Zambia hits First Quantum with $7.9bn tax bill over mines

Zambia has handed First Quantum Minerals a $7.9bn tax bill and says it is planning an audit of other mining companies going back six years.

First Quantum received a letter from the Zambia Revenue Authority (ZRA) dated Monday “noting an assessment for import duties, penalties and interest on consumables and spare parts”, the Canadian miner said on Tuesday. Shares in the company, which derives 84% of its revenue from Zambia, fell the most in almost two years.

“The company unequivocally refutes this assessment, which does not appear to have any discernible basis of calculation and will continue working with the ZRA, as it normally does, to resolve the issue,” it said.

First Quantum is not the first miner to be hit with a hefty tax bill for operations in Africa. In 2017, Tanzania sent Acacia Mining a demand for payment equal to almost two centuries’ worth of the gold miner’s revenue.

And the Democratic Republic of Congo is moving ahead with a new mining code that would dramatically raise taxes and royalty payments.

The share price of First Quantum fell as much as 13% on Tuesday and were down 12% when the stock was halted ahead of the company’s statement. First Quantum, which operates the Kansanshi and Kalumbila mines, accounted for more than half of Zambia’s copper production in 2017 and is the biggest individual taxpayer.

The Zambian government has struggled with bulging fiscal deficits in recent years and failed to secure a $1.3bn bail-out from the IMF. That could be behind the tax assessment, Deutsche Bank analyst Patrick Jones said in a note. “We would not rule out a potentially larger political motive behind the ZRA announcement,” he wrote.

“With the fiscal deficit and debt position still worrisome, this could push the government to find alternative methods to raise revenue and repair the government’s fiscal position,” Jones said.

The tax authority might extend the period of the audit if it found a pattern of “consistent, systematic, premeditated tax evasion, it said in a statement.

The assessments would begin on March 26, it said.

In 2017 Zambia cut power to mines, including the Kansanshi pit owned by First Quantum, and two operations held by Glencore, after a fight escalated over tariffs.

The country is Africa’s second biggest copper producer.