Zambia’s imposition of a 15% export duty on gemstones has heightened financial pressures on Gemfields, increasing its tax rate on emerald revenues to 21%. CEO Sean Gilbertson criticized the lack of consultation on this change. Concurrently, Gemfields suspended Kagem operations, citing adverse market dynamics and prior unrest at its Mozambique site, raising concerns over its financial viability.
Zambia has introduced a surprising 15% export duty on precious gemstones, increasing the financial strain on Gemfields, which operates the Kagem emerald mine. CEO Sean Gilbertson announced this change without prior consultation, noting that it aggregates with an existing 6% mineral royalty tax to raise the effective tax on emerald revenues to 21%. This starkly contrasts with the 2% in Brazil and 2.5% in Colombia, both of which are Zambia’s primary competitors in emerald exports, alongside a 30% corporate tax paid by Gemfields.
Gilbertson expressed concerns about the direct impact of the new export duty on Zambian emeralds mined at Kagem Mining Ltd and pledged to engage with the Zambian government to seek suspension of the duty due to its detrimental effects on the sector’s sustainability and investment appeal. This export duty was previously revoked in 2019 following significant pressure from the local gemstone industry on the government.
Additional measures were also reported to be in development within other sectors of the Zambian economy to bolster revenues by 2025. The Zambian government is working on a new Minerals Regulation Commission Bill aimed at regulating the mining resource management, which has drawn critiques from industry representatives who caution it could destabilize Zambia’s mining reputation.
The introduction of this export duty coincides with financial challenges for Gemfields, which has recently halted operations at Kagem for up to six months amidst a negative emerald market outlook. Although the company will continue to process surface stockpiles, it faces adverse market dynamics primarily due to oversupply from Zambia. Production at its Montepuez Ruby Mine in Mozambique was also recently suspended due to election-related violence that claimed lives and caused unrest among protestors.
These developments raise concerns over the stability of Gemfields’ financial situation. The company is currently monitoring its working capital amidst these ongoing challenges, with potential cost-cutting measures under consideration. Following these announcements, Gemfields shares declined nearly 12% in Johannesburg.
The recent 15% export duty on Zambia’s emeralds significantly impacts Gemfields, increasing its effective tax rate to 21%, contrasting sharply with competitors. This comes amid production suspensions due to market conditions and unrest in operations abroad, raising concerns about the company’s financial health. Calls for engagement with the government suggest an ongoing struggle for the gemstone sector’s sustainability.
Original Source: www.miningmx.com
