It was bad news for Zambia in March when Fitch, the ratings agency, downgraded the country's economic forecast, citing concerns over the new government's direction on mining reform. But things seem to be looking up forAfrica's biggest copper producer, with First Quantum Minerals announcing a hefty $3.7bn investment in the country.
The Toronto-listed company will put the money towAfricaards developing one new project and expanding an existing mine, the group's president Clive Newall says.
"We are investing approximately $1.7bn in our new Trident project, which includes the Sentinel copper mine and the Enterprise Nickel mine, between now and the end of 2014," he tells This is Africa. First Quantum acquired the Trident project, located in north western Zambia, in 2010.
An additional $2bn will be put into the expansion of the group's existing Kansanshi mine, increasing its copper output from 240,000 tonnes per year to 400,000 tonnes per year by 2014. The expansion will include developing of one of the world's biggest copper smelters, designed to treat 1.2m tonnes of concentrate a year.
The news comes after Fitch downgraded its economic outlook for Zambia earlier this year, saying that planned mining reforms could impact on investment. Last year, the mining royalty rate was doubled to six percent, prompting some companies to call for a reduction.
"Currently, Zambia is one of the highest taxed mining jurisdictions in the world which is a significant barrier to inward investment," Mr Newall argues. "Whilst Zambia's recent policies have been somewhat volatile... we are hopeful that this will stabilise at reasonable levels in the near future."
Ratings agencies and investors had also been rattled by the rhetoric of new president Michael Sata - a veteran opposition leader who won elections in September. In previous campaigns Mr Sata had been a vocal critic of the practices of foreign mining firms, particularly those run by Chinese groups. However, his tone mellowed in the run up to September 2011 elections.
"All of these projects were conceived and largely committed during the tenure of the previous government and their development has continued seamlessly through the change of government," Mr Newall says. "Politics has not played any part in our decisions to proceed."
Zambia's vice president Guy Scott recently told This is Africa that the government has no intentions to change the existing royalty rate or consider an indigenisation policy, but will focus on making sure companies pay their due taxes. "Our concerns are that we are not getting accurate reporting by the mine," he said, referring to allegations of companies mis-reporting production and profit to minimise their taxable revenues.
Queried on taxes, Mr Newall said: "We pay all legislated taxes and royalties, are the biggest taxpayer in the country and have always been completely transparent in all of our business activities."
Other mining groups operating in Zambia include London-listed Glencore andVedanta,Brazil's giant Vale. Copper production in the country dropped to 421,280 tonnes in the first half of 2012 from 463,236 tonnes in the same period last year, with analysts citing falling metal prices and sluggish consumer economies as factors in the drop-off.