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A mining expert has warned that Zambia will lose a lot of revenue when copper prices on the international market hit above the US $7,500 per metric tonne mark due to an anticipated copper shortage likely to occur between 2010 and 2012.

But economic expert John Kasanga said there would be no revenue loss even if copper prices increased on the international market as most of the mining companies in the country were not making profits but rather expanding their investments.

An 88,000 metric tonne copper shortage is looming, according to analysts, likely to push prices to as high as US $7500 per metric tonne.

The Zambian government, in the 2009 budget, removed the windfall tax on copper introduced in 2008 owing to the global economic crisis as mining companies argued that operation costs for mining had skyrocketed compared to the profits as copper prices tumbled.

International metal analysts have observed that there is going to be a copper supply shortage as most of the producers would not be in a position to fill the growing demand.

Independent consultancy firm, GFMS, says a copper deficit of 88,000 metric tonne was likely, which it says, is likely to push the copper price to US$7,500 per metric tonne in 2010.

BHP Billiton base metals marketing director Dave Martin says: “We have a challenge in copper supply and need the industry to develop resources.”

Martin calculated that there would be a copper supply gap of 10 million tonnes by 2020.

He arrived at the figure by adding the supply from current mines, planned expansions, mines under construction and probable Greenfield expansions.

Some of that gap would be filled by copper scrap, but the question remains about how all of it was going to be filled.

GFMS expects higher prices each year, stretching out to 2012.

While copper use is popularly said to be in virtually everything from vehicles to ordinances, things like military hardly feature on the charts showing the main copper demand drivers these days.

The vehicle related and general consumer related copper sales are collectively up as their biggest single driver of demand, and growing in prominence is the use of underground copper cabling that is being used increasingly to distribute electricity, particularly, in China.

Sensing the opportunity, small newcomer miners are keen to enter copper mining in the Democratic Republic of Congo (DRC), despite the perceived risk there, as well as in Zambia, and medium size companies, already are keen to expand in those countries.

Commenting on projections which indicate that the market is going to have a shortfall of 88,000 metric tonnes of copper beginning next year, University of Zambia (UNZA) dean in the School of Mines Dr Stephen Kambani, observed that there was no need for the government to scrap off windfall tax as it was only implemented under windfall situations.

“We should have maintained the windfall tax,” he said. “There was no need for government to scrap it off. As a result, when copper prices become very good, Zambia will have no measures of reaping from the windfall situation as the instruments for implementation would have been done away with.”

Dr Kambani explained that the economic meltdown which the world was experiencing was not going to last forever, hence fast growing economies like China would continue on their growth paths, hence pushing up demand for base metals such as copper.

“When that happens, Zambia as usual will lose out on a lot of revenue which could have been obtained if the windfall tax was still in place,” he said

Dr Kambani argued that it would be difficult for government to again change its decision concerning the windfall tax, as it would not be well received by the investors.

“Indications showing a copper shortfall are there and mining experts as well as investors have been carefully watching what is happening on the international market. As usual they were one step ahead of government,” observed Kambani.

But Kasanga said government’s decision to scrap off the windfall tax needed to be supported because most of the mining companies would not make profits even if copper prices rose to over US $7,000 per tonne as most mines were still expanding their businesses.

“It does not make sense to impose a windfall tax when the mining companies are not making profits,” he said.

Kasanga argued that the Oil Producing and Exporting Countries (OPEC) did not impose a windfall tax when oil prices hit the $140 per barrel level.

“The same principle should be applied under the same circumstances in Zambia,” he said. “The mining companies should be given an opportunity to expand and grow before a windfall tax can be imposed. Think of the jobs being created and the wealth that is being passed to the communities in which the mining companies are operating.”

Kasanga argued that the government was better off allowing the mining companies to expand and grow before it could think of taxing them.

“It does not make sense to tax an ailing person, if such a decision is made the person would die,” said Kasanga.

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