still seeking capital gains tax from Rio Tinto, which bought the Benga coal mine from Riversdale in 2011 for $3.7-billion, only to sell it to India’s International Coal Ventures Limited (ICVL) for a mere $50-million in 2014. (ICVL is a ‘special-purpose vehicle’ created in 2009 at the initiative of the Indian Ministry of Steel for the purpose of obtaining metallurgical and thermal coal assets in foreign countries in order to assure the supply of imported coal to the Asian country.) However, the Tax Authority affirms that tax is owed on both these deals and that talks are taking place.

Nakhare pointed out that businesses do not automatically tell her agency if they are buying or selling shares or executing takeovers or disposals. “When the media announces that company negotiations are taking place in the market, that allows us to go in search of additional income from capital gains tax,” she said.

Meanwhile, the government of the Mozambique province of Manica has reported that the amount of gold produced in its territory and sold had increased by 47% from 2014 to 2015. In the previous year, the gold produced and sold amounted to 148 kg, while the figure for last year was 217 kg.

However, the provincial government is most concerned about the lack of markets for bauxite being mined in Manica. Production of this mineral also rose by 47% from 2014 to 2015, from 3 386 t to 4 985 t. But much of this remains unsold.

Previously, most of Manica’s bauxite was exported to Zambia, noted Provincial Economy and Finance director Virgulino Nhate. “We have a lot of bauxite in the province,” he said. “Zambia used to buy much of this product. But, in recent years, it has been buying in very small quantities, and this is compromising our production . . . . We are working to see it we can open other fronts to place our product on the market.”

Although Mozambique hosts a major aluminium smelter, Mozal, outside the capital city of Maputo, this uses alumina (refined from bauxite) as its feedstock, not unprocessed bauxite. This alumina is imported from Australia.