Zambia mines minister says mining royalty hike will remain

(Adds Barrick comment)

By Chris Mfula

LUSAKA, Dec 30 (Reuters) - Zambia will hike royalty rates on open pit and underground mining beginning on Thursday, the country's mines minister said on Tuesday, despite industry concerns of shaft closures and up to 12,000 in job losses.

The decision to increase royalties for open pit mines to 20 percent from 6 percent and those for underground mines to 8 percent from 6 percent has rattled unions and miners and there had been hopes that the government would soften its stance.

But Mines Minister Christopher Yaluma said on Tuesday the government would implement the new royalties system as is when it comes into effect on Jan. 1 because it was in the best interest of the country, Africa's second-largest copper producer.

"It will be negligent of the government to undo what we did. We applied our minds when coming up with the new rates and can't just change because of an outcry," Yaluma told Reuters.

He added that mining companies should come up with clear models showing how their businesses would be hit by the royalties for the government to consider any revision.

Zambia's Chamber of Mines said this month the new royalties would result in shaft closures and 12,000 jobs losses, and may make a number of other operations economically not viable.

The plan has already prompted Toronto-based Barrick Gold (Swiss: ABX.SW - news) Corp. to say it will suspend operations at its Lumwana Copper Mine, which supports nearly 4,000 direct jobs in the area.

Barrick spokesman Andy Lloyd said on Tuesday that Barrick remained "open to talks to find a solution that allows the mine to continue operating". In the meantime, the company will start procedures to suspend operations.

Mine Workers Union of Zambia President Chishimba Nkole said his 25,000-strong union was deeply concerned about job losses.

"There must be flexibility on the part of the government and they must act very swiftly because we don't want our members to lose their jobs," Nkole told Reuters.

Mining accounts for 12 percent of Zambia's gross domestic product and 10 percent of formal employment.

Mopani Copper Mines, owned by Glencore (Xetra: A1JAGV - news) , and Canadian firm First Quantum Minerals (Toronto: FM.TO - news) both have big copper projects that could also be at risk, the Chamber of Mines said.

First Quantum, which operates Zambia's largest copper mine, Kansanshi has said the plan is a "massive disincentive" for investment if it does not come with some form of capital relief.

Other mining companies in Zambia include Vedanta Resources (Other OTC: VDNRF - news) and Vale. (Additional reporting by Nicole Mordant in Vancouver; Editing by Ed Stoddard, Susan Thomas and Diane Craft)