Zambia’s debt cover fears may be behind gemstones tax hike

GRIZZLY by name, grisly by nature. Senegalese-owned family business Grizzly Mining flooded the Zambian emerald market to such an extent last year that it forced South Africa’s Gemfields Group to call off its sales for the first six months of 2025.Consequently, Gemfields’ Kagem mine is suspended until at least July. Meanwhile, hundreds of employees have been put on forced leave. Having employees sit at home on 100% basic pay is still better than shouldering mine cash costs that emerald prices can’t support, says Sean Gilbertson, CEO of Gemfields Group. But he says in an interview the situation could get worse.A surprise “statutory instrument” introduced by Zambia’s finance ministry on December 30 has resurrected a 15% export levy not seen since 2019. It was implemented on January 2 without consultation. Including Zambia’s 6% royalty, the government stands to take 21% of emerald revenues.“The reality is that if we are not able to get the 15% duty dealt with soon, we will regrettably have to make a number of redundancies to shield the survival of the business,” says Gilbertson.Total taxation is 51% when the royalty and the export levy are added to Zambia’s corporation tax (30%). Emerald producers Brazil and Colombia levy aggregate taxes of 2% and 2.5% respectively, before corporation tax.“We may have to extend the suspension of Kagem because there is no point restarting a mine that is fundamentally not sustainable,” says Gilbertson.While the Zambia shock does not yet threaten the survival of Gemfields, it’s worth noting that Kagem comprised 40% of its $128m in revenue for the six months ended June, the last reported period. The potential crisis will also compound Gemfields’ persistent discount to NAV, which was 50% as of June 30.Efforts are under way to persuade Zambia to think again. President Hakainde Hichilema, a former economist, has been applauded for restoring investor confidence since he was elected in 2021. Toronto-listed First Quantum Minerals, a copper miner, restarted the $1.35bn expansion of its Kansanshi mine in 2022 shortly after Hichilema unveiled fiscal reforms, including the non-deductibility of royalty payments to the government.It’s surprising, therefore, that an old duty has been revived, especially since there appears to have been no parliamentary oversight. Gilbertson thinks the finance ministry was acting unilaterally in an effort to improve Zambia’s debt cover following a critical fourth review by the IMF.“I’m just speculating, but there were other measures announced by the government around the same time,” he says. As the levy was first introduced in 2018 via statutory instrument, it could be reintroduced in the same way, without parliamentary oversight.The upside to this is the export levy can be shelved just as quickly. “The team in State House is enormously pragmatic and it has the correct intentions in so far as the country and foreign investment philosophy is concerned,” says Gilbertson of Hichilema’s administration in Lusaka.But the fact that problems of this nature crop up speaks to Gemfields’ jurisdictional risk. Another example is Montepuez Ruby Mine (MRM) in Cabo Delgado province in northern Mozambique. In December, the mine was evacuated after the violent protests against the election of Frelimo’s Daniel Chapo as president in October spread to a nearby village, and two people were killed.The mine resumed operations but the situation in Mozambique remains tense. South32 said this week it could not issue production guidance on its Mozal aluminium smelter yet due to the political situation.It’s not the first time Gemfields has evacuated employees from MRM; jihadist-linked violence in Cabo Delgado in 2022 spilt over into nearby mine settlements.Despite this, Gemfields is investing heavily in the mine. A $70m project to triple processing capacity is expected to allow Gemfields to stage a large ruby auction in November or December and demonstrate its ability to scale. Gilbertson hopes the expansion will help to narrow the discount to NAV.This would be welcomed by Assore, the privately owned mining investment house that bought a 26.6% stake in Gemfields Group, as well as taking up board seats, in 2021.According to Gilbertson, Assore is a contented investor. “They have been enormously supportive shareholders who are passionate about the business and existing asset portfolio and share the view that MRM and Kagem are world-class deposits,” he says.The post Zambia’s debt cover fears may be behind gemstones tax hike appeared first on Miningmx.Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com