Tax hike in Zambia could lead to a closure of Barrick's Lumwana Mine

October 31, 2014

A plan that would more than triple mineral royalties in Zambia may lead Barrick Gold Corp. to close it Lumwana copper mine, the company announced.

Bloomberg reported that tensions between the company and the government are worsening as Zambia’s parliament is now considering a hike in mineral royalties to 20 percent from the current 6 percent, starting from January next year.

A Barrick spokesman said that, should the hike go ahead, Lumwana would become unviable, but the company later suggested the government may be open to lowering the proposed new royalty rate.

Based on discussions with advisers to the Zambian government, “going into this week our sense is there would be movement away” from the 20 percent rate, Barrick co-president Kelvin Dushnisky. “That’s certainly the direction discussions were going.”

Barrick’s statement about the possible closure of Lumwana 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 percent, company officials said.


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