Lumwana Copper Mine up for sale
When the following statement was reported by the Financial Times, we knew something was brewing in the mining industry:
“Our industry has been criticised for its short-term focus, undisciplined growth and poor returns on invested capital. The merged company will be very different. Its goal will be to deliver sector leading returns, and in order to achieve this, we will need to take a very critical view of our asset base and how we run our business, and be prepared to make tough decisions.” said Mark Bristow founder of Randgold
Mark made this statement following Canada’s Barrick Gold’s USD 6bn purchase of his company (now former rival) Randgold Resources. The announcement came in September 2018, and would be an all-stock deal that would create one of the biggest gold mining companies with a market capitalization north of USD 18 bn and a footprint that spanned from United States and Africa.
The deal comes at a time when Gold asset managers such as Vanguard are overhauling their precious metals and mining funds which has analyst believing this is a sign of investor apathy towards investing in gold.
Barrick Gold is the parent of Lumwana Copper Mine in North Western province. As a result of the statement, the newly merged company will sell a number of non-core assets to position the company as the lowest cost western-based gold producer according to mining.com.
According to BMO Capital Markets analyst Andrew Kaip, a total of 13 mines from South America to Zambia are likely to be sold following the merger. Those assets currently account for 750,000 ounces of gold and 400 million pounds of copper production. Lumwana forms the largest piece of the pie to be sold and stands at USD 1.3 bn.
Barrick is not new to selling off non-core assets. In 2015, they entered into agreements to sell a number of non-core assets in Nevada for USD 720 m in cash. In a statement from their President Kelvin Dushnisky following this particular transaction, the company said “The sale of these assets is consistent with our strategy to create long-term value for our shareholders by strengthening the balance sheet and further focusing our portfolio on core mines that will drive free cash flow growth“. In addition, their strategy includes strategic mergers hence the determination of Mr Thornton (Barrick CEO) and Mr Bristow to see to it the latest deal goes through.
Should a new suitor for Lumwana be found, they will be entering a macro environment that recently saw Zambia’s Finance Minister announce interesting tax reforms around the mining sector. The minister is hoping to mobilize more funds from the sector through the following proposals in her budget:
- Increase mineral royalty rates by 1.5 percentage points at all levels of the sliding scale;
- Introduce a fourth tier rate at 10 percent on the sliding scale mineral royalty regime which would apply when copper prices rise beyond US$7,500 per metric tonne;
- Make mineral royalty tax nondeductible for income tax purposes;
- Introduce an import duty at the rate of 5 percent on copper and cobalt concentrates;
- Introduce an export duty on precious metals including gold, precious stones and gemstones at the rate of 15 percent; and
- Lift the suspension of the export duty on manganese ores and concentrates which was put in place in 2012 and increase this duty to 15 percent from 10 percent.
The dust is yet to settle. Prospective investors will keep a keen eye on developments around the tax reform.