In­vest­ment slows af­ter crack­down on min­ing firms

New mea­sures aim to stamp out what Pres­i­dent Magu­fuli has termed years of cor­rupt prac­tices and tax eva­sion

The East African - - BUSINESS - A JOINT RE­PORT Reuters

New laws and a crack­down on min­ing firms in Tan­za­nia has slowed fresh in­vest­ment in what has long been seen as one of Africa’s bright­est min­ing prospects as com­pa­nies as­sess the con­se­quences of gov­ern­ment ef­forts to claim a big­ger slice of the pie.

Takeover bids and ex­plo­ration plans have been can­celled and work­ers laid off. The share prices of many firms listed in Aus­tralia, Bri­tain, South Africa and Canada with in­ter­ests in Tan­za­nia have halved as the value of their in­vest­ments tumble.

The tu­mult fol­lows the pas­sage of three laws in July which, among other things, raise taxes on min­eral ex­ports, man­date a higher gov­ern­ment stake in some min­ing op­er­a­tions and force the con­struc­tion of lo­cal smelters to bring Tan­za­nia higher up the min­ing food chain.

The reg­u­la­tions aim to stamp out what Pres­i­dent John Magu­fuli, nick­named “the Bull­dozer”, has called years of cor­rupt prac­tices and tax eva­sion that have robbed the coun­try of rev­enue from a sec­tor accounting for about four per cent of GDP.

Many of the changes were first sug­gested by the po­lit­i­cal op­po­si­tion and have proved wildly pop­u­lar with vot­ers in Tan­za­nia, where GDP per capita is still only $880.

In­ter­na­tional in­vestors are not happy, how­ever, es­pe­cially be­cause the details re­main un­clear. Magu­fuli sacked the min­is­ter of min­ing in May and he has not been re­placed.

Ju­nior ex­plorer Manas Re­sources ex­pected to com­plete its ac­qui­si­tion of the Vic­to­ria Gold Project from Cienega Sarl by early 2018, but the com­pany told Reuters it may run out of time if there is no clar­ity soon.

“Be­cause of the changes in leg­is­la­tion and the time be­ing taken to im­ple­ment new reg­u­la­tions, the sec­tor has slowed down to a point where it is im­pact­ing ex­plo­ration ac­tiv­i­ties and our ca­pac­ity to fi­nalise the deal,” said Manas chief ex­ec­u­tive of­fi­cer, Phil Reese.

The di­rec­tor of one min­er­als com­pany said he is shut­ting his Tan­za­nian of­fice be­cause he be­lieves the laws will make it il­le­gal for him to re­coup the cost of his many un­suc­cess­ful ex­plo­ration projects against the few suc­cess­ful ones, and re­quire him to share his valu­able ge­o­log­i­cal data with the gov­ern­ment for free.

“There will be no nickel and gold ex­plo­ration in Tan­za­nia for the fore­see­able fu­ture,” the head of an­other com­pany said.

Both men asked not to be named to avoid jeop­ar­dis­ing their re­la­tions with the gov­ern­ment.

One min­ing ser­vices com­pany said it had laid off more than 50 em­ploy­ees in the last 18 months.

The first se­ri­ous blow to min­ing com­pa­nies this year came in March, when Tan­za­nia banned the ex­port of gold and cop­per ore over a tax dis­pute with the coun­try’s big­gest gold miner, Lon­don-listed Aca­cia, and to en­cour­age the con­struc­tion of do­mes­tic smelters.

The gov­ern­ment says Aca­cia, ma­jor­ity-owned by Bar­rick Gold, owes $190 bil­lion in tax, penal­ties and in­ter­est for the pe­riod be­tween 2000 and 2017. But min­ers say it would be im­pos­si­ble for listed and in­de­pen­dently au­dited com­pa­nies to hide bil­lions of dol­lars in ex­tra rev­enue.

They also ar­gue Tan­za­nia does not pro­duce enough ore to make build­ing a smelter com­mer­cially vi­able. Africa’s fourth-largest gold pro­ducer, the coun­try is also a source of graphite, di­a­monds, tan­zan­ite and rare earth min­er­als.

Un­der the new reg­u­la­tions, the gov­ern­ment can force min­ing and en­ergy com­pa­nies to rene­go­ti­ate con­tracts to give the state at least 16 per cent in projects, ris­ing to 50 per cent in some cases, and raise ex­port roy­al­ties.

The move is not so un­usual in Africa. South Africa in June raised the thresh­old for black own­er­ship in min­ers to 30 per cent.

In­creas­ing shares of roy­al­ties is also part of a wider global trend that could lead to higher prices, one min­ing CEO said.

The Philippines, the world’s top nickel sup­plier, and Brazil, which pro­duces gold, cop­per, tin and baux­ite, are mak­ing the same push.

“If all the gov­ern­ments want more of a share, com­modi­ties prices will re­flect that,” the CEO said. “But if it is just one gov­ern­ment, they might get a big­ger share of noth­ing.”

Min­ers say the prob­lem in Tan­za­nia is that the laws, passed in less than a week, were pushed through with­out con­sul­ta­tion.

They also say it is still un­clear how they will be ap­plied — if, for ex­am­ple, the 16 per cent will ap­ply only to pre­cious met­als or also min­er­als such as graphite.

The min­ing com­mis­sion that will over­see the reg­u­la­tions has yet to be formed. A min­istry of­fi­cial, who asked not to be named, said it is not clear when it will start work.

Big­ger min­ers can draw on cash re­serves to weather the sud­den changes, but smaller min­ers are more vul­ner­a­ble to in­vestor jit­ters be­cause fun­ders are quicker to pull out when project cap­i­tal in­jec­tions are smaller.

Lon­don-based Tre­mont In­vest­ment im­me­di­ately can­celled a bid for Aus­tralia’s Cra­dle Re­sources af­ter the laws were passed. Shanta Gold can­celled a takeover bid for He­lio Re­source Corp shortly there­after, also cit­ing the laws. The shares of gold miner Orecorp, whose only other as­set is an ex­plo­ration project in Mau­ri­ta­nia, are down 72 per cent since March.

Kibo Min­ing has seen lit­tle im­pact be­cause in ad­di­tion to gold ex­plo­ration, it is de­vel­op­ing a coal mine to fuel Tan­za­nia’s first coal­fired power sta­tion.

The reg­u­la­tions, in­clud­ing moves to in­crease gov­ern­ment own­er­ship, were sound and war­ranted, Kibo Min­ing chief ex­ec­u­tive of­fi­cer Louis Coet­zee told Reuters, but he lamented the “ques­tion­able method­ol­ogy” of the process.

The gov­ern­ment re­cently has shifted its at­ten­tion from pre­cious met­als to pre­cious stones, an­nounc­ing on Septem­ber 20 that the mil­i­tary would build walls and check­points around tan­zan­ite mines and the cen­tral bank would buy the stones.

A par­lia­men­tary in­quiry team had said on Septem­ber 7 that it had un­cov­ered mas­sive smug­gling of the blue-vi­o­let gem­stone.

On the same day, the gov­ern­ment con­fis­cated a con­sign­ment of di­a­monds from a mine ma­jor­i­ty­owned by Pe­tra Di­a­monds af­ter ac­cus­ing the firm of un­der­declar­ing the value of the stones. Pe­tra de­nies the charge.

Pic­ture: AFP

The Mer­erani mine, where herders first found tan­zan­ite in 1967, spark­ing a min­ing boom across Tan­za­nia.

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