Barrick May Close Zambian Copper Mine If Tax Hike Goes Ahead

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."

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