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Barrick Gold's Lumwana copper mine in Zambia (REUTERS)

Barrick Gold's Lumwana copper mine in Zambia

(REUTERS)

Tax hike, copper prices force Barrick to shutter Zambian mine Add to ...

Barrick Gold Corp. said it will suspend operations at its Zambian copper mine and record an impairment charge after the African country’s government more than tripled its mining royalties.

The suspension is the latest setback for Barrick, which borrowed heavily to acquire the Lumwana mine in 2011, when copper prices were soaring.

The royalty on open pit mining in Zambia will jump to 20 per cent from the current 6 per cent, under a new law that will go into effect Jan.1.

“The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana,” Barrick’s co-president Kelvin Dushnisky said in a statement.

Barrick, which employs 4,000 workers at Lumwana, said it would start cutting jobs in March after giving the Zambian government the mandatory two-months notice. The mine will be idled by the middle of the year.

It is unknown whether Barrick will be able to renegotiate rates with the government before it shutters the mine.

Copper is Zambia’s main export. Other companies such as Canada’s First Quantum Minerals Ltd. and Swiss-based Glencore PLC also operate copper mines in Zambia. Both companies have already postponed investments in the country.

Although Lumwana is an open pit mine, it is one of the country’s more expensive operations. Barrick’s production costs averaged around $2.98 (U.S.) a pound so far this year. That is higher than the current copper price, which has been trading below $2.90 a pound due to weaker demand from China and a surplus of the metal.

“Lumwana cannot support a 20-per-cent gross royalty, particularly in the current copper price environment,” said Mr. Dushnisky.

At one point, Lumwana was seen as critical to Barrick’s growth. Now it has become a cautionary tale of an acquisition gone wrong. Since the day Barrick acquired the mine through its $7.3-billion (Canadian) Equinox Minerals purchase in 2011, it has been a headache for the company.

The acquisition pushed up Barrick’s debt levels and forced the company to raise equity to alleviate some of the burden.

Shareholders were confused over the gold company’s foray into copper, and drove Barrick’s stock down. The company has had to write down $3.8-billion (U.S.) in costs related to Lumwana.

The fresh impairment charge, which will be recorded in the fourth quarter if Zambia’s law remains in place, is expected to wipe away the bulk of Lumwana’s remaining $1-billion value.

Barrick has undergone drastic changes since the heady times of the commodity boom.

It has sold mines, suspended a key gold project in the Andes and whittled down production to deal with the 30-per-cent slump in bullion prices.

Under Barrick’s new chairman, John Thornton, nearly every executive has been replaced and the board of directors has been revamped.

The company, which had once aspired to be a diversified Canadian mining giant, is now focused on a handful of mines in Nevada and the Americas.

Mr. Thornton has said he wants Barrick to be a leader in copper, though it is unclear how much of a role Lumwana will ever play.

Earlier this year, Barrick had warned that it would stop production if Zambia’s government imposed the higher royalties.

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