First Quantum Minerals says it will go ahead and reduce production at its Sentinel mine immediately the new Sales Tax takes effect on 1st April 2018.
FQM Director of Operations Matt Pascall said in a staff memo that the reduction in production will inevitably result in job cuts.
Mr Pascall has also denied allegations that it is using arm twisting tactics to oppose the new tax measures contained in the 2019 budget.
He said following the 2019 Budget announcement on 28th September, Kalumbila Minerals Limited has conducted a thorough analysis with respect to the Budget’s impact on the Sentinel Mine. First Quantum Minerals (FQM) and KML are mindful of the concerns expressed by various observers and other stakeholders about reducing the number of employees at the mine,” Mr Pascall said.
“Some of the comment has been that reducing employee numbers should be a last resort after all other avenues of cost reduction have been exhausted. We would like to assure all our employees that this is exactly the position taken by KML,” he said.
“Our major costs are: taxes; electricity; maintenance spares; reagents and consumables (diesel); and wages and salaries. We have very little control of the cost of taxes, electricity and diesel as these are set by the government – furthermore all of these have been subject to steady increases over the past 7 years, even where such increases are in contradiction to signed agreements,” he observed.
Mr Pascall stated that with the low grade of ore at Sentinel Mine at 0.5% Copper which is the lowest being mined in Zambia and the historic low copper prices of 2016/17 the mine has done, and continues to do, everything possible to minimise its costs and consumption of reagents, consumables, maintenance spares and labour.
He said the sole remaining avenue to reduce consumption is by reducing the tonnage throughput.
“Once the new tax measures take effect it will no longer be economically viable to continue to run Sentinel’s operations at full capacity. It is with deep regret that the reduction in operational output will also lead to a reduction in employee headcount,” he said.
Mr Pascall said this reduction in both throughput and employee numbers will take place over a period of some months and those affected will be notified in due course through their line managers.
“However, the imposition of General Sales Tax on 1st April, which is likely to increase our costs by at least 20% on procured items, will necessitate the full manpower reduction to be in place by that date. Various government spokesmen have commented that KML should have dialogues with government and not simply resorted to “strong arm tactics”. We, and I personally, have met with numerous Honourable Ministers and other government officials from the very early dates that the various tax changes were proposed. We discussed in detail the implications, including reducing work forces, and even left them with written confirmation of our concerns,” he said.
“Unfortunately, despite all efforts (not only by FQM but also the whole of the mining industry) to objectively and transparently inform decision makers on the inevitable consequences of the proposed measures, our message seems not to have been heard, and the tax changes have been implemented.”
Mr Pascall assured that Sentinel Management will do its best to mitigate the impact that these changes will have on employees and the broader Kalumbila community.
“We would hope that at some time in the future the tax regime will be adjusted to take into account the requirement of investors to make satisfactory returns on their investment, and would like to assure any affected workers that wherever possible they will be reemployed once it becomes viable to revert to full production.”
He added, “In anticipation of a future return to full production and throughput it will be management’s critical responsibility to ensure that the entire plant for this wonderful, world-class, mine is maintained in first class, ready-to-work, condition.”
He hoped that threats to reduce access to expertise required to ensure this condition is maintained will not eventuate.
“We will keep you informed at every stage of this restructuring of Sentinel’s operations. Finally, I would like to thank our entire workforce at every level and in every role for the part you have played in making Sentinel one of the world’s great mines. It has been a long hard road and many of you have worked long hours to overcome operational problems and help us get to the current situation, where some of the biggest and most modern equipment in the world functions so well,” he said.
“Management’s prime responsibility is to ensure the long term viability and continuity of this mine, and it is with deep regret that the steps outlined above will be required for reasons outside of our control. Despite this message I would like to extend Season’s Greetings to all employees for a Blessed Christmas and to wish you and your families a Healthy, Safe and Prosperous 2019.”
Zambia: A country held Hostage.
The mines have played this arm-twisting game since medieval times. Mwanawasa experienced it, and so did other governments. The game is nothing but a blatant refusal by the mines to contribute fairly to the treasury. Lately the mines (and other giant conglomerates) became even dirtier – they manipulated the VAT regime whereby the govt ended up owing them billions in VAT refunds even when they gave nothing to the state in return.
The sales tax is the surest way of plugging the drain and govt should not relent just like levy didn’t when Anglo Americans pulled a similar stunt. Enough is enough.
Dear countrymen,
the solution ultimately is not alternative investors. The solution is for these mines to be owned by Zambia, under an efficient and profitable system. I am personally sick of our over-dependency on foreign investors. It’s time we grow up and run our own house.
Gentlemen, spot on!! You mean to tell me these investors didn’t put tax in their budgets?? Because it looks like as they are starting to pay, it suddenly becomes a cost in their budgets and they want to lay off workers, really baffling?? GRZ should start revoking licenses and getting IDC to put together capable management teams. THIS IS THE TIME TO PUT ASIDE POLITICAL AFFILIATION AND BAND TOGETHER FOR OUR NATION, ZAMBIA. GOD BLESS OUR COUNTRY.
Bullsh1t… we are steaming right through ahead!!!
There is a lot of cr4p coming form FQM and all foreign investors in the mines. Transfer pricing and under declaring exports.
We know about all you sleazy deals. We are holding fame, and you better not flood the mines on your way out.
Such investors are typical Rhodesians!! We know them.
The more I hear this, the more I pray for that businessman. Totally ill. This is serious blackmail.
Infestors mean business, yet the gullibles are happy.
Anati go’nga uja munyamata bamati double h.
Mr Pascall stated that with the low grade of ore at Sentinel Mine at 0.5% Copper which is the lowest being mined in Zambia and the historic low copper prices of 2016/17 the mine has done, and continues to do, everything possible to minimise its costs and consumption of reagents, consumables, maintenance spares and labour.
This Statement coming from a white man will be believed by all those who worship colonialists.
You surely call the copper prices in 2016/17 as HISTORICALLY LOW??? Come on, this blatant telling of lies from these investors should not be allowed to go. They are behaving as though we inherited Zambia from them.
This is unacceptable and we have had enough. Lets embrace job losses with higher taxes, increase the taxes for every 100 jobs lost till we take…
Imagine, Bootlicker?? If the grades are so low, why did they invest billions of dollars in the mine in the first place????
Even a child knows that this is wag wash. You set a target and based on that target you calculate the number of machines and their requirements including consumables and on the number of machines you calculate the required human capital to operate and maintain them. And as for power the mines are heavily cushioned by government so this excuse is out. Only a mad person can accept to mine at that grade because at this grade 0.5% you have to mine millions of tonnes to realize a decent tonnage of finished copper. Which means you need a lot of people to meet that target. Usually the normal mining cut off is above 1% unless there other profitable minerals being mined with copper. If Mr Pascal is talking about cobalt I hope.
We will call the chinese to come and take over the mines because these guys have failed us. Why threaten us with job cuts anyway? The other problem we have is the govt too because they will bow down to their (mines) demands.
Already the Chartered Accountants body are calling on government to reconsider the tax move.
This time we are not backing down. You can try all your arm twisting. Plenty of investors who can take over, especially the Chinese.
This is the calibre of investors we were given by the wickedness of Akainde after the Privatization episode in the 1990s Zambia’s darkest episode. These are the tactics they use when we ask them to pay their fair share of tax. They are the same breed even Akainde removed his Privatization earnings from our tax system and hid his stash in Panama.
Try the Chinese and see if anything. Chinese investors closed mine at Luanshya. Chinese investors went into Chambishi and were only extracting high-grade ores and closed shafts with low grade ore. And off course we had the Chambishi mine accident where blasting was taking place without evacuation and dozens of Zambians died while no Chinese perished. That was when MCS said he would rid country of Chinese once he came to power
That’s all you know Chinks…you are so daft not to see the whole picture no wonder you are so lazy because of the Chinks, who give you overpriced valuations of projects so you can eat together at the expense of your own children. Everything you want to put in one basket …you claim that you are not backing down which is uncharacteristic of cowards like PF and Lazy Lungu. That lazy coward in State House will soon spend Maggie with a blank cheque to negotiate in a dark corner with them to keep them quiet and happy for two more years.
Some one correct me please.
I thought Sales Tax will replace VAT.
If Govt cant get the sales tax, what will it get?
yet another arm twisting tactics to oppose the new tax measures contained in the 2019 budget.
What more do you expect, surely you’re not expecting them to maintain the status quo. The tax structure has changed and naturally, costs have been adjusted upwards and something has got to give. Its not like the are shutting down, they want to downsize so that these new taxes can be paid. The PF should know that they don’t own these mines, the owners of capital want a return on their investment. Let them run their companies the way they see fit, and you wait for your taxes that you end up misappropriating any way. Don’t just wake up from slumber and put things up without engaging the stakeholders involved. To make matters worse, the rate of this sales tax is not even known, how do you expect them to factor the impact of the changes in their cost matrix? Chipantepante indeed.
Bamwine…@8 you are speaking like a fool iam sure you are under5, please bear in mind that minerals are in this country to which we the people of Zambia MUST benefit from, this thing of dancing to mining firm must come to an end look at Chile, Australia see and learn from them, I can even take you pa Botswana see how the nation is benefiting from its minerals. Foolishly to think at the current mining firms are the only one who can invest in Zambia is wrong. Its time we benefit from what is ours and ii must commend the government for moving in and for coming up with such measures that we benefit the nation.
Mr. Kudos the level of hatred you have for HH is unbelievable. Please tone down. The more you hate him the more God will lift him up. Leadership comes from God. If God says yes no one can say No.
He shouldn’t have undervalued our State assets. He shouldn’t have deposited the money in Panama. He’s no leader that’s why the Zambian people have said a big No.
HH has lost 5 elections its a clear sign that he is not in Gods plan for plot one.
It’s time our government made direct arrangements to sell our minerals to China rather than through the oppressive and scandalous London Metal Exchange scheme. That would give us a wide open door to nationalise any mine that is behaving funny! Provision of jobs with ‘slave’ wages is not the benefit the whole country must suffer for. If we can’t get a fair share of the benefits from our mineral wealth, perhaps it’s time we seriously considered closing them down so that our future generation could come and make better use of them! In the current scenario, Zambia will just remain with a memorial of holes !
When most of the Mine Investors bought the Mines from GRZ copper prices averaged US$2,000/ton (save for the newly opened mines). A few years later the prices climbed at times to as high as $10,000 and can safely be described as averaging $6,000/ton over many years!! For a LONG TIME THEY HAVE ENJOYED SUBSIDIZED ELECTRICITY, CHEAP LABOUR,VAT REFUNDS and SUBSIDIZED FUEL IN THE PAST!! So WHAT LOSSES ARE THESE INTERNATIONAL CONMEN TALKING ABOUT OTHER THAN WHAT THEIR USUAL ANTICIPATED MONEY THEY ARE USED TO STEAL THROUGH THE CURRENT TAX REGIME? Unfortunately Pascal is speaking like that because he knows that this Govt of directionless men and women WILL DO NOTHING BUT REVERT TO OLD TAXATION – TO DATE WE HAVE NOT SEEN ANY EFFORTS TO INTRODUCE SALES TAX??!!
Now one of the sponsors of the Chamber of Mines has spoken.So all that hogwash on proposed tax changes from the Chamber of Mines and supported by ZIPAR was just being regurgitated.Sales tax is a perfect substitute to VAT because of our mine owners’ penchant to exporting exporting base minerals as opposed to value addition.There is tax exemption on mines adding value to the minerals in the proposed 2019 budget and its shocking Mr. Pascall cant take note of that.
We shall continue to pay for our foolishnes, greedy and low self esteem. Foreigners please take advantage of us as you wish. We cannot run our show because of our stupidity
Yaba. ..another shallow thinker under5 member.
Give it to the Chinese if they don’t play by the rules. They’re acting as if they’re doing us a favour by investing in our mines. Give a rich man more riches and it will only make him more stingy and obstinate.
Chase them!! In congo they were chased.
We have been through this country men and women! Whether we like it or not, business fundamentals are the same and make an equation that must make sense! A + B = C + D.
This confusion on mining tax has been created by a Russian Economist with an expensive Russian wife to maintain who is looking for a job to save his marriage! Sadly he has managed to stop even professionals from searching out facts. We have gotten used to introducing SIs and reversing them because we are a people who hate homework! Can ZICA explain to GRZ these fundamentals before we get ourselves into an economic quagmire! Zengelezu Anayenda kwaukwau policies are dangerous!
Gone are the days when the government owned the mines.
So these guys should just mine and go without paying tax you mean ? If you think so then advise them to venture on the moon because as far we know no one owns the moon.
@Wana shipafye ngaubomba ku Kalumbila. Pruning has been with us even in the days of ZCCM. Sometimes losing one job creates even better opportunities. Or do you just want a job while the country gets no money out of mine and as a result has to borrow money from China for development? Don’t worry God will never neglect you.
If GRZ is aggrieved, let them discover their own minerals and open and run their mines! Zambia claims to have been independent for over 54 years yet they couldn’t understand how to run the mines they nationalized and went back to the same people they grabbed mines from in the name of Privatization! Zambians are just full of hot air and pomposity but very little to show for it! Too much negative energy! Try to nationalize the mines again and see what happens to your country’s economy! You say you can run mines when you are failing to raise enough in taxes to also run mines! Should you choose to gift your mines to the Chinese, expect less revenue because they will drive the Copper price into the ground, which will mean less revenue for GRZ!
16.3 That’s warped thinking.
Black Muntu, are you HH posting here, you are the same i-diot that sold our mines at under valued prices. Now Zambia has to deal with colonizers again because of you.
PF cant understand the implications tax instability because the have economists such as Dr Habazoka
You don’t like Habazoka because as a To.nga you feel he should oppose PF government in everything.
Some people don’t know where they stand. They hate the Chinese because according to them a Zambian cannot do business in China. By the same token you cannot mine in Australia or Canada or indeed any Western country without paying taxes. ..but here we are the same antichinese click supporting the mining houses that are refusing to oblige.
They dont see any need of paying too much tax that just end up in peoples´ pockets. In their thinking, which I also agree, if it just making peoples pockets fat there is no need to pay too much after all they feel they only need that little to please few individuals. They feel they are just paying too much to end up in peoples pockets and the nation just suffering.
They are right because they feel for the poor who are still suffering despite the taxes coming from there.
Its a disaster bane!!!!! Jets fire engines waste of money!!!!
Haabazoka the true patriot ati alandeko ati iyo, iyo uyu nayo akamba maningi.
The biggest problem is to have educated people driven by ideal knowledge in making a nation budget. They understand that 1+2=3. To balance up the equation, the mines has an option of reducing workers. If our government is smart should show the mines how to balance the budget. ZCCM failed to run the mines when prices were low or when grade of copper was low. The best thing the government (ZCCM Holding) can do is to open a new mine and run it and understand the implications involved, when to increase taxes, or lower taxes or remain the same. The government does have a strong basis for introducing sales tax to the mines. We know Chinese did not perform well in mining.
Are you real ? The mines once belonged to government and we have Zambians who understand what it takes to run a mine. For your information no one in his right mind would venture into anything without realizing it’s implications. The mines are given 5 years tax free period. Maybe you don’t understand why government has introduced this tax…the old system or VAT was abused to such an extent that government ended up paying the companies instead. Right now KCM has failed to pay suppliers citing that government has refunded their VAT. Don’t just criticize because you belong to another party.
Just cut production so that we have less pollution. Those minerals are not going anywhere they can still be mined at a later stage when the atmosphere is conducive.
Documents have been uncovered which show Mr President Edgar Lungu played a notable role during the unpopular privatization process of the 90s and 2000s.
The yet to be authenticated documents doing the rounds on social media show that President Lungu led a team of negotiators in the sale of Zambia Cold Storage Corporation Limited’s Lusaka Plant to Kembe Estates Limited in September 1995 .