Barrick will not suspend copper mine as Zambia backs down on royalties

By Chris Mfula

LUSAKA (Reuters) - Barrick Gold Corp , the world's biggest gold producer, said on Thursday it will not suspend operations at its Lumwana open-pit copper mine in Zambia now that the country's government has reduced mining royalties.

Zambia's cabinet set the royalty tax rate for open-pit and underground mining at 9 percent on Monday. The corporate income tax rate will be 30 percent and the mineral processing tax rate will be 35 percent when the law takes effect on July 1.

"We appreciate the leadership and engagement of President (Edgar) Lungu and the government of Zambia on this matter," Barrick Co-President Kelvin Dushinsky in a statement. "While Lumwana still faces challenges, in light of the government's recent announcement we intend to continue operations at this time"

The changes are yet to be approved by the parliament in Africa's second-largest copper producer, but are expected to receive support from the assembly.

Zambia decided in January to increase royalties for open pit mines to 20 percent from 6 percent and raise rates for underground mines to 8 percent from 6 percent. The move rattled unions and mining companies and forced the government to review the plan.

Barrick had warned in December that it would suspend operations at Lumwana due to the royalty rate hike, which it said would make the mine uneconomic.

Some 2,000 workers at Lumwana held a one-day strike in February to protest possible job losses but Zambia's president said his government would not allow mining jobs to be lost, and directed his cabinet to review the royalties.

However, Vedanta Resources Plc's Zambian copper unit, Konkola Copper Mines, said it would continue to lose money under the new tax regime.

Steven Din, chief executive of KCM, which runs an open pit and underground mine as well as a copper smelting plant, said late on Wednesday that he was comforted by the government's willingness to talk to mining companies.

"So if the mining companies certainly feel that they still have difficulties, I believe that the government will be listening and then we will have a win-win solution," Din said.

Other foreign companies running mines in Zambia include Glencore and Canada's First Quantum Minerals .

(Additional reporting by Susan Taylor in Toronto; editing by James Macharia, William Hardy and Peter Galloway)