TORONTO – Barrick Gold Corporation (NYSE: ABX, TSX: ABX) today announced that the company will initiate procedures to suspend operations at the Lumwana copper mine in Zambia following the passage of legislation that raises the royalty rate on the country’s open pit mining operations from six percent to 20 percent.
The new taxation regime, which is expected to go into effect on January 1, 2015, eliminates corporate income tax, but imposes a 20 percent gross royalty on revenue without any consideration of profitability.
“The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana. 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,” said Co-President Kelvin Dushnisky.
“We sincerely regret the impact this will have on our people, as well as the communities and the businesses that depend on Lumwana, and we remain hopeful that the government will consider an alternative solution that will allow the mine to continue operating,” said Co-President Jim Gowans.
In the meantime, the company will initiate procedures to transition Lumwana to care and maintenance. Major workforce reductions are planned to commence in March, following the legally required notice period. The transition to care and maintenance is expected to be completed in the second quarter of 2015.
In the absence of a modification to the newly-adopted royalty regime, Barrick expects to record an impairment charge related to Lumwana in the fourth quarter of 2014. Lumwana’s current net carrying value is approximately $1 billion.
Lumwana is located in Zambia’s Northwestern Province and supports approximately 4,000 direct jobs. The mine is a major driver of the provincial economy, purchasing close to $400 million in goods and services from Zambian suppliers last year and supporting a range of community projects in education, literacy, health care and training.
In the first nine months of 2014, Lumwana produced 138 million pounds of copper at C3 fully allocated costs of $2.98 per pound. The mine had 6.6 billion pounds of copper in reserves as of December 31, 2013.
it is ok. UPND will find solution next Febuary
Nonsense , you have promised to introduce mine taxes even further to fund your subsidies.
Well I will echo what the Saudis told American companies about their oil..if they don’t want to pay for our oil, we shall leave it in the ground for our grand children.
I will say the same if Barrack doesn’t want to pay for our copper, they can leave it in the ground. Our children will dig it out and develope Zambia in future than inherit a country full holes and nothing to show for the holes.
Credit to PF for putting the foot down.
These corporations just want to keep stealing from us. They always have a reason for suspending operations. What would happen in the event that HH wins and reintruduces windfall tax.? We surely better off with our copper undergroubd than these greedy chaps make profits out of us. Viva PF…
‘Easy picking’ from Zambia.
Well, the only benefit the people get from investment is jobs, that is directly and indirectly. To me, 20% is too much, just look around, there are countries whose are at 2%, but they do not care because their people are benefiting through jobs. What we need is for these companies to list on Both Mongu Stock Exchange (MSX) and Lusaka Stock Exchange so local can start owning them.
Please Barrick Gold don’t let the door hit you on your way out.We don’t need the likes of you in our country.We were doing just fine before the likes of you started digging holes in our land -from as far back as Cecil Rhodes.We are slaves in our own land. Lets leave the copper in the ground for now and focus on farming.Forget the Indians or Chinese leave the copper in the ground,leave it for the future generation of Zambians.
Useless comments what does HH knows about mines,he was busy selling mines during privatisation.
Hi everyone,
my late father ran one of your most prosperous mine in zambia for 20 years. if we put our minds together, we can run the mine our self. Zambia is now a more educated nation than 20 years ago and we can help each other succeed
Let these mines pay enough. We need to share fairly.
PROGRAM FOR FILING OF NOMINATIONS FOR PF PRESIDENT HON. EDGAR CHAGWA LUNGU
SATURDAY 20TH DECEMBER 2014
11;30HRS – Laying of Wreaths at His Excellency President Michael Chilufya Sata’s Grave at Embassy Park by President Edgar Chagwa Lungu, MCC and Ministers.
12;00HRs – Filing of Presidential Nominations before Returning Officer, Acting Chief Justice Lombe Chibesakunda
14hrs- Public Rally at Freedom Statute on the Open Grounds at SDA/ Kamwala Mosque open grounds on Independence Road.
TONGA-UPND/Come to LUSAKA/Copperbelt with those questions. They will tell you that
EL ,whether rain or sun shine,come 2015 he will be the President
of Zambia.
People in LUSAKACopperbelt are waiting for tomorrow`s nominations,
once this is done, then EL will be declared the free man of the
Province.
Here we talk about HH with caution many people have got a wrong
perception about Tongas not only in politics but also in employment,
marriage e.t.c.
BANTUSTAN UPND!
Leave it , our children will use better technology to bring it up at a minimal cost . Tieni tikazilima chabe.
Having said that IFINTU NI LUNGU
Your Excellence Honourable Edgar Changwa Lungu the Chinese are waiting to purchase the mine. Please do not appease this investors. Aglo American pulled out of Zambia when our Late president his Excellence Mwanawasa won but he had to look for other investors. Copper is ours let them pack. Our people will only suffer a bit but the next investor will employee them. Please let us not dance to the tune of the investors but let dance to ours
@Frans don’t be so self defeating why are you thinking of the Chinese let Zambians buy the mines ALA!
And Dear PFool look at the mess the Indians have made of KCM! Is that what you want of Lunwana??
These corporations just want to keep stealing from us. They always have a reason for suspending operations. What would happen in the event that HH wins and reintruduces windfall tax.?
Ba pushi………..kuti mwaya!
Is this some kind of blackmail ? These investors should not take advantage of the inability of the state to run the mines and let alone open new ones. The nation needs to benefit from its natural resources, asking for 10% is not too much in comparison to the permanent damage they cause to our environment.
Read the article again. PFooters are asking for 20% of revenues.
Let them go they have ripped enough profit at the expense of the poor zambians. Why do they want to continue blackmailing the govt with job losses and community welfare which is less than the profits they amass. Why are they reluctant to surrender receipts of imports and exports of copper as per regulation for them to claim refund of VAT and the foolish chamber of mines are supporting these thieves. What a country, no wonder they were chased from DRC where they do not condone nonsense. Wake up zambians before these economic saboteurs finish our precious copper. The chaps have vehemently been against payment of windfall tax but in other countries like chile and peru where they mine copper they follow the regulations and here they want to blackmail us with closure of mines and job cuts.
It is not a hidden fact that accounting profits can easily be manipulated and this is exactly what most mining companies have been doing in this country. Please lets put politics aside and rally behind this new way of benefiting from our resources. These guys will be reporting losses until our resources are no where to be seen. Things like education and health is not they responsibility thus we shouldn’t be hoodwinked in the name of corporate responsibility. Guys please go. What do you see when you are entering Kitwe? We all know the answer and that is not development.
And you are going to run the mines yourself or you prefer to keep the copper in the ground while you subsist by hunting kolwes?
anything that can go wrong, will- Murphy’s law.
Though i don’t agree with decision by barrick, i will retaliate that mining concessions and contracts shrouded in corruption will always backfire because the mining house will arm twist to maintain the status quo or any attempt to make good the previous poor agreements. its best to negotiate for win-win situations at the outset. This is another misdirected fiscal policy of PF regime; its just not working for them.
We have the Chinese and Indians at our disposal, we don’t need Western Investment (FDI). Why should they give what belongs to the Zambians? Let them pull out, someone somewhere will come and invest in the mines. In fact let Uncle ABC initiate talks with the Chinese Ambassador for the take over once Barrick leaves. We are tired of these *****s who want to reap off our resources.
The Chinese and Indians are not at your disposal! Just go to Chingola and find out how Indians treat Zambians.
Sata would have worked hard to keep them especially now, more less votes for PF, now the value of the mine drops, while these baffons keep fighting each other, mining is all that sustains us, take that into the equation, the buffoons in power should have come up with a better solution, this goes beyond just job loss
Goodbye Barrick.
Don’t come back to Zambia.
Barrick has been operating mines in Chile (Pascua mine). In Chile records show that mining corporate tax is 20% and second stage at 35%. Mining Royalties stand at 30%, further mining income tax varies from 5% to 34.5% with an effective tax of 14%. Have they suspended mining there? Surely, what is Barrick trying to achieve?
What do they mine in Chile is it copper or something else and what is the grade of there products there compering it to lumwana.
Let them go and leave our minerals resources for Zambians. The West is broke and cant continue milking us out of our resources.
Native Zambians will partner with Chinese and pay even better taxes to continue developing our beautiful country.
We are not as desperate as UPND which has already mortgaged its party and Zambia by flying for nothing.
HH has already sold Zambia to his financiers in the same way he sold all companies and left everyone to die. Does he think Zambians have forgotten?
Nawakwi like his brother HH are the true criminals and thieves.
She was in MMD Government as Finance Minister, Agriculture Minister and Energy minister for 20 years!!. What did she achieve? Nothing and today she is behaving like Zambians are forgetful and dull?
Infintu ni Edgar and PF, Viva
You are truly a PFool! The Chinese have never partnered any Zambian. They will shaft your bottom instead. PFools brought this on themselves with a useless 2015 budget. Chikwanda is the most useless Finance Minister Zambia has ever had.
This is best way to get more from african resources otherwise …through corporate taxes…MNCs employ transfer pricing tactics to reduce PBITs…! Africa has lost billions through this.
Don’t even give them the Title Deeds these brothers to Scott. Anglo America pulled out of Zambia before and we didn’t die and we will not die this time around.
Other genuine investors will certainly be found. We need our taxes to better the lives of Zambians.
Abash UPND and its colonial masters.
Viva PF viva Edgar Lungu
Zambians seem united in slamming the door behind Barrrick Gold as they vamoose. Viva progressive thought! May I now lay a stake on the new ownership? I really want to own a copper mine in Zed
@1.2 MMD Chief Bootlicker, that is assuming that without budgetary contribution by the Mines, you shall have money to leave behind educated, or even healthy children for that matter. Or do you mean to say that our street children and street grandchildren will inherit and dig out the copper?
@mmd bootlicker. I second you. If the current generation cannot get meaningful income from our minerals, better we leave them in the ground for our children to come and make sense out of them. Its high time we involved Zambians in every industry so that we do not have buffoons telling us what to do with our own resources. The more Zambians involved, the more money that will remain in this country. let them go!
You were given a hard ride when you once tried to break stuff down to people concerning this mine. They were all gushing over the author becoming a director – and you saw the fronting from a mile away. Reckon they’ll listen to you now? One hopes. Chuckle.
Sweet Copper Lets increase it marginally by 2 basis points and recoup like in Chile and Australia let alone Canada itself
If investments have been done and contracts made its a difficult restructuring decision looking at the yields in copper and other foreseeable Mopani even Anglo Saxon let alone our baby KCM poor vendetta will be smiling
Do not be surprised that how venture capital is Invest scap and sell to reinvest Do not think it will be long-term
Lets get our share Neither of the political parties should think otherwise especially the cheap one in promises
The sharp, greater-than-20% drop in crude oil prices from its highs in June reflects dramatic changes in the marginal supply of oil, shifting expectations for demand and, critically, a change in the outlook for monetary policy. The resulting stronger dollar is weakening its equivalent measure in the price of oil
The Reasons Behind the Decline
The drop in crude oil prices can be attributed to three simple reasons— demand, supply and the dollar. On the demand side, a downgrade in the IMF’s global growth forecast for 2015 in early October coincided with continued eurozone weakness, punctuated by very weak German manufacturing data for August and an un-anchoring of long-term inflation expectations. Furthermore, the latest economic data from Japan showed an economy struggling to cope with…
Barrick…eh eh zwa! Zwa! zwa!! Kabiyeni ba fyatile mwatuchusha pafula! Leave our copper and uranium . We do not need you.
You bring stupid so called expatriates who know nothing and pay them lots of money while you pay Zambian professionals peanuts.
ohhhhhhhhh!!!ohhhhhhh!!! zwa zwa zwa!!!!
. Furthermore, the latest economic data from Japan showed an economy struggling to cope with the consumption tax implemented in April, with a large drop in GDP and consumer spending. And over the summer, China oil consumption disappointed, even above that expected along with its declining growth.
On the supply side, the long-run U.S. shale oil renaissance has helped propel U.S. crude oil production from a low of about 5 million barrels per day in the mid-2000s to a 30-year high of about 8.7 million barrels per day. This structural trend intersected a series of positive supply developments over the last three months, including airstrikes against ISIS, the re-opening of Libyan ports, the fading of risks surrounding Russian oil supply and increasing Iranian shipments. Finally, Saudi Arabia…
Lishamu, letsthink outside the box. Lets not be myopic and think about today only. Sometimes tough times calls for new measures like necessity is the mother of invention. The mineral royalties these guys pay in most cases are based on one mineral, copper but the mineral ores coming out of our ground have cobalt, silver, gold just to mention a few. There is even talk of diamonds.More over they get our land which they use as collateral for their loans. Lets empower Zambians than foreigners!
On net, the winners from lower oil prices outweigh the losers. In particular, the largest beneficiaries to growth are from consumption, as lower gas prices free up more disposable income for, say, holiday shopping. With a $30 drop in oil prices since August, this would add an estimated 0.2% to 0.5% to GDP from personal consumption. The impact will be felt most by the lowest income households where the additional income will have a disproportionate impact. Estimates of about a 10% decrease in capital expenditures as the energy sector reassesses economic feasibility of projects would only create a drag of about 0.1% on GDP. However, for investments in specific energy-related sectors (or emerging markets where energy or other commodity related investment represents a larger percentage of…
Message lets see the good part in the copper commodity we have and see how these mines make money
The recent Maize derivative JSE initiative should open our eyes
increase further by 2% Minister Yaluma and ABC and lets see if Lumwana cannot attract Chinese or other US Canadian Investors
Dear Mr Gowans AND Mr . Dushnisky(Co-Presidents),
Please do not forget to leave us the keys as you leave. By the way take Guy Scotch with you. And never ever come back.
Regards.
Kabiyeni ba swine ! We do not need you!
Futsek Barrick……Futsek Barrick!!
This is the Zambia we need, all speaking with one voice. Now I know it is just politics that separate us, we all think the same.
LET THEM PACK AND GO, THE COPPER WILL NOT ROT. IT WILL BE EXTRACTED BY OUR FUTURE GENERATIONS WHEN CONDITIONS DICTATE. THE SOONER THEY LEAVE THE BETTER.
TONGA-UPND/Come to LUSAKA/Copperbelt with those questions. They will tell you that
EL ,whether rain or sun shine,come 2015 he will be the President
of Zambia.
People in LUSAKACopperbelt are waiting for tomorrow`s nominations,
once this is done, then EL will be declared the free man of the
Province.
Here we talk about HH with caution many people have got a wrong
perception about Tongas not only in politics but also in employment,
marriage e.t.c.
BANTUSTAN UPND!
Has this statement been issued in Chinese, I am betting they are already arranging their takeover
Impairment Review:
When is impairment recognised and then amortised over the group Financial Statements especially that it only relates to the sensitivity in changes in cash flow assumptions that could have been factored in those Financing Arrangements taking advantage of all possible scenarios in those licences or taxes giving rise to anticipated gains or losses recognised appropriately as an impairment but not terminal
It should be for Big Barrick to isolate spread and assume that impairment on these royalties and amortise it effectively over a few profit making periods readjusting their cash flows which we know not cast in stones give the future in the resources and prices
Have the cash flow projections substation ally changed/unchanged since last reviewed due to this announcement or is it that barrack never anticipated or it cannot be assimilated and diversified away into its big group structure in some form to reflect its good risk management profile and turn around later to post gains
The royalty figure as given is quiet acceptable as a comparable to other similar mining operations except that barrack may need to look at its earnings and increase volumes to have a win situation here
You recognise an impairment and amortise it over the life of that particular and then do not close shop
Its a scenario sensitivity that ought to have been anticipated
.
Don’t be too clever! Royalties are not a single impairment event. This is a permanent adverse event. A company has to decide whether it can ever meet its IRR from its project or not on the basis of the new fiscal regime. Barrick see red ink everywhere and are shutting shop.
This story about falling copper (Cu) prices blah blah, does not hold true when you look at it in context.
ZCCM was sold, Cu was selling at around US$2,500/Tonne on a good day at London Metal Exchange (LME). And yet ZCCM managed to carry a big social services budget that included well maintained housing stock, Schools, recreation facilities, etc.. Remember the ZCCM inter-Division sports festival? Not to mention the mandate it had at National level.
Today it is selling at around US$6,400/Tonne on a bad day at LME. In other words, Cu has more than doubled thanks to China’s big appetite.
Additionally, due to advancement in Technology these Barrick guys’ production costs are lower than ZCCM’s production cost, so more profit to them.
So these Barrick guys should speak in…
speak in context, and argue in context. This is not politics where each answer is correct depending on how you look at it. Mining is an exact science, and Copper graphs are there on LME website for anyone to look at.
Be serious! Do you think the costs of mining the copper have remained at ZCCM days level while copper prices have rocketed?
Talking about IRR or Sharpe Ratios or Capital Asset Pricing methods like CAPM Projects scenario sensitivities and what if Including the NPV and NPV Profitability index is all positively fair for Barick
IRR is secondary measure of assessment to Present value techniques and may only save as a break even post and point to the NPV profitability Index >its a point at which a projects is at zero in cash flows and before posting losses or gains
Most traditional mining projects have similar IRR but looking at the most near comparable mining though not accurate, they should be able to amortise the impairment and post gains within a few yrs. looking at the mine there and the…
quality of the resources one will never trade off
Its important therefore to assess the carrying values and see the impact on the scenarios and see the future options available
Impairment does not mean a disposal or decommissioning or abandonment Its a normal risk management strategy imbedded in accounting standards to support the nature and fair reporting of financial statements removing the earnings flags not to over projects or mislead to overstate that reasonableness
Its not only revenue but impairment can be on all major core assumptions/assets of the business
To pick royalties and blow may not be a correct view Lumwana is still viable even if sold to another developer at its stage
Then those assets or Investments impaired must be tested and isolated individually to assess that case of impairment on individual test scenario and then a global
its not that all may be affected by the sensitivity but even then the projections in the cash flow statement must be a cash to see the effect real time
CORPORATE GREED !!!!!!
LET THEM GO….
@jonathanmhango Financial Analyst
The article clearly says Barrick Gold would take an impairment charge on Lumwana of the carrying value of $1bn. In the event the operations are terminated, the net assets of the project (Lumwana), would be written off to the Group P/L a/c as an exceptional item. This has nothing to do with impairment or amortisation of royalties.
However, 20% on revenue is a smart move, but it is long over due. Sales are sales, you cannot manipulate them.