Canada's Barrick Gold Corp, the world's biggest gold miner, said yesterday that the company will suspend its operations at its Lumwana copper mine in Zambia following introduction of a new government legislation increasing open pit mining royalty to 20 per cent from 6 per cent earlier.
The new taxation regime will come into force from the beginning of January next year. Although the new rule eliminates corporate income tax, it imposes royalty on revenue without any consideration of profitability.
Barrick's co-president Kelvin Dushnisky said, ''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-per cent gross royalty, particularly in the current copper price environment."
Copper prices have dropped 16 per cent from their January highs of around $3.41 a pound to $2.87 a pound yesterday.
The miner plans to keep Lumwana under care and maintenance by the end of the second quarter. Job cutting is planned to begin in March, following the legally required notice period.
"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," Barrick said.
Lumwana mine, located in Solwezi district in Zambia's northwestern province, has approximately 4,000 employees. The mine is a major driver of the local economy and also supports a range of community projects in education, literacy, healthcare and training.
Barrick said that the company expects an impairment charge related to the Lumwana mine in the fourth quarter of 2014. The operation is valued at approximately $1 billion.
Toronto, Ontario-based Barrick operates mines and advanced exploration and development projects on five continents, and holds large land positions on some of the most prolific and prospective mineral deposits of gold and copper.
Last year Barrick produced 539 million pounds of copper concentrate at fully allocated costs of $2.42 per pound.
Lumwana is one of the most prospective copper regions in the world, having proven and probable reserves of around 6.6 billion pounds. The ore, which is predominantly sulphide, is treated through a conventional sulphide flotation plant, producing copper concentrate for smelting.
Lumwana's production cost is over 50 per cent higher compared to Barrick's Chilean operation.
Last year, Lumwana produced 260 million pounds of copper, close to half of Barrick's overall copper production, incurring a total production cost of $2.97 per pound. For the nine months ended September, the production dropped to 138 million pounds due to operational problems and the cost was $2.98 per pound.
On the other hand, Barrick's other major copper mine Zaldivar in Chile produced 279 million pounds of concentrate in 2013 at a much lower cost of $1.94 per pound.
Earlier this month, Barrick concluded a deal with Saudi Arabian mining company Ma'aden for forming a 50:50 joint venture to develop Jabal Sayid copper mine in Saudi Arabia which will have a capacity of 100 million pounds per annum.