Wednesday, September 24, 2008

Equinox says shielded from higher Zambian taxes

By: Reuters, Published on 23rd September 2008

Equinox Minerals, which is building Africa's largest open-pit copper mine, expects its existing agreement with the Zambian government will shield it from higher taxes being implemented in the country, the company's chief executive said on Tuesday.

Speaking to analysts and investors in Toronto, CEO Craig Williams also said mining costs at Equinox's Lumwana mine will likely rise above $1 a pound for its first full year of production in 2009, before easing back toward its long-term projection of around 80 cents a pound.

The southern African nation introduced a 25 percent windfall tax and higher royalty and corporate taxes in April, drawing strong opposition from mining firms.

However, Williams said that Equinox's 2005 development agreement, which includes lower taxes, has so far been respected and he expects that will continue.

"There's no guarantees here, but we do believe our development agreement has strength," he said, but added: "There might be some room for compromise on both sides."

He said the new taxes were implemented to deal with companies that have been mining in the country for years and reaping huge profits, while putting little into the community.

Equinox, he said, is building a city to house workers at the new mine, and will inject millions into Zambia's infrastructure.

Blackmont Capital analyst George Topping said Lumwana is still a strong asset, even if Equinox ends up being taxed to the full extent of the new laws.

"I think they will have to pay more tax. Whether they'll have to pay the full extent, I'm not sure," he said.

Williams also said he does not expect next month's presidential election in Zambia will be an issue for the mine. The country will vote on Oct. 30 to choose a successor to President Levy Mwanawasa, who died in France last month.

PRODUCTION IN DECEMBER

Lumwana is now expected to start production in December, after a fire at the site's processing plant delayed its original startup date of August.

Full production should be reached in May or June 2009 at an average 172 000 t of copper a year for the first six years of the mine's 37-year life.

Equinox also expects to eventually produce uranium from the mine and use it as a cost offset. It envisions building its own treatment facility, which could be running in six years, and would save the cost of transporting metal to other smelters.

The company has often been rumored as a takeover target, with likely suitors including First Quantum Minerals, which holds just over 16 percent of Equinox.

Blackmont's Topping said he still sees it as a target, adding that any buyer would likely wait until after next month's presidential election and the finalization of the new tax regime.

Equinox shares were down 16 Canadian cents at C$3,03 on the Toronto Stock Exchange.