First Quantum MineralsTSX-listed First Quantum Minerals has kicked off operations at its $1.9 billion Sentinel copper mine, despite the announcement by the Zambian government that plans to triple royalties in the sector will go ahead.

The mine, which is expected to produce between 270 000 and 300 000 tons of copper concentrate annually, will feed an $850 million U.S. smelter that will produce 300 000 to 350 000 metric tons of copper a year, according to company spokesman John Gladston.

Concerns over Zambia’s new tax

First Quantum Minerals has delayed its plans to increase the size of the smelter on account of the fiscal uncertainty surrounding Finance Minister Alexander Chikwanda’s budget, which intends to massively increase taxes on Zambia’s mining industry. The new tax regime will see levies for open-cast mines increase from 6% to 20%, while those for underground mines will rise to 8%.

That’s “removing any capital-expenditure incentive and reinforcing First Quantum’s postponement decision, a decision that leaves the country with a continued deficit in copper smelting capacity,” Gladston said.

Industry threatened due to tax increases

Zambia’s new tax scheme has already brought production to a halt at mining company Barrick Gold’s Lumwana mine and now jobs throughout the country’s industry are being threatened as well. Zambia’s mining lobby has estimated that as many as 12 000 job losses could be expected.

Furthermore, the Chamber of Mines  has expressed concern that First Quantum Minerals, Glencore and other companies could be pushed to cancel their projects in Zambia, which could cost the country over 158 000 tons during 2015.

First Quantum Minerals forges on

Nevertheless, First Quantum Minerals has decided to continue with production despite the current uncertainty, and after building the Sentinel mine in merely 30 months. “This is a remarkable achievement,” Gladston said.

Meanwhile, First Quantum Minerals has also added the Cobre Panama project to its portfolio through the purchase of Inmet Mining, which represents the company’s biggest acquisition. First Quantum Minerals is investing $6.43 billion in the site to produce 320 000 tons of copper in 2018 and become the world’s fifth-largest supplier. It has also agreed to buy Lumina Copper for $430 million to add the Taca Taca deposit in Argentina.

What effect will the new Zambian mining tax have on the country’s copper production? Have your say in the comments section below!

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