Zambia’s Game-Changing Copper Royalty Reform: A New Era For The Mining Sector

The Mines and Minerals Development (Amendment) Act, 2022, which came into effect on January 1, 2023 amends the Mines and Minerals Development Act, 2015, and has several implications for the Zambian mining sector. The amendment concentrates on the mineral royalty rates applicable to copper production, based on the norm price of copper.

Key modifications introduced by the amendment

Rates of incremental mineral royalty: The amendment introduces a value-based incremental mineral royalty rate for copper. This means that the rate at which mining companies pay royalties to the government will depend on the prevailing price of copper in the international market. The higher the price of copper, the higher the royalty rate.

Specific Royalty Rates: The amendment establishes the following specific royalty rates for copper based on the norm price per tonne:

• 4% of the norm value when the norm price is less than US$4,000.00 per tonne.
• 6.5% of the norm value when the norm price is between US$4,000.00 and US$5,000.00 per tonne.
• 8.5% of the norm value when the norm price is between US$5,000.00 and US$7,000.00 per tonne.
• 10% of the norm value when the norm price per tonne is at least US$7000.00.

Implications for the mining industry in Zambia

Impact on revenue: The amendment is likely to have an effect on the revenue generated by the mining industry for the Zambian government. By connecting royalty rates to copper prices, the government stands to benefit from increased royalty payments when copper prices are high. Conversely, when copper prices are low, the government’s revenue from the mining sector may decrease.

Encouragement of Investment: The incremental royalty rate structure could encourage investment in the Zambian mining industry because it provides mining companies with a more stable and predictable tax environment. Based on the current copper price, mining companies can more accurately estimate their royalty obligations, enabling them to plan their investments and operations more efficiently.

Enhanced sector competitiveness: The revised royalty rates may make the Zambian mining industry more competitive relative to other copper-producing nations. By having a more transparent and predictable royalty system, Zambia may be able to attract additional investment and further develop its mining industry.

Potential impact on production: The amendment may have an effect on Zambia’s copper production. When copper prices are high, mining companies may be motivated to increase production in order to maximize profits. In contrast, when prices are low, companies may reduce output in order to minimize royalties.

Conclusion

In conclusion, the Mines and Minerals Development (Amendment) Act of 2022 introduces significant adjustments to the applicable royalty rates for copper production in Zambia. These alterations have effects on the Zambian mining industry, including revenue generation, investment attraction, sector competitiveness, and production levels. The amendment aims to create a more predictable and stable environment for mining companies, while ensuring that the Zambian government benefits from the development of the sector.