Govts go for big­ger slice of the min­eral pie as...

The East African - - FRONT PAGE - Bloomberg

Kenya, Tan­za­nia min­ing re­forms earn them poor in­vestor rat­ings

A JOINT RE­PORT

ONE BY one, the big­gest names in African min­ing are get­ting squeezed. The tac­tics might be blunt, but the mes­sage is clear: The coun­tries where they op­er­ate want a big­ger share of the pro­ceeds.

The col­lapse in com­modi­ties through 2015 hob­bled some of Africa’s big­gest re­source economies, stunt­ing growth and leav­ing bud­gets short. Since then a re­cov­ery in prices has sent the con­ti­nent’s big­gest min­ers soar­ing, boosted prof­its and re­warded share­hold­ers with bumper pay­outs. But a lack of re­turns to gov­ern­ments is draw­ing a back­lash from Mali in the Sa­hara to Tan­za­nia on the In­dian Ocean.

Zam­bia is the lat­est flash point. Africa’s sec­ond-big­gest cop­per pro­ducer slapped a $7.9 bil­lion tax as­sess­ment on First Quan­tum Min­er­als Ltd and said it plans to au­dit other min­ers in the coun­try, which in­cludes units of Glen­core Plc and Vedanta Re­sources Plc.

In the DR Congo, Glen­core, the world’s big­gest com­mod­ity trader, is deal­ing with a dis­pute over a new min­ing code that dra­mat­i­cally boosts taxes, while ma­jor gold pro­ducer Mali has re­port­edly said it might fol­low Congo’s ex­am­ple. In Tan­za­nia, Pres­i­dent John Magu­fuli govern­ment slapped its big­gest gold miner Aca­cia Min­ing Plc, a unit of Bar­rick Gold Corp, with ex­port bans and a whop­ping $190 bil­lion tax bill, for un­der-declar­ing ex­port rev­enue.

Bar­rick also has a cop­per mine in Zam­bia, though it says it has not re­ceived any no­ti­fi­ca­tions from Zam­bian au­thor­i­ties about a po­ten­tial au­dit or tax re­assess­ment, ac­cord­ing to spokesman Andy Lloyd.

Coun­tries “want a larger share of the rent,” Hunter Hill­coat, an an­a­lyst at In­vestec Se­cu­ri­ties Ltd in Lon­don, said. “The min­ing com­pa­nies are do­ing ex­tremely well and gov­ern­ments are tak­ing the op­por­tu­nity to seize a slice of that.”

Part of the gov­ern­ments’ mo­ti­va­tion is pe­cu­niary. Zam­bia’s econ­omy, for ex­am­ple, grew in 2016 at the weak­est pace since the start of the mil­len­nium and the govern­ment is strug­gling with a bud­get deficit.

Zam­bia’s Pres­i­dent Edgar Lungu has urged First Quan­tum and the tax au­thor­ity to reach a swift res­o­lu­tion. In Congo, eco­nomic growth has also slowed and the coun­try’s for­eign ex­change re­serves have plunged.

There is a wider dis­sat­is­fac­tion than just money. Many gov­ern­ments feel the com­pa­nies have not de­liv­ered on their prom­ises, ei­ther through op­er­a­tional set­backs or the use of le­gal tax plan­ning to trans­fer prof­its off­shore.

In Congo, the state-owned cop­per miner has ac­cused its joint-ven­ture part­ners, in­clud­ing Glen­core’s Katanga Min­ing Ltd, of us­ing in­tercom­pany loans to re­duce the prof­its that are de­clared in the coun­try and promised to in­ves­ti­gate.

The ag­gres­sive rhetoric has been con­ta­gious, ac­cord­ing to Charles Robert­son, the global chief econ­o­mist at Re­nais­sance Cap­i­tal.

“The ap­proach taken by Pres­i­dent Magu­fuli did not de­liver what was ini­tially de­manded, but it did see the com­pany pay more tax,” Robert­son said by phone.

Pic­ture: Amanda Fisher

A worker de­scends into a gold mine shaft at Olini in Mig­ori, Kenya.

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