Key foreign mining investors in Zambia have urged the government to be cautious as it seeks to review the mining royalties and taxations on the back of soaring copper price on international market.

India's Vedanta Resources Plc and Canada's First Quantum mining firms, two major players in Zambia's mining industry, contend that they supported the government's plan to review taxations provided it did not affect their operations and profitability.

Vedanta Resources, which holds 51 percent stake of Zambia's Konkola Copper Mines (KCM), hoped that the envisaged review of mineral royalty tax would not affect the operations of its projects.

The government seeks to review the royalty tax to 10 percent from 0.6 percent, far lower than world averages of 2.5 percent, according to sources close to the project.

Zambia's Minister of Mines Kalombo Mwansa recently confirmed that the government was considering reviewing the royalty taxes in view of the booming prices of copper and other base metals on the international market.

Mwansa declined to divulge more details on the matter apart from saying it was actively being considered.

But sources close to the project explained that it was the government's view that the foreign mining firms are not adequately sharing their "super profits" being enjoyed from the all time high metal prices.

But KCM chairman Navin Agarwal said any review would obviously mean an increase in the cost of production and affect the company's profitability.

"We have not been told officially about the plans but if it happens, it should not make any material difference in our operations of projects," Agarwal told journalists last week during his visit to Zambia.

He said Vedanta Resources' agreement with the Zambian government should be respected and honored.

Toronto-listed First Quantum said the proposed revision of the royalties payable by new mining firms were uneconomical and that the escalating anti-investor sentiments by the Zambian government were a threat to the development of the sector.

First Quantum commercial manager Andrew Hickman said the Zambian government needed to be considerate before revising the royalties as it was a threat to the existing investors and would- be investors in the industry.

Most foreign firms pay a maximum of 1 to 2 percent worldwide and 10 percent, which if implemented, would be exploitative in an economy that needed to be bolstered, Hickman said.

He said recently that despite First Quantum has expanded four folds since 1997 when it opened operations at Bwana Mkubwa mine, about 380 km from the Zambian capital Lusaka, it was struggling to bring the development agreement to the signing stage to guarantee stability under the existing tax legislation.

The firm was equally concerned at the country's labor laws that Hickman said were biased towards employees.

Under the Mines and Minerals Act and the local taxation laws, local and foreign mining companies carrying out copper and cobalt extraction operations are taxed at 25 percent.

Foreign mining firms are exempted from paying dividends realized from copper produced and sold.

The investors are obliged to pay 0.6 percent royalty tax but are exempted from paying management fees while in Zambia.

Recent explorations in Zambia have led to the discovery of diamonds, gold, platinum and other minerals in several parts of the country.

The development has raised hope that Zambia is about to recapture its 1970 reputation when it was rated fifth largest producer of copper when it produced an average 750,000 tons of finished copper.

Source: Xinhua