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Heavy machinery is seen at a First Quantum mining operation.

© Katrina Manson / Reuters

First Quantum Minerals Ltd. has been accused by an African tax authority of underpaying its taxes by more than $10-billion over a period of five years.

In a statement circulating online reported to have come from the Zambia Revenue Authority (ZRA), an assessment of 76.5 billion kwacha ($10.5-billion) was sent by the ZRA to a "prominent mining company" for misclassifying some items at importation for the past five years.

In a statement released about a half hour before the close of trading on Tuesday, First Quantum confirmed it is in the cross-hairs of the ZRA.

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"The company ... is in possession of a letter from the ZRA, dated March 19, 2018, noting an assessment for import duties, penalties and interest on consumables and spare parts of 76.5 billion Zambian kwacha," First Quantum said.

According to the ZRA, First Quantum incorrectly declared consumables and spare parts imports as mining machinery, which does not incur any customs duty. The ZRA said the company should have been paying duties ranging from 15 to 25 per cent on the items.

First Quantum said it "unequivocally refutes this assessment which does not appear to have any discernible basis of calculation and will continue working with the resolve the issue."

Earlier on Tuesday, shares in the Toronto-based miner sold off heavily as speculation mounted it was the company the ZRA was targeting. The shares lost 12.4 per cent before being halted at mid-afternoon.

In a note to clients, Jefferies analyst Christopher LaFemina wrote that First Quantum's revised tax assessment "does not seem reasonable," but added that "a large portion of the assessment may be penalties."

"This incident poses a significant risk to the company and is likely to be an overhang on the stock for now," he said.

With a market capitalization of more than $12-billion, First Quantum is one of Canada's biggest mining companies. It operates mines in Zambia, including the Kansanshi mine, the largest copper mine in Africa. First Quantum produced just under 574,000 tonnes of copper last year.

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Mr. La Femina wrote in an earlier note on Tuesday that First Quantum had previously experienced a relatively smooth ride in Zambia.

"While First Quantum has had some operational issues and problems with power supply in Zambia, the country has been a relatively benign geography for the company from a geopolitical perspective," he wrote.

But over the past 12 months, Canadian mining companies have been increasingly dealing with flare ups in international jurisdictions.

Last year, Tanzania accused Barrick Gold subsidiary Acacia Mining of drastically underpaying its taxes, handing it a US$190-billion tax bill. Acacia is currently subject to a gold-concentrate export ban as Barrick tries to negotiate a settlement with the Tanzanian government.

Earlier this year, the Democratic Republic of the Congo suddenly announced plans for a punitive new tax system on mining companies that operate in the country. Under the new system, copper royalties will rise to 3.5 per cent from 2 per cent and royalties on battery metal cobalt could go up as much as 10 per cent from 2 per cent.

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