(Updates to add Barrick statement in fifth paragraph.)
Feb. 27 (Bloomberg) -- The Dominican Republic’s existing contract for the development of a $4 billion mine by Barrick Gold Corp. and Goldcorp Inc. is unacceptable and must be changed, President Danilo Medina said.
The government’s contract with the two Canadian companies at the Pueblo Viejo mine needs to be revised to provide more benefit to the Dominican Republic, Medina said in his independence day speech to Congress today. If the contract can’t be modified, the government will back legislation to increase taxes on expected export earnings of mineral companies, he said.
“For every $100 of gold exports, Barrick will receive $97 and the Dominican people $3,” Medina said. “That is simply unacceptable.”
The Pueblo Viejo mine, located 60 miles (97 kilometers) north of the capital of Santo Domingo, achieved commercial production last month and is expected to produce as much as 1.1 million ounces of gold this year, according to Barrick and Goldcorp. The mine’s $4 billion investment is the largest in the Dominican Republic’s history, Medina said.
“Barrick Pueblo Viejo has long maintained a good working relationship with the government of the Dominican Republic based on mutually agreeable objectives,” Andy Lloyd, a Barrick spokesman, said in an e-mailed statement. “While our contract is legally binding, the company has been engaged in good faith discussions with the government of the Dominican Republic, who we view as a partner.”
Given increased gold values in recent years, the Pueblo Viejo contract, which Barrick acquired in 2006, currently favors the company in “an exaggerated manner,” Medina said. Barrick would make a net income of $2.6 billion in the first two years of production and recover its initial investment in just over two years, he said.
“Never before in the history of humanity has there been a case where a mining company has been able to recover their investment in such a short amount of time,” Medina said.
Barrick anticipates ramping up production to 100 percent capacity in the second half of the year, CEO Jamie Sokalsky said Feb. 25. The Dominican Republic is going to receive more than $10 billion over the life of the Pueblo Viejo mine, he said.
“We’ve got an agreement with them, and that can’t be unilaterally negotiated,” Sokalsky said. “We’re always willing to discuss in good faith the economics of that with the government, but that mine is contributing a huge amount to the economy of the Dominican Republic.”
--With assistance from Liezel Hill in Toronto. Editors: Harry Maurer, Bill Faries