TORONTO (miningweekly.com) – The world’s largest gold miner Barrick Gold late on Wednesday said the Pueblo Viejo Dominicana Corporation (PVDC) had reached an agreement in principle with the Dominican Republic regarding amendments to the Pueblo Viejo special lease agreement (SLA), which, if approved, would increase and bring forward government revenue.
Among the main points the parties could agree to were the elimination of a 10% return embedded in the initial capital investment for the purposes of the net profits tax of 28.75%; an extension to the period over which PVDC would recover its $3.8-billion capital investment; a delay of application of net profits interest (NPI) deductions; and a reduction in depreciation rates.
The Pueblo Viejo mine is operated by PVDC, which is jointly owned by Barrick (60%) and Goldcorp (40%).
Barrick said the agreement in principle came after eight months of “constructive” discussions between PVDC and the government.
“We are pleased to reach an agreement in principle that preserves the economic value of the Pueblo Viejo mine, while also addressing the fiscal objectives of the country in a way that will provide stability for both parties moving forward,” Barrick said.
A graduated minimum tax will be established and the tax would be adjusted up or down based on metal prices. The yearly minimum tax rate would be reset every three years and would be equivalent to 90% of the taxes that would have been payable by PVDC over the same period.
Based on the proposed amendments, it was expected there would be a 50:50 split of the expected cash flows from the mine between PVDC and the government over the years 2013 to 2016, which would result in tax revenues to the government of about $2.2-billion over this period at a gold price of $1 600/oz.
The economic benefit of these changes over the life of the mine to the government would be about $1.5-billion.
The proposed agreement also included broad tax parameters consistent with the SLA, including the corporate income tax rate of 25%, a net smelter royalty of 3.2% and the NPI of 28.75%.
Pueblo Viejo is a world-class, low-cost mine and is expected to contribute an average of 625 000 oz to 675 000 oz of gold a year to Barrick in its first full five years of production at all-in sustaining costs of $500/oz to $600/oz.
Pueblo Viejo’s estimated exports of $1.3-billion a year over its 25 year mine life would be equivalent to 15% of total Dominican exports, according to a report by the Centre for Social Responsibility in Mining at Queensland University’s Sustainable Minerals Institute.
While mining only accounted for 0.4% of Dominican gross domestic product (GDP) in 2011, the Pueblo Viejo project alone was expected to account for 2.9% of Dominican GDP within the next decade, the report said.