Finance Minister Mthuli Ncube says he is willing to adjust proposed gold royalty changes after miners warned that doubling the tax could hurt the industry and fuel smuggling.
Ncube’s budget proposed a new sliding scale for gold royalties, just one of multiple taxes that miners pay to government. The proposal would see, at current prices, gold miners paying 10% of their gold earnings to government, up from 5%. This is the highest royalty rate in Africa, and among the highest in the world, leaving Zimbabwe even less competitive for new investment, according to Isaac Kwesu, CEO of the Chamber of Mines.
Speaking to business leaders at a post-budget seminar on Monday, Ncube said: “We have listened to comments on the royalties on gold. So, you may see some tweaking here and there. We received your submissions.”
Ncube argues investors are less concerned about taxes and more focused on mineral extraction. However, Caledonia Mining has warned that the proposed royalty, combined with another planned measure forcing upfront tax on capital expenditure, could affect its plan to build Bilboes, potentially the country’s biggest gold mine.
Caledonia has said “if implemented, (the proposed royalty) would be expected to result in a lower level of profitability and cash generation relative to current market expectations”. The company said it is assessing the implications of the proposed changes, “including in particular the potential effects on the recently announced economics of the Bilboes Gold Project”. The Bliboes project was to be partly funded by income from its Blanket Mine.
Baker Steel, a fund manager invested in Caledonia, estimates that the tax changes could shave US$150 million off Bilboes Mine project’s net present value. The Zimbabwe Miners Federation, which represents small-scale miners producing over 75% of Zimbabwe’s gold, warned: “New investment in exploration and mine development will stall. We project a dramatic increase in smuggling as miners seek better returns in neighbouring countries with lower fiscal impositions.” – (NewZWire)
