TORONTO (miningweekly.com) – Canada’s Barrick Gold Corp will suspend operations at its Lumwana copper mine, in Zambia’s Northwestern province, after the country enacted legislation that raised the royalty rate on openpit mining operations from 6% to 20%.

TSX- and NYSE-listed Barrick, the world’s largest gold producer, said the new taxation regime was expected to come into effect on January 1.

While the new rules eliminated corporate income tax, it imposed a 20% gross royalty on revenue without any consideration of profitability.

"The introduction of this royalty has left us with no choice but to initiate the process of suspending operations at Lumwana. Despite the progress we have made to reduce costs and improve efficiency at the mine, the economics of an operation such as Lumwana cannot support a 20% gross royalty, particularly in the current copper price environment," co-president Kelvin Dushnisky said in a statement.

Mining Weekly Online earlier this month reported that a fact sheet circulated by Lumwana mine said that, if the country’s 2015 budget was approved it would result in about 4 000 direct jobs being lost, 2 000 of which were employees of Lumwana (94% of whom were Zambian nationals) – the remainder being contractors working for the mine.

"We sincerely regret the impact this will have on our people, as well as the communities and the businesses that depend on Lumwana, and we remain hopeful that the government will consider an alternative solution that will allow the mine to continue operating," Barrick co-president Jim Gowans noted.

Moreover, the royalty reforms came at a time when the Zambian mining industry was still reeling from the government’s decision to withhold $600-million in value-added tax (VAT) refunds owed to mining firms. The lack of any clear strategy to resolve the refund of the VAT had seriously affected the cash flows of all exporters in Zambia, which, after over 15 months, still did not appear any closer to resolution.

Meanwhile, Barrick would start procedures to transition Lumwana to care and maintenance. Major workforce reductions were planned to start in March, following the legally required notice period. The transition to care and maintenance was expected to be complete in the second quarter of 2015.

Failing a modification to the newly adopted royalty regime, Barrick expected to record an impairment charge related to Lumwana in the current quarter. The operation’s current net carrying value was about $1-billion.

Lumwana is a significant driver of the provincial economy, purchasing close to $400-million in goods and services from Zambian suppliers last year and supporting a range of community projects in education, literacy, healthcare and training.

In the first nine months of 2014, Lumwana produced 138-million pounds of copper at C3 fully allocated costs of $2.98/lb. The mine had 6.6-billion pounds of copper in reserves as of December 31, 2013.