* New deal would replace contract signed by previous govt
* Would give country greater share in benefits of gold mine
* Eases investor uncertainty over project's outlook
By Manuel Jimenez
SANTO DOMINGO, May 8 The Dominican Republic and
Barrick Gold Corp have reached a preliminary agreement
to boost the government's cut of profits from a gold mine in the
Caribbean nation, easing investor doubts over the future of one
of the world's largest new gold projects.
Dominican President Danilo Medina had demanded in February
that the Canadian company renegotiate a contract signed with a
previous government for the Pueblo Viejo mine, spooking
investors as he threatened to clamp a windfall tax on profits if
the deal was not modified.
The tentative agreement would increase the country's share
in profits from the mine by about $1.5 billion over its 30-year
life, with around half the cash flow from the project going to
the government from 2013 to 2016.
At an estimated gold price of $1,600 per ounce, total tax
revenues over that three-year period would be about $2.2
billion, both sides said on Wednesday at a press conference in
the Dominican capital, Santo Domingo.
Spot gold was worth around $800 per ounce in 2009
when the original deal was struck, but then doubled to more than
$1,600 before dropping back to around $1,470.
"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, a spokesman for Barrick, the world's
largest gold mining company.
Pueblo Viejo, expected to ramp up to full production of 1
million ounces per year in the second half of 2013, is operated
by the Pueblo Viejo Dominicana Corporation (PVDC), owned jointly
by Barrick and Goldcorp Inc.
The dramatic climb in gold prices in the last few year has
piled public pressure on governments around the world to demand
more benefits from mining companies, regardless of contracts
already in place.
"The goal of this revision of the contract has been to reach
a more balanced agreement for both sides, and more in keeping
with the actual reality of the markets," said the presidential
chief of staff Gustavo Montalvo, who headed the government's
Barrick announced recently that it had achieved commercial
production at the mine, which took nearly four years and cost $4
billion to build.
"As a long-term investor in the Dominican Republic, it makes
sense to preserve long-term stability in a country where we will
be operating for the next three decades," said Barrick's Lloyd.
"This preserves the economic potential of the mine. It is a
long-life mine, with low operating costs."
CHANGE OF TIMING
Despite giving up some of the mine's early revenue the
impact on Barrick was "immaterial," said Veritas Investment
Research analyst Pawel Rajszel.
"The worst case would have been basically having to shut
down production. Some investors were actually fearful of that,"
"More importantly, I think it reduces any potential overhang
investors might have had, related to the mine."
The new deal would shift the timing of the payment of
benefits so the government gets significantly more revenue
starting this year, instead of having to wait until after the
investor capital recovery period.
The Dominican government has pressed hard for this as it
needs cash now to deal with major fiscal problems.
The new deal gives the government a 50/50 split with PDVC of
the expected cash flows from the mine between 2013 and 2016.
Investors will have to wait an extra 10 years to fully
recover their capital, extended to 2026 from 2016, said