Barrick Gold Corp. (ABX, ABX.TO) said Wednesday that Pueblo Viejo Dominicana Corp. has reached an agreement in principle with the Government of the Dominican Republic regarding amendments to the Pueblo Viejo Special Lease Agreement.
The Pueblo Viejo mine is operated by Pueblo Viejo Dominicana, which is jointly owned by Barrick (60 percent) and Goldcorp Inc. (GG) (40 percent).
The agreement in principle comes after eight months of constructive talks between the government and Pueblo Viejo Dominicana, which is one of the largest foreign investors in the Dominican Republic.
If the proposed amendments are implemented, revenues to the government will be increased and brought forward via a number of proposed changes. To achieve this objective, amendments to the special lease agreement, or SLA, which will be mutually agreed upon by the parties, could include
- elimination of a 10 percent return embedded in the initial capital investment for the purposes of the NPI
- an extension to the period over which Pueblo Viejo Dominicana will recover its capital investment
- a delay of application of NPI deductions, and lower depreciation rates.
A graduated minimum tax will be established, which will be adjusted based on metal prices. The annual minimum tax rate will be reset every three years and will be equivalent to 90 percent of the taxes that would have been payable by Pueblo Viejo Dominicana over the same period.
Based on the proposed amendments, it is anticipated there will be an about 50/50 split of the expected cash flows from the mine between Pueblo Viejo Dominicana and the government over the years 2013-2016. This would result in tax revenues to the government of about $2.2 billion over this period at a gold price of $1,600 per ounce.
The proposed amendments are subject to negotiation of a Definitive Agreement, which will require the approval of the Boards of Barrick and Goldcorp along with the project lenders. It will also be subject to approval by the Congress of the Dominican Republic.
The government has also reiterated its commitment to facilitating the timely granting of permits and other requirements necessary for ongoing operations at Pueblo Viejo.
Pueblo Viejo is a low-cost mine and is expected to contribute an average of 625,000-675,000 ounces of gold per year to Barrick in its first full five years of production at all-in sustaining costs of $500-$600 per ounce.
For comments and feedback: editorial@rttnews.com