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10 Apr 2024

Zambia's Mining Regulations Foster Critical Mineral Production

Zambia's Mining Regulations Foster Critical Mineral Production
Zambia has set a target for its mining sector, aiming to achieve three million tons of copper production annually by 2031. To support this expansion, the country has implemented numerous policies that aim to incentivize investment and support project development.

The National Mineral Resources Development Policy

The Ministry of Mines and Minerals Development introduced the National Mineral Resources Development Policy in November 2022. This comprehensive strategy aims to fill regulatory voids and encourage investment from both domestic and international sources. The cornerstone of Zambia's mining sector regulation is the Mines and Minerals Development Act (No. 11 of 2015), which has been enhanced by subsequent amendments including those outlined in the National Mineral Resources Development Policy. This Act makes provision with respect to prospecting for and mining minerals in Zambia and covers aspects such as the tax regime, licensing procedures, and framework for mining activities.

Mining Tax Regimes

Tax regimes play a crucial role in attracting foreign capital, and Zambia has recently stabilized its mining tax regime after multiple modifications since 2000. Mineral royalty rates vary from 4% to 10%, depending on copper prices, with benchmarks set against the monthly average London Metals Exchange cash price per ton. Mineral royalties are deductible in corporate income tax assessments, aligning with international best tax practices. A stable mining tax regime in Zambia is poised to attract foreign investment while boosting investor confidence. This supports Zambia's production goals by incentivizing increased investment in mining activities, leading to higher mineral production.

Large-Scale Mining License

In terms of licensing processes, Zambia has streamlined its procedures to enhance transparency and competitiveness. The Large-Scale Mining License allows for exploration, extraction, and processing of minerals in areas exceeding 400 hectares for up to 25 years. Companies can register online and submit detailed business plans covering feasibility studies, environmental impacts, capital investments, ore recovery rates, and local employment plans. The Ministry of Mines and Mineral Developments processes license applications within 60 days.

Environmental Authorization

Zambia has implemented various measures to mitigate the extractive industry's impact on local communities and the environment. The Mines and Minerals Development Act mandates environmental authorization from the Zambia Environmental Management Agency (ZEMA). ZEMA has the authority to issue hazardous waste licenses upon application, conduct environmental restoration orders, and oversee criminal prosecutions for environmental violations. This mitigates risks for investors by demonstrating the country's commitment to sustainable development and environmental protection.

ESG Compliance

While there are no specific social responsibility requirements under Zambian law, environmental, social, and governance (ESG) compliance is gaining traction, particularly among lenders. Additionally, ESG is being streamlined through initiatives like Green Bonds issuance guidelines by regulatory bodies like the Securities Exchange Commission and the Lusaka Stock Exchange. Adhering to ESG principles is crucial for securing financing and supporting Zambia's objective of attracting environmentally conscious investors to foster industry growth.

Zambia's legal framework strives to promote investment, ensure environmental sustainability, and align with international standards. With increasing global demand for critical minerals, expected to grow 3.5 times by 2030 in a net zero emissions scenario, Zambia stands to leverage regulatory reform and attractive policies to attract investment in the sector.