Barrick faces new setback over Zambia mine – by Rachelle Younglai (Globe and Mail – October 31, 2014)

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Barrick Gold Corp. may idle its Zambian copper mine if the African government imposes a higher royalty, a potential blow to the Canadian company, which has worked hard to turn its fortunes around.

The world’s largest gold producer was in discussions with the government about reducing the proposed 20-per-cent rate when the Zambian president died this week, adding more uncertainty to the negotiations.

“At the end of the day if we are in a position where through a new tax regime the project doesn’t make money, then certainly we would have to consider suspending for a period of time,” Kelvin Dushnisky, Barrick’s co-president, said in an interview. “The copper remains in the ground. It’s not going anywhere. It wouldn’t make sense for us to run the mine just for the purpose of paying royalties and taxes.”

It’s another sign that the challenges are not over for Barrick, which like the rest of the gold industry continues to grapple with the fallout from weaker gold prices and expensive acquisitions gone wrong.

“The gold producers are stuck between a rock and a hard place,” said Pawel Rajszel, analyst with Veritas Investment Research. “There’s just not much the gold producers can do, except hope for a higher gold price.”

After two years of tumult, Barrick has emerged as the lowest cost producer among the big gold miners. But Barrick continues to carry a lot of long-term debt.

The company on Thursday said it plans to reduce its net debt to $7-billion (U.S.) from the current $10-billion through its cash flow and proceeds from any potential asset sales.

Even after Barrick reported a third-quarter profit late Wednesday that beat analyst expectations and reduced its costs for the second time this year, investors were displeased.

Barrick stock dropped 4 per cent to $13.75 (Canadian) a share on Thursday, well below levels it traded at before the start of gold’s 10-year bull market, which peaked a few years ago.

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