Changes To Zambian Mining Tax Regime A Boost For Barrick Gold’s Zambian Copper Mining Operations

by Trefis Team
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The Zambian government is instituting changes to its mining tax regime with effect from July 1, a move which will boost the economic viability of copper mining operations in the country, such as Barrick Gold’s (NYSE:ABX) Lumwana mine. The Zambian government had earlier scrapped corporate taxes on mining activities in exchange for higher royalties with effect from January 1, 2015. [1] The previous changes to the country’s mining tax regime had increased the royalty rate on revenues of open-pit mining operations, such as the Lumwana copper mine, from 6% to 20%. ((Barrick to Suspend Operations at Lumwana Following Passage of New Mining Royalty, Barrick Gold News Release)) This had threatened the economic viability of Barrick’s copper mining operations in Zambia, and the company had decided to suspend its Zambian mining operations in the absence of any changes to the taxation regime. [1] The latest changes to the taxation regime will reinstate the corporate tax on mining activities and lower royalty rates for open-pit mining to 9% of revenues, making operations at Barrick’s Lumwana mine economically viable. [2] The changes to the mining tax regime boost the prospects of Barrick Gold, given the subdued commodity pricing environment, and are thus important for the company to operate competitively in the prevailing business environment.

  • Revenues from gold mining accounted for around 88% of Barrick’s total mining revenues in 2014. [3] However, gold prices have averaged around 5% lower this year, as compared to their average values last year. [4] Given the subdued gold pricing environment, Barrick cannot afford to run unprofitable copper mining operations.

         See our forecasts for average realized gold prices

  • Copper prices have tumbled over the course of the last year as a result of weak demand, as illustrated by the graph shown below. Copper prices are trading around 18% lower year-over-year. [5] This has primarily been due to weakness in demand, driven by an economic slowdown in China, the world’s largest consumer of copper. Given the subdued copper pricing environment, a friendlier taxation regime in Zambia is a much needed boost for Barrick Gold.
    LME Copper Prices, Source: London Metal Exchange

 

See the links below for more information and analysis:

Mining Royalty Rate Hike To Adversely Impact Barrick Gold’s Zambian Copper Mining Operations

Two Scenarios That Could Boost Barrick Gold’s Stock Price

Why Barrick Is Selling The Cowal Mine

The Impact Of Copper Supply Side Constraints On Barrick Gold’s Stock Price

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Notes:
  1. Barrick to Suspend Operations at Lumwana Following Passage of New Mining Royalty, Barrick Gold News Release [] []
  2. Barrick Gold’s Q1 2015 Conference Call Transcript, Seeking Alpha []
  3. Barrick Gold’s 2014 40-F, SEC []
  4. Gold Price Charts, Kitco []
  5. Copper Price Chart, LME []
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