Glencore now idles zinc mine in Zambia over tax refund row

Glencore now idles zinc mine in Zambia over tax refund row

Processing facility at Glencore’s Sable Zinc Kabwe mine.

World’s third-largest miner by market value Glencore (LON:GLEN) has idled operations at its Zambian zinc mine as the government continues to withhold at least $200 million in tax refunds owed to the firm.

The move comes barely a day after the miner announced it was halting over $800 millions worth of copper projects in the country for the same reasons.

In a statement the miner said it was placing Sable Zinc Kabwe under "care and maintenance" in response "to the current local economic environment in Zambia, as well as the cash flow restrictions caused by the withholding of around $12 million in VAT refunds."

Glencore added that 169 jobs at the mine will go as a consequence of the measure. It also said the mine was curbing "all expansion capital projects."

"Sable is working with affected employees to identify opportunities at other group companies in Zambia as well as with other operations in the Kabwe area," it said.

The African nation, which last year lost its position as Africa's top copper miner to Congo for the first time since 1998, began enforcing the rule last year in order to curb tax avoidance.

In August finance minister Alexander Chikwanda announced the government had decided to relax the rule because it proved very hard to implement, mainly because it involved documentation from importers outside the country's jurisdiction.

However the government is still withholding about $600 million in VAT refunds owed to mining firms, including Barrick Gold (TSX, NYSE:ABX), Vale (NYSE:VALE), and Vedanta Resources (LON:VED).

Royalties hike

According to sources quoted by Bloomberg, Zambia’s government is mulling a 6% increase in royalty rates charged on sales and elimination of all corporate tax for mining companies.

The source said the new scheme would be simpler for the government to administer, as well as more transparent than corporate income taxes. Zambia doubled mineral royalties to the current level in 2011.

Glencore becomes the latest company to freeze investments in the country, following a similar move by First Quantum Minerals (TSX:FM).

The Canadian company, which operates the Kansanshi Copper Mine, Zambia’s largest mine by output, said in June it had put investments worth $1.5 billion on hold over withheld refunds.