Windfall mining tax proposed in Zambia, Equinox anWindfall mining tax proposed in Zambia, Equinox and First Quantum affected
The
government of Zambia has proposed higher taxes on mining companies, and
that affects two names Canadian investors follow closely: Equinox
Minerals Ltd. and First Quantum Minerals Ltd. UBS analysts Alec
Kodatsky and Tony Lesiak have tried to break down the new tax regime
and what it means for those companies. The government is expected to
increase the corporate tax rate from 25% to 30% and the royalty rate
from 0.6% to 3%.
In the case of Equinox, the company has
already negotiated a 10-year development agreement for its Lumwana
project, and believes it is exempt from higher taxes for the length of
the agreement. Mr. Kodatsky is keeping that as his base-case
assumption. But if the government decides to implement higher taxes at
Lumwana right away, his net asset value forecast on Equinox would drop
7.3%, from $6.06 a share to $5.62 a share. He is maintaining a "buy"
rating and a target of $6.75 a share.
First Quantum, on the
other hand, could see an immediate tax and royalty hike at its Bwana
Mkubwa and Kashime projects if the tax changes are implemented. It has
a long-term tax stability agreement at the Kansanshi project, but Mr.
Lesiak is already assuming higher royalty rates on that one.
Mr.
Lesiak has cut his earnings per share estimate for 2008 from $11.78 to
$11.50, and he lowered his 2009 forecast from $13.64 to $13.30. He is
maintaining a "buy" rating on the stock but reduced his target to $120
a share from $125 a share.