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Message: Mining tax review in doubt as Zambia's ruling party nears victory


JOHANNESBURG - Zambia's ruling party is on the verge of a narrow victory in the country's presidential election, dashing the hopes of Canadian mining companies that were seeking a quick reversal of a steep tax increase this month.

Edgar Lungu, the Defence and Justice Minister, was leading his main opponent by a margin of 48 per cent to 46 per cent in the latest results announced on Friday night, with more than 90 per cent of constituencies reporting.

Technically, his lead could still be overcome by opposition candidate Hakainde Hichilema when the final results are announced on Saturday, but that scenario now seems extremely unlikely, since only nine of the 150 constituencies are yet to report.

Both of the two main opposition candidates had pledged to review or reverse the sharp increase in mining taxes, but their election loss is likely to leave the Canadian companies in limbo. Another election is due in less than 20 months, compounding the uncertainty for the miners.

Mr. Lungu's government has shocked the mining companies by tripling the open-pit mining royalty rate from 6 per cent to 20 per cent this month. One Canadian company, Barrick Gold Corp., has announced plans to begin laying off its workers in March and to completely suspend its operations by June. Barrick is one of Zambia's biggest employers, with about 4,000 workers at its Lumwana copper mine.

Another Canadian company, First Quantum Minerals Ltd., had already announced last year that it would delay more than $1-billion in Zambian investments because of taxation issues.

Zambian government leaders have repeatedly vowed that they will not be "intimidated" or "arm-twisted" by the threats from the mining companies, including Barrick's planned suspension.

However, there have been hints that the government might reopen the issue after the election. Some analysts predict that the new royalty rate might eventually be reduced as the government feels pressure from business groups, labour unions and others.

Zambia's Chamber of Mines, for example, has warned that the higher royalties could lead to the loss of 12,000 direct jobs in the mining sector this year alone, and a loss of $7-billion (U.S.) in economic output over the next five years - nearly a third of its GDP.

The strong showing by Mr. Hichilema, a millionaire cattle rancher who ran on a pro-business platform, might further encourage the government to tackle the royalties issue at some point after the election.

Zambia is the second-biggest copper producer in Africa, and the eighth-biggest in the world, and the Canadian companies are among the biggest investors in the country.

Barrick says it would be "open to discussions" on the royalty issue in a bid to keep its copper mine operating.

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