Canada’s First Quantum expected to pay $1-billion in Zambia tax dispute: Wall Street analyst – by Niall McGee (Globe and Mail – March 28, 2018)

Canadian copper producer First Quantum Minerals Ltd. will ultimately pay around US$1-billion to settle its tax spat with Zambia, according to a Wall Street analyst.

Last week, the Zambia Revenue Authority (ZRA) slapped First Quantum with a US$7.9-billion tax bill, claiming the miner had drastically underpaid certain import duties over a period of five years.

In a subsequent conference call with analysts, First Quantum’s chief executive officer Philip Pascall declined to speculate how much the company may end up paying, saying it wouldn’t be prudent to comment in a public forum.

Shares in the company have lost about 10 per cent of their value since word of the tax claim first surfaced on March 20. “We expect the company to have to pay something significant to resolve this issue,“ wrote Jefferies analyst Christopher LaFemina, in a note to clients on Tuesday. “We assume for now that the total cost will be US$1-billion.”

Mr. LaFemina also predicts First Quantum’s cost of capital will go up due to higher operating risk in Zambia and the possibility of additional tax penalties. The company’s weighted average cost of capital (WACC), a measure which includes the cost of raising equity or debt, will rise to 10.5 per cent from 8.5 per cent, he wrote.

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