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Barrick Gold Corp. said it will suspend operations at its Zambian copper mine and record an impairment charge after the African country’s government more than tripled its mining royalties.
The suspension is the latest setback for Barrick, which borrowed heavily to acquire the Lumwana mine in 2011, when copper prices were soaring.
The royalty on open pit mining in Zambia will jump to 20 per cent from the current 6 per cent, under a new law that will go into effect Jan.1.
“The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana,” Barrick’s co-president Kelvin Dushnisky said in a statement.
Barrick, which employs 4,000 workers at Lumwana, said it would start cutting jobs in March after giving the Zambian government the mandatory two-months notice. The mine will be idled by the middle of the year.
It is unknown whether Barrick will be able to renegotiate rates with the government before it shutters the mine.
Copper is Zambia’s main export. Other companies such as Canada’s First Quantum Minerals Ltd. and Swiss-based Glencore PLC also operate copper mines in Zambia. Both companies have already postponed investments in the country.
Although Lumwana is an open pit mine, it is one of the country’s more expensive operations. Barrick’s production costs averaged around $2.98 (U.S.) a pound so far this year. That is higher than the current copper price, which has been trading below $2.90 a pound due to weaker demand from China and a surplus of the metal.
“Lumwana cannot support a 20-per-cent gross royalty, particularly in the current copper price environment,” said Mr. Dushnisky.
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