Papua New Guinea wants Barrick Gold Corp. and its Chinese joint-venture partner to fork over US$191-million in back taxes, as the world’s second biggest gold producer dukes it out in court over whether it has the right to continue mining in the country.
Late last month, Papua New Guinea (PNG) refused Barrick’s request to renew its mining lease on the Porgera gold mine, citing environmental and other legacy issues.
Barrick subsequently took legal action against the government, filing a judicial review with the National Court of Justice. The court ordered both sides to negotiate and report on their progress on Friday. If the two can’t reach an agreement, a mediator will be appointed to hash out a settlement.
On April 9, Papua New Guinea informed Barrick that it was demanding the payment of the back taxes, based on an audit of the mine. In a regulatory filing alongside its first-quarter results, Barrick said the request has no merit and that it “intends to defend its position vigorously.”
Porgera is a joint venture between Barrick, China’s Zijin Mining Group Co., Ltd. and the PNG government. It has been in production since 1990, and produced 131,000 ounces of gold in the first quarter.
“We were forced to close the mine because of the sudden action by the Prime Minister,” said Mark Bristow, chief executive officer of Barrick, in an interview.
PNG Prime Minister James Marape swept to power last year after running a campaign based on economic nationalism, pledging to review agreements with foreign operators of its resource assets.
The fracas between Barrick and Papua New Guinea has shades of an earlier dispute involving Barrick and another developing country on a different continent that only recently was resolved.
In 2017, the government of Tanzania banned a subsidiary of Barrick from exporting gold concentrate and later demanded US$200-billion in back taxes it says it was owed. The quarrel dragged on for more than two and a half years, with Barrick eventually agreeing to much more stringent profit-sharing terms with Tanzania, and the payment of a US$300-million fine.
“This feels a bit like Tanzania 2.0,” said Kerry Smith, an analyst with Haywood Securities Inc., in a note to clients late last month about the disagreement between Barrick and Papua New Guinea. Should Barrick end up paying a substantial settlement to the country, it would come at a time of financial strength for the Toronto-based miner.
In the first quarter, Barrick reported a profit of US$400-million, a 260-per-cent increase compared with the same quarter last year. The miner generated US$438-million in free cash flow, roughly double last year’s levels. The company is benefiting from the recent surge in the price of gold bullion, which has moved up in large part because of the massive uncertainty caused by the novel coronavirus.
Compared with many of its competitors, Barrick’s operations have been relatively unaffected by COVID-19. Only one of its major mines, Veladero in Argentina – which it co-owns with Shandong Gold of China – was temporarily impacted by government-mandated slowdowns.
Mr. Bristow credits Barrick’s ability to largely maintain operations during the pandemic to its policy of screening employees for virus symptoms before they enter mines, quickly isolating anyone who tests positive and isolating other employees who came into contact with an infected person through contact tracing.
Seven of Barrick’s Nevada-based employees tested positive for the virus, and at one point close to 600 Nevada workers were isolated. More than 80 per cent of isolated employees have since returned to work.
In a conference call with analysts on Wednesday, Mr. Bristow also predicted that more consolidation is likely in the gold industry, even during the current pandemic.
Barrick kicked off a major round of mergers and acquisitions a couple of years ago after it acquired Randgold Resources Ltd. for US$6-billion. A number of big deals followed, including Newmont Corp.’s acquisition of Goldcorp Inc. Lately a number of smaller, struggling miners, such as Guyana Goldfields Inc. and Semafo Inc., have been acquired by bigger players.
“I’ve got no doubt that we will continue to see transactions that make sense in this environment,” Mr. Bristow said. He added that Barrick has a very strong financial platform in which to make acquisitions and pursue opportunities.
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