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Zambia miners cheer new copper royalty regime

Harare – Zambia has approved a new royalty regime for copper, which will see royalties levied at 4% for prices below $4 500 per tonne and at 6% for prices above $6 000/t in a bid to cushion miners against softer metal prices.

The country's Parliament passed the new royalty regime on Wednesday after Edgar Lungu's cabinet approved the new royalty fee structure in February. Lungu is now expected to sign the regime, which will be effective from April 1 2016.

Zambia is Africa's second-largest producer of copper, which accounts for the greatest share of its income from exports. First Quantum and Vedanta Resources are among the biggest copper producers in Zambia, although most mines in the country have started to close some operations.

“On 17 February 2016, the cabinet of the Government of Zambia approved a new slab-based royalty system linked to copper prices. The Bill was approved by the Zambian parliament on 11 May 2016 and awaits approval from The Honourable President of Zambia,” Vedanta Resources said on Thursday.

Royalties for copper prices between $4 500 and $6000/t will be charged at 5%. Zambian copper miners have welcomed this, describing it as “a progressive step” by the Zambian government “to support the mining industry during the low commodity prices environment”.

Although there are still high cost structures in Zambia, Vedanta Resources said the new copper royalty regime will help reduce total cash cost by $120/t, at the current spot copper price of $4 800.

Vedanta Resources said the sharp depreciation of the kwacha has adversely impacted operating profits for its copper-producing unit in Zambia by $32m during the full year to end-March 2016.

This was mainly because Vedanta’s VAT receivable from the Zambian government is designated in the local currency, which last year weakened considerably against the US dollar.

During the same period, mined copper production from the Zambia operations firmed by 6% to 123 000t. This was as a result of increased production from the Konkola Deep underground mine, which strengthened by 22.5%.

However, for Vedanta Resources this improvement was offset by a 25% production drop from the Nchanga operation. Underground operations at the mine were subsequently placed under care and maintenance earlier this year, as copper miners in Zambia battled to offset losing value from lower copper prices.

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