Zambia uncovers $8 billion tax scam

First Quantum Minerals said on Tuesday that Zambia’s tax agency had slapped it with 76.5 billion Zambian kwacha ($8.04 billion) bill for unpaid import duties, a potentially huge blow for the Canadian miner that earns most its profit in the southern African country.

First Quantum, which owns two copper mines in Zambia and has a market value of $11 billion, denied it owed the funds.

The tax assessment would be a “new significant risk for the company”, Jefferies analyst Christopher LaFemina said in a client note, as almost half of First Quantum’s estimated value and around 80 per cent of its estimated pre-tax earnings in 2018, come from its Zambian copper assets.

First Quantum’s stock dropped 12.4 per cent to C$18 on the Toronto Stock Exchange before it was halted.

The massive tax assessment comes at a time when host governments, including Indonesia, Tanzania and Democratic Republic of Congo, are demanding a bigger slice of revenue from miners amid rising commodity prices.

“The company unequivocally refutes this assessment which does not appear to have any discernable basis of calculation ...” First Quantum said in a statement. The miner said it would continue working with the Zambian Revenue Authority (ZRA) to resolve the issue.

The ZRA said earlier on Tuesday it had issued a preliminary tax assessment of 76.5 billion Zambian kwacha to an unnamed “prominent mining company” for classifying imported goods as mining machinery, which attract no custom duty. The assessment is nearly double the total amount the country collected in taxes in last year.

TD Securities analyst Greg Barnes said in a note to clients that he found it “difficult to reconcile the ‘misstatement’ of around $8 billion of imports with First Quantum’s reported operating and capital costs, which were around $8 billion for the same period.

The import duty on items other than mining machinery ranges from 15 to 25 per cent, ZRA said. It said the company had been engaged in the conduct for the last five years.

ZRA’s assessment suggests the total value of goods imported was between $30 billion and $51 billion.

Almost a year ago, tax chief Kingsley Chanda invited companies and people living in Zambia to declare their hidden assets as part of a tax amnesty. There are dozens of mining companies operating in Zambia, mainly extracting copper, including global miners Vedanta Plc and Glencore Plc .

ZRA said it has started detailed audits on all companies for compliance.