WHY WAIVER OF DUTY ON IMPORTED COPPER CONCENTRATES IS PROGRESSIVE

Sun, 25 Dec 2016 10:37:26 +0000

THE decision by Government to remove the budgeted 7.5% levy on imported copper concentrates was made after an elaborate consultative process with the Parliamentary Estimates Committee and Stakeholders. This was a decision in the right direction.

The reasons advanced by the Chamber of Mines and other stakeholders were compelling under the prevailing circumstances in the mining industry. Had the 7.5% proposal been maintained, it could have had a crippling effect on the sustainability of the mining industry.

The Zambia Chamber of Mines requested for a waiver of duty on imported concentrates for a number of reasons:

They explained that Mining companies with excess processing capacity procure copper concentrates from DR Congo with the aim of utilizing capacity of their respective smelters. However, Zambia’s own concentrate production does not meet processing capacity. Some smelters are in ramp up mode and are yet to reach design capacity.

Smelter operations need to have a minimum feed or material treatment rate at about 80 tonnes per hour. If this is not achieved, smelter wear and tear will increase and this will eventuate into frequent shut downs as opposed to the current maintenance shut downs which occur after every two years.

The normal costs of such shut downs are estimated at US$10 million for legacy operations. Ideally such costs should only be incurred after 10 years. To operate at this minimum capacity, smelter needs steady rate of feed and currently Zambia does not have sufficient mining capacity to meet all the smelters capacity.

To make a blend which optimizes smelting operations, Zambia needs a combination of chalcopyrite and chalcocite. However, availability of chalcocite in Zambia is limited. Only Konkola Copper Mines and Lubambe Copper Mines have high grade material suitable for optimal smelting. The deficit of such material necessitates outsourcing from Congo DR.

Therefore, since there is a deficit in the total required Concentrates chemical composition of Chalcocite and Chalcopyrite, procurement of such material from outside Zambia is highly necessitated. If copper concentrates with less chacopyriote are used in the blend plan, operating costs will increase. This is so because Heavy Fuel Oil (HFO) consumption increases.

The required design copper grade of 38 per cent cannot be sufficiently maintained with local copper concentrate material. To achieve or get closer to required copper grade, copper concentrates from Congo will have to be procured, whose grade ranges above 40 per cent. This pushes weighted average grade of copper closer to the required grade. This emphasizes the necessity of Congo concentrates. The proposed move will greatly diminish the amount of copper concentrates imported into Zambia. Consequently, this will hinder the operations of smelters in the country, especially for independent smelters that solely rely on acquiring concentrates. This will severely decelerate economic growth.

Currently, Zambia has an immense deficit in terms of concentrates produced locally compared to the existing capacity to process. The present national processing capacity stands at being more than 3.6 million metric tons of concentrate per year and the output of concentrates in Zambia is around 2.9 million metric tons per year. This compels Zambian smelters to import concentrates from DRC.

Stakeholders and the public may wish to know that some companies have already signed long term contracts with mines in the DRC, with fixed terms. If the duty was implemented, the companies would have not been able to execute these contracts because mines in DRC will not be able to afford the duty cost as well. This will have forced the producers of concentrated in the DRC to resort to selling their products to the Far East.

The introduction of this duty coupled with the imminent increase in the cost of electricity due to the migration to cost reflective tariffs, would have left mines and smelters with tough decisions to make. If there is insufficient supply of concentrates, finished copper output will be affected, in addition to employment and contributions to government revenue.

Government’s action through Parliament exemplifies its commitment to stabilizing the mining sector and enabling effective smelter capacity utilisation, quality value addition, enriched exploration, and creation of permanent jobs.

Invariably, Government’s action also shows its dedication to managing the economy on a platform of respectable partnerships and stability of private sector investment.

This will of course have a positive effect on Government’s desire to diversify the economy through enhanced investment in other priority areas such as agriculture, tourism and manufacturing.

The measure by the government through Parliament warrants the protection of jobs and, secondly, strengthens the diversification drive by instituting safeguard measures aimed at improving and sustaining the competitiveness of the local industry in the global economy.

The Chamber of Mines’ resolve to finding solutions that will allow the mining industry in Zambia to sustain operations, protect jobs, support local communities and contribute to Government revenue deserves great commendation.

It is a well-known fact that the year 2016 has not been a good year for the mining sector and Government’s move to make the mining sector stay afloat under very strenuous and suffocating circumstances deserve praise.

The challenges the mining sector in 2015 and 2016 faced were beyond the control of all stakeholders, including the low copper price and nationwide power deficit.

What ought to be noted, however, is that several mining houses have made commitments to undertake more exploration and development activities.

And it is hoped that their commitment will be operationalized in the shortest possible time because this is consistent with the expectation of a mutually beneficial development partnership between Government and the mining industry.

For sure, Government’s decision will help in stabilizing independent smelters, and finished copper output, in addition to employment and contributions to government revenue.

This will ultimately encourage investment in the mining sector for sustainability of the industry and security of direct, indirect and induced jobs.