Barrick Gold, First Quantum Expected to Take Hit from Zambia's New Royalty Increase
The two companies, both of which operate copper mines in Zambia, will be subject to an increase from six percent to 12 for open pit operations and eight percent for underground mines.
The changes will “achieve a more equitable distribution of the mineral wealth between government and the mining companies,” said Finance Minister Alexander Chikwanda. He added the increased royalties will replace the 30 percent corporate income tax miners currently pay.The new tax system aims to generate revenue from different stages of production.
“The proposed changes to mining tax policies will likely further erode the relationship between miners and the government,” said Clare Allenson, a London-based analyst with Eurasia Group. The higher royalties “will likely delay the development of new projects.”
Canadian mining company First Quantum Minerals has already delayed more than $1 billion in investment projects in Zambia because of uncertainty over the fiscal regime.
"On the face of it, the new system doesn't incentivize investment in new capital projects," said John Gladston, First Quantum Minerals Zambia government affairs manager.
"The budget address served to confirm the sagacity earlier this year of First Quantum's postponement of additional major capital projects in Zambia.”
Barrick Gold, which operates the Lumwana copper project in Zambia, will also take a significant blow. The company is expected to take a negative hit of 3.7 percent to its NAV, reducing its 2015 EPS by 4.6 percent and cash flow per share by 2.2 percent.
Companies like Vedanta Resources (LSE:VED) and Glencore (LSE:GLEN), both of which run underground operations in Zambia, are expected to be impacted. The new royalty rate for mining operations will go into effect January 2015.
Newmont acquires Canada’s GT Gold in $325mn deal
Newmont, the world’s biggest gold miner, has acquired Canada’s GT Gold in a deal worth $325mn. The gold giant now controls the Tatogga gold-copper project in the Traditional Territory of the Tahltan Nation.
“With the acquisition of GT Gold and the Tatogga project in the highly sought-after Golden Triangle district of British Columbia, Canada, Newmont continues to strengthen our world-class portfolio,” commented Newmont President and CEO Tom Palmer.
“We look forward to continuing to build a respectful and meaningful relationship with the Tahltan Nation, including the community of Iskut. The relationships we have with Indigenous communities, First Nations and host communities are critical to the way we operate. We will partner with the Tahltan Nation at all levels, and with the Government of British Columbia to ensure a shared path forward as the Company understands and acknowledges that Tahltan consent is necessary for advancing the Tatogga project.”
Newmont’s acquisition includes the Tatogga project, comprised primarily of the Saddle North deposit, which has the potential to contribute future significant gold and copper annual production. There are also further exploration opportunities beyond the known deposits at Saddle North within the land package. The Tatogga project adds to Newmont’s existing interest in the prospective Golden Triangle through the company’s 50% ownership in the Galore Creek project.
Newmont is the world’s leading gold company and a producer of copper, silver, zinc and lead. A world-class portfolio of assets, prospects and talent is anchored in favourable mining jurisdictions in North America, South America, Australia and Africa. The American miner is celebrating its 100th anniversary this month.
With gold prices on the rise, the last six months has seen gold industry M&A activity accelerating. A recent Mckinsey report, advises that the industry need to be mindful of mistakes made during the previous gold price boom, when growth was chased unidirectionally by several companies.