The Dominican Government and the Canadian mining company Barrick Gold have reached a preliminary agreement to modify the Special League Agreement in response to the Medina administration’s demands for a greater share of the revenue from the Cotui mine.
It is now projected that the total income to be received by the government will increase to around US$11.6 billion during the period 2013-2016 assuming the price of gold is at US$1,600 an ounce. Before this agreement, the amount to be received by the government in the same period was estimated at US$377.4 million.
The government had been seeking increased benefits from Barrick. On February 27 President Danilo Medina announced that the Pueblo Viejo contract was “unacceptable” and must be revised. The contract had been signed during the Leonel Fernandez administration and approved by the PLD-majority Congress.
According to Barrick media relations director Andy Lloyd, under the original agreement, the largest tax stream, the so-called net-profits tax, would only start after Barrick had recovered its full capital investment and a 10% return. This meant that the revenue paid to the government during the Medina administration would be minimal.
“What this agreement does is bring forward and increase tax payments starting this year,” Lloyd said. The actual details of many of the provisions still need to be negotiated between the parties, he added.
Once negotiated, the definitive agreement must be approved by the Barrick board and the Dominican Republic Congress, and according to Presidential Minister Gustavo Montalvo, the parties will work as quickly as possible to submit contract modifications for legislative review.
“Both parties believe that this agreement will guarantee a fair distribution of benefits,” said Montalvo. “We believe that this agreement respects both the aspirations of the Dominican people while respecting the rules of the game for the development of mining activities at Pueblo Viejo.”
The announcement of the agreement was made at the Presidential Palace yesterday, Wednesday 8 May, headed by President Danilo Medina and attended by co-president of Barrick Gold Corporation John Thornton and Executive vice president Kelvin Dushnisky, as well as Barrick Pueblo Viejo president Manuel Rocha, board member Derek Burney and Canadian Ambassador Georges Boisse.
President Medina subsequently said via the Twitter social network that the interests of the nation had prevailed, and that the agreement would mean more resources for the benefit of the people. He reiterated that no one should doubt, that all of the benefits, down to the last cent would help Dominican families.
The Customs Department have now authorized the release of 12 gold and silver bars, owned by Barrick Gold, which had been retained at Las Americas Airport since the beginning of the month. The government agreed the release of the shipment to Miami and then on to Canada.
In the official press release, Barrick states that the amendments to be made to the Special Lease Agreement could include:
– Elimination of a 10% return embedded in the initial capital investment for the purposes of the NPI;
– An extension to the period over which PVDC will recover its capital investment;
– A delay of application of NPI deductions; and
– A reduction in depreciation rates.
Barrick says that a graduated minimum tax will be established. The tax will be adjusted up or down based on metal prices. The annual minimum tax rate will be reset every three years and will be equivalent to 90% of the taxes that would have been payable by PVDC over the same period. The details for the implementation of the minimum tax are to be mutually determined by the parties.
The company says that based on the proposed amendments, it is anticipated there will be an approximate 50/50 split of the expected cash flows from the mine between PVDC and the Dominican government over the years 2013-2016. This would result in tax revenues of approximately US$2.2 billion to the Government over this period at a gold price of US$1,600 per ounce. The Pueblo Viejo mine is operated by PVDC, which is jointly owned by Canadian Barrick (60%) and US Goldcorp (40%).
The agreement comes after eight months of tense discussions between the parties that led the Dominican government to put a halt to Barrick’s dore exports.
www.barrick.com/investors/news/news-details/2013/Barrick-Announces-Agreement-in-Principle-on-Amendments-to-Pueblo-Viejo-Special-Lease-Agreement/default.aspx
www.bloomberg.com/news/2013-05-08/barrick-agrees-to-amend-dominican-republic-mine-contract-1-.html
http://online.wsj.com/article/SB10001424127887324744104578471512084586422.html
www.theglobeandmail.com/report-on-business/barrick-has-agreement-in-principle-on-dominican-gold-mine/article11796191/
www.listindiario.com/la-republica/2013/5/9/276293/Gobierno-gana-la-partida-a-la-minera-Barrick-Gold
www.listindiario.com/la-republica/2013/5/8/276204/Aduanas-autoriza-salida-de-embarque-de-la-Barrick-paralizado-en-el-AILA
http://protestbarrick.net/section.php?id=40
acento.com.do/index.php/news/77538/56/Lea-el-texto-completo-del-acuerdo-del-Estado-dominicano-con-Barrick-Gold.html