Barrick Gold, First Quantum Expected to Take Hit from Zambia's New Royalty Increase
The two companies, both of which operate copper mines in Zambia, will be subject to an increase from six percent to 12 for open pit operations and eight percent for underground mines.
The changes will “achieve a more equitable distribution of the mineral wealth between government and the mining companies,” said Finance Minister Alexander Chikwanda. He added the increased royalties will replace the 30 percent corporate income tax miners currently pay.The new tax system aims to generate revenue from different stages of production.
“The proposed changes to mining tax policies will likely further erode the relationship between miners and the government,” said Clare Allenson, a London-based analyst with Eurasia Group. The higher royalties “will likely delay the development of new projects.”
Canadian mining company First Quantum Minerals has already delayed more than $1 billion in investment projects in Zambia because of uncertainty over the fiscal regime.
"On the face of it, the new system doesn't incentivize investment in new capital projects," said John Gladston, First Quantum Minerals Zambia government affairs manager.
"The budget address served to confirm the sagacity earlier this year of First Quantum's postponement of additional major capital projects in Zambia.”
Barrick Gold, which operates the Lumwana copper project in Zambia, will also take a significant blow. The company is expected to take a negative hit of 3.7 percent to its NAV, reducing its 2015 EPS by 4.6 percent and cash flow per share by 2.2 percent.
Companies like Vedanta Resources (LSE:VED) and Glencore (LSE:GLEN), both of which run underground operations in Zambia, are expected to be impacted. The new royalty rate for mining operations will go into effect January 2015.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.