(Adds comment from First Quantum)
TORONTO, Dec 18 (Reuters) - Barrick Gold Corp said on Thursday it would suspend operations at its Lumwana copper mine in Zambia following passage of legislation that raises the royalty rate on open-pit mining operations in the country to 20 percent from 6 percent.
The Toronto-based miner had said it would consider such a move if the legislation passed. The new plan, expected to go into effect on Jan. 1, eliminates corporate income tax, but imposes a 20 percent gross royalty on revenue without considering profitability.
“The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana,” Kelvin Dushnisky, the company’s co-president, said in a statement. “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.”
Barrick said major workforce cuts are planned, beginning in March, following the legally required notice period. The transition of the mine to care-and-maintenance status will be completed in the second quarter of 2015, it said.
In the absence of a modification to the new royalty plan, Barrick said it expects to record an impairment charge related to Lumwana in the fourth quarter of 2014. Lumwana’s current net carrying value is about $1 billion.
Separately, First Quantum Minerals Ltd’s president told Reuters the new royalty rate could be a “massive disincentive” for investment if it does not come with some form of capital relief, and would prompt every miner in Zambia to review its plans.
First Quantum President Clive Newall said the miner does not yet know the details of the royalty plan, and so cannot comment on how it will react. Some jurisdictions offer tax breaks to miners that are still earning back their capital costs.
First Quantum, which operates Zambia’s largest copper mine, Kansanshi, and has been commissioning its new Sentinel mine, is expecting more detail in the next few days.
Last year Barrick booked a $3.8 billion impairment charge to write down Lumwana’s value due to higher costs and a drop in profit due to a pullback in metal prices.
Barrick acquired the mine, located in northwest Zambia, via its C$7.3 billion ($6.3 billion) acquisition of copper miner Equinox in 2011.
The mine supports nearly 4,000 direct jobs in the area and produced some 138 million pounds of copper in the first nine months of 2014, Barrick said. ($1=$1.16 Canadian) (Reporting by Allison Martell and Euan Rocha; Editing by W Simon, J Benkoe and Peter Galloway)