John Gladston, Government Affairs, First Quantum

MACIG Connect Series

First Quantum would like to make significant investments to extend the mine life at Kansanshi.

John-Gladston-WEBKalumbila is the biggest new mine that Zambia has seen for many years. What is the current status of the project and what are the plans for ramp up?

John Gladston (JG): The Trident mine development at Kalumbila comprises two parallel operations: the Sentinel copper mine and the Enterprise nickel play. Sentinel produced its first concentrate on December 31, 2014, precisely 10 years to the day after Kansanshi’s first output. We have been in the commissioning phase ever since and are now approaching completion. The plant is currently going through a standard optimization process to ensure that everything is running as efficiently as possible. Because of the low grades at Sentinel, the mine lives and dies on its scale, and scale is highly dependent on power. First Quantum has been constructing a ring of high voltage power transmission lines around Zambia, which is due to connect into Lusaka West in the next few months. This will allow for both of Sentinel’s mill trains to run simultaneously. Commercial production should be possible within a matter of months. At capacity the operation will be shifting 55 million metric tons per year (mt/y).

What kind of economic impact will the new mine complex have on the local area?

JG: We are very excited about the potential of the Trident Foundation, which is focused on the corporate social responsibility aspects around the facility. Thus far we have built an entire town, with over 1,000 houses for workers. This is set to increase dramatically as investor interest picks up. Alongside the mine, we have established a multi-function economic zone that is poised to take off. The idea behind this is to encourage non-mining enterprises and thereby diversify the Zambian economy. We have already attracted a Chilean company, ME Elecmetal, to invest $40 million to build a state-of-the-art grinding ball factory that will produce around 85,000 mt/y grinding media. The plant will be able to supply mines across Zambia and the DRC. This will likely be the first of many new companies to set up shop in the area.

In 2014 the Zambian government caused consternation across the sector with the introduction of a single-tier tax system that most mines considered to be overly harsh. What is First Quantum’s take on the newly revised regime?

JG: 2014 saw the introduction of a 20% mineral royalty tax (MRT) across all open pit mines. The rationale behind this move was to streamline and simplify the procedures involved in paying taxes. The move backfired and proved problematic to the sector. Given that the change came at a time of depressed copper prices, Zambia’s mines struggled to pay this high level of tax. Nevertheless, we were encouraged that when the new president came into office, he immediately took steps to address the situation. The new tax code will be implemented in July 2015. It will be made up of a 9% MRT and a 30% corporation tax, with a 15% variable profit tax for open pit operations. Underground mines are governed by a separate MRT, which stands at 6%. This is to reflect the supposedly higher cost of running subsurface operations. However, we would contest the assumption that underground mines are necessarily more expensive to run. This division between underground and open pit is unprecedented around the world and we do not see it as the best option for the country. We would rather see the government consult with a broader range of experts within Zambia and international organizations such as the IMF and the World Bank to create a more enduring tax code. This constant changing of the rules does not send good signals to investors, as the impression of instability is highly unattractive. In order to accommodate all the diverse types of mines, a tax code must be sophisticated and elegant. While we acknowledge that Zambia has always been a high cost regime, it is unlikely that the new code will be sufficiently elegant to adequately cater to high and low cost mines.

How would you characterize First Quantum’s relationship with ZCCM-IH?

JG: ZCCM-IH has a 20% freehold in Kansanshi Mining Plc. The holding has a new CEO in the form of Dr Pius Kasolo, with whom we have a very warm and open relationship. We are in regular contact with him and his team. In the past, there was a certain distance between the government and the mining industry but this dynamic is currently undergoing a sea change. We see ZCCM-IH as a partner—it is a major shareholder with a seat on the board—and we see a bright future ahead as we continue to optimize this relationship.

As First Quantum has already succeeded in encouraging foreign investment from Chile, do you see much potential to bring closer collaboration between South America and Zambia?

JG: The Chilean copper industry is the most advanced in the world and we have a great deal to learn from them. Aside from their mining expertise, they have a very attractive fiscal regime and have made great strides to strengthen the copper value chain and capture more value from their natural resources. First Quantum has diversified significantly into South America and we believe there is considerable scope for more Latin investment to come into Zambia.

What is your vision for First Quantum’s development in Zambia over the next five years?

JG: We have made our position very clear to the Zambian government. Mines require consistent capital expenditure if they are to remain profitable. First Quantum would like to make several significant investments to extend the mine life at Kansanshi. But if the company is to embark on any such large-scale spending program, it would need to see the fiscal regime become much more accommodating to foreign direct investment than it is today.

That being said, we are very optimistic about Zambia. There are many parts of the world where it is much harder to do business. First Quantum has a long heritage in the country and sees this continuing long into the future.

This interview was conducted as part of research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in May 2015 and can be accessed here. To participate in this report, please contact Molly Concannon at mconcannon@gbreports.com or +243(0)826300684.

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