By Manuel Jimenez
SANTO DOMINGO May 8 The government of the Dominican Republic and Barrick Gold Corp announced jointly on Wednesday that they had reached a preliminary agreement that would significantly increase the government's share of benefits from the Pueblo Viejo gold mine by about $1.5 billion over the lifetime of the mine.
The company now expects about half of the cash flow from the mine to go to the government from 2013 to 2016. At a gold price of $1,600 per ounce, total tax revenues over that period would be about $2.2 billion, it said on Wednesday.
"We have shifted the timing, but also, under this agreement, they will get more ... an extra $1.5 billion over the life of the mine," said Andy Lloyd, spokesman for Barrick, the world's largest gold mining company.
Dominican President Danilo Medina had demanded in February that the company renegotiate its operating contract, and threatened to clamp a windfall tax on profits if it was not modified.
Pueblo Viejo, one of the world's largest new gold projects, is jointly owned by Barrick and Goldcorp Inc.
The government had said the original contract awarded to the two Canadian companies to operate the Pueblo Viejo mine, one of the world's biggest new gold projects, was overly generous and will have to be renegotiated.
Barrick announced recently that it had achieved commercial production at the mine, which took nearly four years and cost $3.7 billion to build.
Under the current contract terms, negotiated before the current government took office, Medina said the people of the Dominican Republic would receive just $3 for every $100 in profits from the mine, located about 62 miles (100 km) northwest of Santo Domingo.
That is "simply unacceptable," Medina said at the time.
The Chamber of Deputies, the lower house of the Dominican Congress, also launched a review of the mining contract, as the Caribbean nation looks to secure a bigger slice of profits from the gold mining operation.
At the core of the push to revise Barrick's mining contract is the rising price of gold. Gold was worth around $800 per ounce in 2009 when the deal was struck and has since doubled to more than $1,600 per ounce before dropping back to $1,480.
Barrick said it has long maintained a good working relationship with the government of the Dominican Republic.
A ramp-up to full production capacity at the mine is expected in the second half of this year and is expected to produce about 1 million ounces of gold annually over the first five years of full production.