Just two weeks after the Pueblo Viejo mine in the Dominican Republic entered commercial production in mid-January, joint-venture partners Barrick Gold (ABX-T, ABX-N) and Goldcorp (G-T, GG-N) face a potential backlash from the government.
According to local media outlets in the Caribbean nation, the Chamber of Deputies is thinking about renegotiating its contract with the two major gold producers for “more favourable terms.”
“The major point of contention appears to be that windfall revenues to the government would only start after the company recovers all of its initial investment, with capital costs rising from US$1.0 billion in 2005 to US$3.7 billion more recently,” David Haughton of BMO Capital Markets surmises in a research note to clients. “A meaningful portion of that additional expenditure would have been injected into the local economy.”
“The contract is binding and cannot be changed unilaterally,” he adds, “but clearly some discussions of the issues may unfold.”
Barrick picked up the Pueblo Viejo project in its 2006 acquisition of Placer Dome and subsequently sold a 40% stake in to Goldcorp.
The mine —about 100 km northwest of the capital city of Santo Domingo—was completed at a cost of $3.7 billion and is expected to support about 2,000 direct jobs and nearly 10,000 indirect jobs over the course of its more than 25-year lifespan. Dominicans are expected to make up about 90% of the workforce according to Barrick’s website.
Ramp-up to full production is expected in the second half of 2013 and over the first five years of operation Barrick’s share of annual production is forecast to average 625,000-675,000 ounces of gold and Goldcorp’s share 415,000-450,000 ounces.
It’s been a rocky start to 2013 for Barrick Gold. In early January the Toronto-based company announced that talks with China National Gold about selling its 74% interest in African Barrick Gold (ABG-L) had fallen through.
Calls to Barrick Gold and Goldcorp for comment on developments in the Dominican Republic were not returned by presstime.
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