BUSINESS

Barrick says it will shut Zambian copper mine as a result of higher royalties

12/18/2014 09:37 EST | Updated 02/17/2015 05:59 EST
TORONTO - Barrick Gold Corp. (TSX:ABX) has plans to suspend work at its Lumwana copper mine after a change in royalty policy by the Zambian government.

The gold miner said Thursday the tax changes expected to go into effect on Jan. 1 eliminate corporate income tax, but increase the gross royalty rate to 20 per cent from six per cent.

"The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana," Barrick co-president Kelvin Dushnisky said in a statement.

"Despite the progress we have made to reduce costs and improve efficiency at the mine, the economics of an operation such as Lumwana cannot support a 20 per cent gross royalty, particularly in the current copper price environment."

Barrick said it expects to record an accounting charge in the fourth quarter of 2014 to reflect the impaired value of Lumwana, which it values at about US$1 billion, if there is no change in the royalty policy.

The company's open pit mining operation currently supports about 4,000 jobs, including contract workers.

It expects the mine to be placed in care and maintenance by the second quarter of 2015, unless there's a change in the new royalty regime.

The new policy in Africa's second-largest copper-producing country comes at a time when copper prices have fallen amid slower economic growth in China, the world's largest user of the metal.

Barrick acquired the massive copper mine in its acquisition of Equinox Minerals Ltd. for US$7.3 billion in 2011.

Since then, the costs rose more than expected at the mine and the company took a US$3.8-billion charge in the fourth quarter of 2012 related to the value of its copper business including Lumwana. Barrick also cancelled expansion plans at the mine that it had been considering.

In the first nine months of this year, Barrick said Lumwana produced 138 million pounds of copper. The mine had 6.6 billion pounds of copper in reserves as of the end of last year.

The problems in Zambia come as Barrick works to reduce its debt amid lower gold prices.

The gold miner has said it wants to drop its debt to about $7 billion, down about $3.5 billion from where it stands now.

Barrick has sold several of what it considered non-core mines in recent months as it pared down its portfolio and focused on its key mines.