Barrick Gold Corp., the world’s biggest producer of the metal, will start shutting down production at its Zambian operation after the southern African country tripled mining royalties.
Barrick expects its fourth-quarter financial results will include a writedown on the Lumwana project, which employs about 4,000 people, the Toronto-based miner said in a statement today.
Zambia’s parliament yesterday approved a 2015 budget that includes a measure to raise the royalty on revenues from open-pit mines such as Lumwana to 20% from 6%, effective Jan. 1. The higher levy, which will replace a corporate income tax on mines, was criticized last week by the World Bank, which said the move would hurt jobs and government revenues.
“The introduction of this royalty has left us with no choice,” Barrick Co-President Kelvin Dushnisky said in the statement. “The economics of an operation such as Lumwana cannot support a 20% gross royalty, particularly in the current copper price environment.”
Barrick acquired Lumwana when it bought Equinox Minerals Ltd. in 2011 for about $7.2 billion. Costs at the mine were higher than expected and Barrick took a $3 billion writedown on the project in the fourth quarter of 2012. The company said today the mine is currently valued on its balance sheet at about $1 billion.
Zambia is Africa’s second-biggest copper producer. The price of the metal has dropped about 16% this year amid signs of slowing demand from China, the biggest consumer. Copper futures traded at $2.86 a pound at 9:16 a.m. in New York.
The so-called fully allocated cost of production at Lumwana—comprising operating costs as well as expenses such as administration and royalties—was $2.98 a pound in the third quarter.
Lumwana produced 260 million pounds of copper in 2013, employs about 2,000 people and has an equal number of contract workers, according to Barrick. Job cuts will begin in March, following a legally mandated notice period, it said. The company expects to complete the shutdown by mid-2015.
Barrick shares were up 2% at $10.97 before the start of regular trading in New York.