Barrick Gold: The Latest Victim Of Rising Regulatory Risk In Developing Country Mining Jurisdictions

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Barrick Gold’s African operations are mired in uncertainty amid the Tanzanian government’s ban on the export of unprocessed mineral ores from the country. [1] In addition, the Tanzanian government has alleged that Acacia Mining plc, the Barrick Gold subsidiary which operates the company’s mining interests in the country, has been evading taxes by understating the amount of gold concentrate that it exports. [2] While Barrick has not altered its production guidance for its African mining operations yet, as per Acacia plc (in which Barrick holds a 63.9% stake) the mineral export ban is costing the company nearly $1 million per day in lost sales, as there isn’t enough gold smelting capacity within the country. [3] Barrick’s woes in Tanzania are the latest in a distressing series of developments for mining companies in developing country jurisdictions that have adversely affected the viability of their operations in these jurisdictions.

Troubles in Developing Country Jurisdictions

Barrick Gold’s troubles in Tanzania mirror those faced by Freeport-McMoRan and Newmont Mining in Indonesia. The Indonesian government introduced changes to its mining regulatory regime in 2014, which included a ban on the export of certain unprocessed minerals, including copper, from the country in order to foster the growth of mineral processing within the country. While Freeport and Newmont were able to resume exports after a seven-month standoff with the Indonesian government, they did so under a changed regulatory regime which included higher export duties and time-bound commitments to set up smelting capacity within the country. While Newmont subsequently sold off its Indonesian operations in 2016 in order to exit an uncertain mining jurisdiction, Freeport is still grappling with the latest regulatory changes introduced by the government in 2017 which entail the divestment of up to 51% of the company’s Indonesian operations to Indonesian nationals and require a renegotiation of the terms of the company’s long-term presence in Indonesia. Exiting Indonesia is not a simple decision for Freeport since the country accounts for 31% of the company’s consolidated copper reserves. [4] While Freeport is currently engaged in negotiations with the Indonesian government over the terms of its long-term presence in the country, uncertainty pertaining to the outcome of these negotiations has weighed on the company’s stock.

Barrick Gold chairman John Thornton has begun discussions with the Tanzanian government in order to resolve the outstanding issues between the government and the company. While the outcome of these negotiations is uncertain, in case the continued presence of Barrick Gold in the country becomes untenable, the decision to exit Tanzania for the company should be simpler than the same potential decision for Freeport in Indonesia, since Africa accounts for around 6% of the company’s gold reserves and around 10% of its shipments (both on an equity interest basis). [5]

However, these recent developments involving Barrick Gold, Newmont, and Freeport are indicative of heightened regulatory risk for mining companies in certain developing country jurisdictions. More countries, such as the Philippines, are also considering export bans on unprocessed mineral exports. This trend certainly does not bode well for mining companies, many of which could be forced to take tough decisions regarding their continued mining commitments in these jurisdictions. [6]

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Barrick Gold

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Notes:

  1. Barrick Comments on Potential Impact of Tanzania Concentrate Export Ban, Barrick Gold News Release []
  2. Tanzania says Barrick to pay money owed by Acacia to Gov’t, Mining.com []
  3. Tanzania ban costs $1 mln daily in revenue, Reuters []
  4. Freeport-McMoRan’s 2016 10-K, SEC []
  5. Barrick Gold’s 2016 40-F, SEC []
  6. Philippines may consider ban on exports of unprocessed minerals: official, Reuters []
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