First Quantum Minerals Ltd. recovered from what was shaping up to be its worst two-day drop in two years as its chief executive officer said he’s hoping to talk his way out of a US$7.9 billion tax bill in Zambia -- which includes US$5.7 billion in interest.

First Quantum received a letter from the Zambia Revenue Authority dated Monday “noting an assessment for import duties, penalties and interest on consumables and spare parts,” the Vancouver-based company said Tuesday in a statement. The southern African nation accounts for 84 per cent of First Quantum’s revenue.

“While we accept there may be imports with incorrect coded duties, we completely refute the entire amount being claimed and the assessment, penalties and interest,” CEO Philip Pascall said during a conference call Wednesday.

The massive tax bill involves US$540 million worth of equipment that Zambian tax authorities say were mis-coded over six years, resulting in the company underpaying the state. First Quantum has been told that about US$150 million of the total tax bill is the result of a preliminary reassessment at a 25 per cent duty rate. The bulk of the bill is composed of US$5.7 billion in interest and US$2.1 billion in penalties, Pascall said.

First Quantum isn’t the first miner to be hit with a massive tax bill for operations in Africa. Last summer, Tanzania sent Acacia Mining Plc a demand for payment equal to almost two centuries’ worth of the gold miner’s revenue. And the Democratic Republic of Congo is moving ahead with a new mining code that would dramatically raise tax payments.

Stock Recovery

Shares of First Quantum slumped 12 per cent in Toronto Tuesday when the stock was halted ahead of the company’s statement. They dropped as much 9.2 per cent on Wednesday before recovering and were up 1.4 per cent at 10:40 a.m.

First Quantum, which operates the Kansanshi and Kalumbila mines in the country, accounted for more than half of Zambia’s copper production last year and is the biggest individual taxpayer.

The Zambian government has struggled with bulging fiscal deficits in recent years and failed to secure a US$1.3 billion bailout from the International Monetary Fund. That could be behind the tax assessment, Deutsche Bank AG analyst Patrick Jones said in an emailed note.

Last year, Zambia cut power to mines, including Kansanshi, and two operations held by Glencore Plc, after a fight escalated over tariffs. The country is Africa’s second-biggest copper producer.

Pascall told analysts it will take a team of six people four to six months to examine more than 23,000 separate bills of entry to dispute the tax claim. “In the short time available, we’ve attempted some high-level analysis and within that we’ve found some incorrectly assessed items with both higher and lower duties than required.”

--With assistance from Matthew Hill