Zambia Hands First Quantum $7.9 Billion Tax Bill After Audit

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(Bloomberg) -- Zambia handed First Quantum Minerals Ltd. a $7.9 billion tax bill and said it’s planning an audit of other mining companies going back six years. The Canadian miner’s shares fell the most in almost two years.

First Quantum received a letter from the Zambia Revenue Authority dated Monday “noting an assessment for import duties, penalties and interest on consumables and spare parts,” the Vancouver-based company said Tuesday in a statement. The southern African nation accounts for 84 percent of its revenue.

“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 isn’t the first miner to be hit with a massive tax bill for operations in Africa. Last summer, Tanzania sent Acacia Mining Plc 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.

Shares of First Quantum fell as much as 13 percent in Toronto on Tuesday and were down 12 percent when the stock was halted ahead of the company’s statement. First Quantum, which operates the Kansanshi and Kalumbila mines in the country, accounted for more than half of Zambia’s copper production last year and is the biggest individual taxpayer.

‘Unrealistic’ Assessment

The proposed tax assessment is unrealistic, according to Stephen Walker, head of global mining research at RBC Capital Markets.

The Zambian government has struggled with bulging fiscal deficits in recent years and failed to secure a $1.3-billion bailout from the International Monetary Fund. That could be behind the tax assessment, Deutsche Bank AG analyst Patrick Jones said in an emailed 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.”

The ZRA may extend the period of the audit if it finds a pattern of “consistent, systematic, premeditated” tax evasion, it said in a statement. The assessments will begin March 26, it said.

Last year Zambia cut power to mines, including the Kansanshi pit owned by First Quantum, and two operations held by Glencore Plc, after a fight escalated over tariffs. The country is Africa’s second-biggest copper producer.

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