Dominican Republic govt. mines more pesos from Pueblo Viejo JV
The Congress of the Dominican Republic will be asked to approve now amendments to a revised operating agreement which will extract higher government revenues from the Pueblo Viejo gold JV.
Posted: Thursday , 09 May 2013
RENO (MINEWEB) -
Barrick’s Pueblo Viejo Dominica Corporation (PVDC) has reached an agreement in principal with the Government of the Dominican Republic, which both sides say will address the fiscal objectives of the country while preserving the value of the Pueblo Viejo Mine.
If the proposed amendments to the Pueblo Viejo Special Lease Agreement are implemented, revenues to the government will be increased and brought forward through several proposal changes. These include elimination of a 10% return embedded in the initial capital investment; an extension to the period over which PVDC will recover its capital investment; a delay of application of certain deductions, and a reduction in depreciation rate.
Instead, a graduated minimum tax will be established and adjusted up or down according to metal prices. The annual minimum tax rate will be equivalent to 90% of the taxes that would have been payment to PVDC over a three-year period. The rate will be reset every three years.
It is anticipated that there will be a 50/50 split of the cash flows from the mine between PVDC and the government of the Dominican Republic over the years 2013-2016, resulting in tax revenues to the government of US$2.2 billion over this period at a gold price of $1,600 per ounce.
The economic benefit of these changes to the Government of the Dominican Republic over the life of the mine is US$1.5 billion (net present value at 5% discount rate and $1,600 gold price).
The proposed agreement stipulates the following parameters including a corporate income tax rate of 25%, a net smelter royalty of 3.2% and net profits tax of 28.75%.
On February 27th, Dominican President Danilo Medina said the terms of the original agreement were unacceptable. He demanded the operating contract be renegotiated and threatened to levy a windfall profits tax on the gold mine if the contract was not modified.
Subsequently, in March, the government halted a Barrick Pueblo Viejo shipment of US$11.8 million in doré, which reportedly contained about 6,000 gold ounces and 12,000 silver ounces, for four days.
Customs officials claimed that the shipment to Miami, Florida was halted to due an error in the customs declaration system which mislabeled the shipment as coming from the United States.
A joint venture between Barrick and Goldcorp, Pueblo Viejo is expected to contribute an average of one million ounces of gold, 3.1 million ounces of silver; and 6,100 tonnes of copper annually during the first five years of operations at all-in sustaining costs of $500-$600 per ounce. The $3.8 billion mine is anticipated to have a mine life of more than 25 years.