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First Quantum’s Kansanshi site.

First Quantum Minerals Ltd. is starting up a Zambian copper mine to feed an $850-million smelter the Canadian producer began operating last weekend amid friction between the mining industry and government over tax changes.

Kansanshi Smelter will produce 300,000 to 350,000 metric tons of copper a year, John Gladston, a company spokesman in Zambia, said today in an interview. The $1.9-billion Sentinel mine will produce 270,000 to 300,000 tons of copper metal in concentrate annually, Gladston said by phone.

The Vancouver-based company with operations from Africa to Australia this year delayed plans to almost double the size of the smelter due to Zambia's "fiscal uncertainty," he said. A new tax regime from Jan. 1 is another issue, Gladston said.

Finance Minister Alexander Chikwanda's budget including a law replacing corporate income tax for mining companies with higher royalties won approval this month from parliament. Levies will increase to 20 per cent from 6 per cent for open-cast mines and expand to 8 per cent from 6 per cent for underground mines.

That's "removing any capital-expenditure incentive and reinforcing First Quantum's postponement decision, a decision that leaves the country with a continued deficit in copper smelting capacity," Gladston said.

Barrick Gold

The change, which prompted Barrick Gold Corp. to halt its Lumwana mine, may lead to 12,000 job losses in the industry next year, Zambia's mining lobby said. It may also push companies like Glencore Plc and First Quantum to cancel projects, and cut Zambia's copper output by more than 158,000 tons next year, the Chamber of Mines said in a statement on Dec. 19.

Shares in First Quantum, based in Vancouver rose 4.9 per cent to 908.5 pence in London trading on Tuesday.

First Quantum built Sentinel in about 2-1/2 years, Gladston said. "This is a remarkable achievement," he said.

The company last year completed its biggest acquisition, adding the Cobre Panama project through the purchase of Inmet Mining Corp. It's investing $6.43-billion in the site to produce 320,000 tons of copper in 2018 and become the fifth-largest supplier. This year it agreed to buy Lumina Copper Corp. for $430-million to add the Taca Taca deposit in Argentina.

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