By Nicholas Bariyo
KAMPALA Uganda-- Barrick Gold Corp. may be forced to close down
its Lumwana Copper Mine in Zambia if the government goes ahead with
a plan to more than triple mineral royalties, the company said on
Thursday, in sign that relations between mine investors and the
government of Africa's second largest copper producer are
worsening.
Zambia's parliament is now considering a hike in mineral
royalties to 20% from the current 6%, starting from January next
year.
A Barrick spokesman said that should the hike go ahead Lumwana
would become unviable.
"If enacted, the most likely outcome would be a suspension of
operations at the mine, regrettably leaving thousands of local
people without employment," the company said in a statement.
Barrick's statement comes amid a dispute lasting nearly two
years between the government and mining companies over tax rebates
amounting to $600 million which has compelled miners such as First
Quantum Minerals and Glencore PLC to put on hold expansion projects
worth more than $1.5 billion, a glaring example of how much has
gone wrong with the government's three-year push to squeeze more
revenue from the mining industry.
The development comes less than a week after the Chamber of
Mines, an industry lobby group, representing Zambian miners, warned
that the new royalty regime, which is charged on miners' gross
revenue regardless of profitability, would force several mines to
close down. Lumwana is a low-grade operation, which cannot afford
royalties higher than the current 6%, company officials say.
Barrick said in a report Wednesday that while Lumwana had
contributed 75 million pounds out of the company's total global
production of 131 million pounds of copper during the third
quarter, the application of the new tax regime would challenge the
mine's economic viability.
The death of President Michael Sata this week has raised renewed
uncertainty for foreign miners in the country. But investors hope
that a change in leadership could bring a more investment-friendly
tax structure, analysts say.
Zambia's Finance Minister Alexander Chikwanda said in a budget
report earlier this month that the government aims to achieve a
more "equitable distribution of the mineral wealth between the
government and the mining companies" with the royalty hike.
Government officials couldn't immediately react to Barrick's
concerns.
Over the past five years, mining companies including China
Nonferrous Metals Co., First Quantum Minerals, Glencore, Barrick
Gold and Vedanta Resources have invested more than $6 billion in
Zambia, breathing new life in the country's hitherto struggling
mines. But recent tax measures and fiscal policies have rattled
investors already grappling with spiraling costs of production,
grappling with spiraling costs of production, driven by steep rises
in the cost of electricity, fuel and labor, according to
analysts.
"The new tax regime is entirely unsustainable" said Jackson
Sikamo, president at the Zambia Chamber of Mines "Our sincere
appeal to the government is that the industry needs to be nurtured
so that it continues to generate revenues to diversify our
economy."
Write to Nicholas Bariyo at nicholas.bariyo@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires