Barrick to Suspend Lumwana Operations Over Royalty Increase


Barrick Gold's Lumwana copper operation in Zambia will shut down in Q2 2015 if the company can't reach
an agreement with the Zambian government over a significant royalty increase.
Barrick Gold announced on December 18, the initiation of procedures to suspend operations at the Lumwana copper mine in Zambia following passage of legislation that raised the royalty rate on the country’s open-pit mining operations from 6% to 20%. The new tax regime, which was expected to go into effect on January 1, eliminates corporate income tax but imposes a 20% 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% gross royalty, particularly in the current copper price environment,” said Barrick Co-president Kelvin Dushnisky.

Barrick remained hopeful that the government would consider an alternative solution that would allow the mine to continue operating. In the meantime, it was initiating procedures to transition Lumwana to care and maintenance. Major workforce reductions were planned to begin in March, following a legally required notice period. The company expected to complete the transition to care and maintenance in the second quarter of 2015.

In the absence of a modification to the newly adopted royalty regime, Barrick expected to record an impairment charge related to Lumwana for the fourth quarter of 2014. Lumwana’s current net carrying value is approximately $1 billion.

In the first nine months of 2014, Lumwana produced 138 million lb of copper at fully allocated costs of $2.98/lb. The mine had 6.6 billion lb of copper in reserves as of December 31, 2013

As featured in Womp 2015 Vol 01 - www.womp-int.com