Barrick Gold Corporation said it will initiate procedures to suspend operations at the Lumwana copper mine in Zambia following the passage of legislation that raises the royalty rate on the country’s open pit mining operations from six percent to 20 percent.
The new taxation regime, which is expected to go into effect on January 1, 2015, eliminates corporate income tax, but imposes a 20 percent gross royalty on revenue without any consideration of profitability.
“The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana. 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 percent gross royalty, particularly in the current copper price environment,” said Co-President Kelvin Dushnisky .
“We sincerely regret the impact this will have on our people, as well as the communities and the businesses that depend on Lumwana, and we remain hopeful that the government will consider an alternative solution that will allow the mine to continue operating,” said Co-President Jim Gowans .
In the meantime, the company will initiate procedures to transition Lumwana to care and maintenance. Major workforce reductions are planned to commence in March, following the legally required notice period. The transition to care and maintenance is expected to be completed in the second quarter of 2015.
In the absence of a modification to the newly-adopted royalty regime, Barrick expects to record an impairment charge related to Lumwana in the fourth quarter of 2014. Lumwana’s current net carrying value is approximately $1 billion.
Lumwana is located in Zambia’s Northwestern Province and supports approximately 4,000 direct jobs. The mine is a major driver of the provincial economy, purchasing close to $400 million in goods and services from Zambian suppliers last year and supporting a range of community projects in education, literacy, health care and training.
In the first nine months of 2014, Lumwana produced 138 million pounds of copper at C3 fully allocated costs of $2.98 per pound. The mine had 6.6 billion pounds of copper in reserves as of December 31, 2013.