Canada-based Barrick Gold is set to initiate procedures to suspend operations at the Lumwana copper mine in Zambia’s north-western province, following a proposed increase in royalty rates.
The latest announcement, approved by Zambia’s Finance Minister Alexander Chikwanda in the 2015 budget, recommends an increase in royalty rates on open-pit mining from 6% to 20%.
The Zambia Chamber of Mines said that the decision will lead to shaft closures and 12,000 job losses.
Expected to go into effect on 1 January 2015, the new taxation regime will reportedly eliminate corporate income tax but impose a 20% gross royalty on revenue without considering profitability.
Barrick Gold co-president Kelvin Dushnisky said: “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% gross royalty, particularly in the current copper price environment.”
The company will start procedures to transition Lumwana to care and maintenance and major workforce reductions, which are expected to begin in March.
The transition is expected to finish in 2015.
Lumwana has a net carrying value of $1bn and supports 4,000 direct jobs. The suspension of its operation may hit output at three copper smelters that depend on its metals.
The mine produced 138 million pounds of copper at C3, with fully allocated costs of $2.98 per pound in the first nine months of this year and had 6.6 billion pounds of copper in reserves as of 31 December 2013.
Meanwhile, The International Monetary Fund (IMF) has asked Zambia to resolve issues with stakeholders in its mining sector.
IMF team leader for an article IV consultation Tsidi Tsikata said: “Greater policy stability and consistency would help anchor confidence in Zambia as an attractive investment destination.
“In this regard, the mission urged the authorities to seek a speedy resolution to the impasse over VAT refunds to exporters. More generally, it will be important to enhance dialogue between stakeholders, particularly between government and the mining sector, where there is a need to build mutual trust.
“Moreover, lower world copper prices and the announced shift to a royalty-only mining tax regime with high rates are likely to adversely affect the mining sector. The authorities indicated that they are looking to assuage the concerns of mines and prevent closures.”