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Zambian government has no plans to seize First Quantum

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LUSAKA/LONDON/TORONTO: Zambia has no plans to seize the assets of Quantum Minerals Ltd and the copper producer intends to stay in the country despite the government’s move to wrest control of a rival miner, government and industry sources said.


Canadian-listed First Quantum has looked on nervously as the Zambian government appointed a provisional liquidator to run Vedanta’s Konkola Copper Mines (KCM), claiming KCM has breached the terms of its licence.


The move has unnerved international miners concerned about rising resource nationalism in Zambia and neighbouring countries.


First Quantum, scarred by having its operations in Democratic Republic of Congo seized in 2010, is embroiled in a dispute with the Zambian government after being handed a $5.8 billion bill last year for unpaid import duties.


“The government will not touch First Quantum,” one source close to the government said. “Vedanta is very different from First Quantum.” Among the international miners, First Quantum has the most to lose in Zambia, which accounts for 83 per cent of production from the company’s operating assets this year, excluding a new project in Panama.


But the company also has bargaining power as the most profitable miner in Zambia and the biggest tax payer.


In 2018, it said it paid more than $533 million in taxes to the Zambian government, including royalties, income and corporate tax.


Two sources close to the company, who requested anonymity because of the sensitivity of negotiations, said First Quantum would stay, but would freeze investment and might put operations on hold.


“They’ll not go. They are here for the long term,” one of the sources said.


Still, the company cannot mine at a loss, and, if necessary, would suspend production and cut jobs, shrinking the tax revenues Zambia desperately needs as its debts mount, one source said.


The Zambian government has increased taxes and said it will switch to a non-refundable sales tax, from a refundable value-added tax.


First Quantum has said the tax changes will add about 10 cents per pound of copper in 2019 to its costs and between 15 cents to 18 cents per pound in following years.


At the time of its first quarter results in April, First Quantum CEO Philip Pascall said the company would be “very cautious” about capital expenditure in Zambia.


Pascall, who attended boarding school in Zimbabwe, has weathered previous changes in the Zambian tax regime and the sources say he will do so again.


“That’s the smart thing to do to wait for relations to be less toxic,” another of the sources said.


So far First Quantum has retreated from threats to shut in production in favour of negotiations. — Reuters


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