The Zambian Revenue Authority (ZRA) said Tuesday that it would be conducting tax audits on mining companies dating back six years.
In the announcement, the agency highlighted a “prominent” company that had underpaid 76.5 billion Zambian kwacha in duties — this company later turned out to be First Quantum.
Immediately following the news, First Quantum’s share price dropped 12.4 percent on the TSX before being halted. By Wednesday morning (March 21), it had fallen more than 9 percent.
The company first addressed the matter on Tuesday (March 20) with a statement explaining that it was in possession of a letter from the ZRA regarding an assessment for import duties, penalties and interest on consumables and spare parts.
First Quantum’s release also says that it “unequivocally refutes this assessment,” and goes on to say that it does “not appear to have any discernible basis of calculation.”
On Wednesday, the company held a conference call to publicly discuss the matter. CEO Philip Pascall elaborated on some of the numbers behind the tax assessment. The claim entails over 23,000 documents, and could take up to six months to be fully reviewed.
“It is unusual because normally it would be confidential and there wouldn’t be any press releases about it,” Pascall said. “And then the matter gets resolved in due course.”
While the bill itself relates to $540 million in mining equipment imports, the extra costs managed to stack up quickly. The full cost is based off of $150 million in higher import duties, $2.1 billion in penalties and $5.7 billion in interest.
Pascall said First Quantum has paid Zambia around $3 billion in taxes thus far, and pays around $200 million in annual Zambian royalties.
The company currently operates two mines in Zambia, its Sentinel mine and its Kansanshi mine. First Quantum 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.