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Rising Costs Forces Barrick Gold to Shut Down Zambian Copper Mine

Barrick Gold Corp. has announced plans to shut down work at its Lumwana copper mine in Zambia after a change in royalty policy. The Toronto-based compan...

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|Dec 21|magazine5 min read

Barrick Gold Corp. has announced plans to shut down work at its Lumwana copper mine in Zambia after a change in royalty policy. The Toronto-based company said the Zambian government is expected to eliminate corporate tax starting January. 1, but will increase the gross royalty rate from six percent to 20 percent.

"The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana," Barrick co-president Kelvin Dushnisky said in a statement.

"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, particularly in the current copper price environment."

The open-pit mining operation, which supports roughly 4,000 jobs including contract workers, is expected to be closed by the second quarter of 2015. Barrick is expected to record an accounting charge in the fourth quarter of 2014 to reflect the impaired value of Lumwana, which is valued at $1-billion.

The Lumwana mine produced 138 million pounds of copper in the first nine months of 2014. The mine had 6.6 billion pounds of copper in reserves as of the end of last year.

Barrick acquired the Lumwana copper mine in 2011 for $7.3 billion in its acquisition of Equinox Minerals Ltd.  Since then, mining cost have risen dramatically, forcing Barrick to cancel expansion plans as well as incur a $3.8-billion charge in the fourth quarter of 2012.

The new policy in Africa comes at a time when copper prices have continued to decline amid slower economic growth in China, the world’s largest copper user.

Barrick has now sold several of its “non-core” mines in recent months as it pared down its portfolio and focuses on its key mines. The gold miner has said it wants to drop its debt to around $7 billion, down about $3.5 billion from where it stands now.

Zambia is currently the second-largest copper-producing country in Africa.