Barrick Gold Corp., the world’s biggest producer by sales, agreed in principle with the Dominican Republic on changes to the lease for its Pueblo Viejo mine that would give more revenue to the government.
The economic benefit of the proposed changes over the mine’s life would be about $1.5 billion using a gold price of $1,600 an ounce and a 5 percent net-present-value discount rate, Toronto-based Barrick said today in a statement.
The government had been seeking increased benefits from Barrick, which owns 60 percent of the mine and is the operator, and Vancouver-based Goldcorp Inc., which holds the other 40 percent. President Danilo Medina said Feb. 27 the Pueblo Viejo contract was “unacceptable” and must be revised.
Under the original agreement, the largest tax stream, the so-called net-profits tax, would only start after the owners had recovered their full capital investment and a 10 percent return, which meant revenue to the government was lower in the initial years of operation, Andy Lloyd, a Barrick spokesman, said today in a telephone interview.
“What this agreement does is bring forward and increase tax payments starting this year,” Lloyd said. The actual details of many of the provisions still need to be negotiated between the parties, he said.
The expected cash flows from the mine would be split about equally between the mine’s owners and the government from 2013 to 2016, based on the proposed amendments, Barrick said. Based on a gold price of $1,600 an ounce, that would result in about $2.2 billion of tax revenue to the government, it said.
Pueblo Viejo started output in August last year and achieved so-called commercial production in January. The project, which cost $3.7 billion to build, has a mine life of at least 25 years, Barrick said Jan. 15.
Once negotiated, the definitive agreement must be approved by the Barrick and Goldcorp boards, the project lenders and the Dominican Republic Congress, Barrick said in today’s statement.
The parties will work as quickly as possible to submit contract modifications for legislative review, Presidential Minister Gustavo Montalvo said today.
“Both parties understand that this agreement will guarantee a fair distribution of benefits,” Montalvo said. “We understand that this agreement respects both the aspirations of the Dominican people while respecting the rules of the game for the development of exploitation activities at Pueblo Viejo.”
Gold futures for June delivery advanced 1.7 percent to settle at $1,473.70 an ounce on the Comex in New York, the biggest gain for a most-active contract since April 25. On April 16, the price touched $1,321.50, the lowest since Jan. 28, 2011.