Despite being handed a US$7.9-billion tax bill by the Zambia Revenue Authority (ZRA), experts are saying First Quantum Minerals (TSX:FM) will likely pay US$1 billion to settle the squabble.
The prediction comes after the ZRA publicly called out First Quantum last week for what it alleged was gross underpayment of import duties, resulting in additional penalties and interest fees.
While the Canadian copper producer has since hosted a conference call for analysts and released a statement about the claims, saying the company “unequivocally refutes this assessment,” analysts still believe the company will have to pay up.
“We expect the company to have to pay something significant to resolve this issue,” Jefferies analyst Christopher LaFemina wrote in a note obtained by the Globe and Mail. “We assume for now that the total cost will be US$1-billion.”
According to the Globe and Mail, LaFemina also expects First Quantum’s cost of capital to rise based on the possibility of further tax penalties, along with heightened operating risk in Zambia.
The Canadian copper producer declined to comment during the conference call as to how much it may ultimately pay out to resolve the issue.
“We have in the past seen assessments that were significant and then the settlement might be reduced considerably,” CEO Philip Pascall said during the call. “In this context, it’s not prudent for us try and speculate.”
First Quantum currently operates two mines in Zambia, its Sentinel mine and its Kansanshi mine. The company says the latter is the largest copper mine in Africa.
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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.