Tanzania-focused miners face fresh challenges as country passes new laws

4.7.2017, 13:48 - eeppo

Mining companies operating in Tanzania face fresh challenges as the country’s lawmakers have approved two laws that allow the government to renegotiate or revoke existing contracts.

The bills, which aim at providing the state with a greater share of revenue from the country’s natural resources, are part of a major overhaul of Tanzania’s mining industry that began in March, when President John Magufuli banned mineral exports.

On top of reviewing current contracts, the new laws call for a ban on unrefined mineral exports and a 1% ‘inspection fee’ on the value of the permitted exports.

At the time, he also ordered an audit of containers carrying ore to find the cause of income losses. That probe found that the value of minerals within concentrates in containers at the country’s Dar es Salaam port was in some cases up to 10 times more than the declared amount.

The results of such audit triggered the sacking of Tanzania’s Mining Minister John Magufuli and where followed by the government accusing Acacia Mining (LON:ACA), which spun off from Barrick Gold in 2010, of operating illegally and evading taxes for years.

Mining contributes 3.5% to the gross domestic product of Tanzania, which is Africa’s third-largest gold producer. The government, however, wants to increase that piece of the pie to 10% by 2025 thanks to the new laws: the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act and the Natural Wealth and Resources (Permanent Sovereignty) Act.

Negotiation over arbitration

The new legislation could further complicate the Acacia’s situation in the country. In fact, the firm said Tuesday that notices of arbitration have been already served on behalf of two of its subsidiaries.

The arbitration between Bulyanhulu Gold Mine, the owner of the Bulyanhulu mine, and Pangea Minerals, which owns Buzwagi, will be conducted by Barrick, Acacia said in the statement.

It noted the course of action  was in line with a dispute resolution process agreed with the Tanzanian government in Mineral Development Agreements with the subsidiaries.

“The serving of the notices at this time is necessary to protect the company, but, this notwithstanding, Acacia remains of the view that a negotiated resolution is the preferable outcome to the current disputes,” it said in the statement.

It also said that Tanzania’s authorities have informed Barrick they want to continue their dialogue over reimbursing money that’s allegedly owed as well as country’s current ban on mineral concentrate exports.

The laws will also impact the operations of other mining companies operating Tanzania, such as AngloGold Ashanti (JSE:ANG), Petra Diamonds (LON:PDL) and Shanta Gold (LON:SHG).

Some of them have already expressed their disappointment and President Magufuli of setting unfair restrictions on them by raising fines and demanding higher tax contributions.

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