Dec 18, 2014 (Marketwired via COMTEX) — Barrick Gold Corporation ABX, +1.12% (ABX) today announced that the company 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.
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Certain information contained in this press release, including any information as to our strategy, projects, plans or future financial or operating performance, constitutes “forward-looking statements”. All statements, other than statements of historical fact, are forward-looking statements. The words “will,” “expect,” “plan” and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements.
Such factors include, but are not limited to: fluctuations in the spot and forward price of gold, copper or certain other commodities (such as silver, diesel fuel and electricity); changes in national and local government legislation, taxation, controls or regulations and/or changes in the administration of laws, policies and practices, expropriation or nationalization of property and political or economic developments in Canada, the United States, Zambia and other jurisdictions in which the company does or may carry on business in the future; failure to comply with environmental and health and safety laws and regulations; timing of receipt of, or failure to comply with, necessary permits and approvals; diminishing quantities or grades of reserves; the impact of global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future cash flows; the impact of inflation; operating or technical difficulties in connection with mining or development activities; the speculative nature of mineral exploration and development; risk of loss due to acts of war, terrorism, sabotage and civil disturbances; fluctuations in the currency markets; changes in U.S. dollar interest rates; litigation; contests over title to properties, particularly title to undeveloped properties, or over access to water, power and other required infrastructure; business opportunities that may be presented to, or pursued by, the company; our ability to successfully integrate acquisitions or complete divestitures; employee relations; and availability and increased costs associated with mining inputs and labor. In addition, there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion, copper cathode or gold or copper concentrate losses (and the risk of inadequate insurance, or inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can affect our actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, us. Readers are cautioned that forward-looking statements are not guarantees of future performance. All of the forward-looking statements made in this press release are qualified by these cautionary statements. Specific reference is made to the most recent Form 40-F/Annual Information Form on file with the SEC and Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements.
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