Canadian mining giant, Barrick Gold Corp, said on Thursday it will suspend operations at its Lumwana copper mine in Zambia because of the passage of a new tax plan that eliminates corporate income tax, but imposes a 20 percent gross royalty on revenue without considering profitability. The current royalty rate is 6 percent, the new rate will kick in on January 1.
The company had threatened such a move if the law was passed. “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,” Kelvin Dushnisky, Barrick’s co-president, said in a statement.
Barrick said it has planned a major workforce cut beginning in March, following the legally required notice period. It added that the transition to care and maintenance will be completed in the second quarter of 2015. With no modification to the new royalty plan, Barrick said it expects to record an impairment charge related to Lumwana in the fourth quarter of 2014. The mine’s current net carrying value is about $1 billion.
According to Reuters, “last year the company booked a $3.8 billion impairment charge to write down the value of the asset due to higher costs and reduced profitability amid a pullback in metal prices.
Barrick, the largest gold mining company in the world, acquired the Lumwana mine, located in Zambia’s Northwestern province, through its $6.3 billion acquisition of Canadian copper miner Equinox in 2011. According to the Toronta-headquartered Barrick, the mine supports nearly 4,000 direct jobs in the area and produced 138 million pounds of copper in the first nine months of 2014.
