The government of Tanzania recently established a Mining Commission in accordance with its new Mining Act. This means that the government can reinstate the issuing of mining licences following the enforcing of a copper and gold concentrate ban and some draconian amendments to mining policy and legislation.
But, is this development too late for mining companies? Alan Johnson shares his wealth of knowledge and reveals some home truths that contradict the current narrative.
Turbulent times for Tanzanian gold miner, Acacia Mining (Acacia), make for bleak inspection when looking at its financial analysis across its three mines in the country.
“The copper and gold export ban has had an extremely negative effect on Acacia's Mining’s operations in Tanzania. I have never heard of such draconian measures taken against a mining company operating in Africa,” states Johnson.
“I would not be surprised if Acacia (which Barrick Gold has a 64% ownership stake) pulled the plug and withdrew from Tanzania.
"Up until the ban was imposed, Acacia was showing a good return on their investment and activities in Tanzania.”
This article first appeared in Mining Review Africa Issue 6 2018
Johnson highlights that Tanzania is very closely allied with China.
“This might be a factor as China would like to participate with Tanzania to establish government-owned and operated mining ventures. The Tanzanian State Mining Corporation (Stamico) could be fully revived to take over mining activities on behalf of the government and participate in joint ventures with Chinese interests.”
Acacia reported total gold production at a 55% decrease when comparing Q1, 2018 with Q1, 2017.
This massive reduction was primarily driven by the reduction of operations at Bulyanhulu gold mine and stockpile processing at Buzwagi gold mine.
Gold ounces sold for Q1, 2018, 116 955 oz, were below gold produced for the Q1, 2017 quarter.
Acacia’s cash balance as of 31 March 2018 amounted to approximately US$107 million and increased by $26 million during the quarter, with net cash increasing by $40 million to approximately $50 million at period end.
Acacia can some take comfort in the knowing that it is not alone in its struggles with the country’s Mining Act.
Other mining companies with operations or exploration ventures in Tanzania include:
- Armadale Capital, who recently completed its optimisation study for its Mahenge Liandu graphite project;
- Rift Valley Resources, who has sold its Kitongo gold project;
- Kibo Mining which is currently involved with the Mbeya coal to power project;
- Black Rock Mining, who is developing it Mahenge graphite project;
- Shanta Gold who may looking at similar tax and concentrate figure contention with the government;
- Magnis Resources which has reached an agreement with the government on amendments to the Special Economic Zone licence;
- Peak Resources which has updated its application for the Ngualla rare earth mine;
- Volt Resources which has lodged its mining licence applications with the Minister of Minerals for its Bunyu graphite project; and
- East Africa Metals which has sold its gold assets in Tanzania.
BMI Research (BMI), a unit of the Fitch Group, forecasts gold production in Tanzania to grow of 0% y-o-y over 2018 - 2027, down from the 2.4% it has previously indicated.
BMI forecasts the mining sector in Tanzania will experience subdued growth as the government's change to domestic mining regulations worsen the operating environment, hindering current and future investments.
“Tanzania does not trust foreign mining companies and never has”
The motives of the government have been widely criticized with a current of empathy flowing to private mining companies. Johnson, through his extensive experience in Tanzania, provides some historical insight.
“The government has taken the action it has regarding the activities of foreign mining companies operating within the country for several reasons,” explains Johnson.
- The government wanting to increase revenue from mining companies, particularly those that are large and report windfall profits to their shareholders. “In this case, the companies concerned become their own worst enemy.”
- There is an increasing concern over the lack of value added processing in countries where mineral resources are being mined and shipped out as concentrates to be refined elsewhere
- Mining companies are not prepared to invest in costly refining / processing smelting / etc. in high-risk countries
- The current president is implementing the views of the ruling party by demanding a bigger share of the proceeds from mining activities
- The people of Tanzania are demanding more benefits from mining activities
- Tanzania is influenced by mining policies of other African countries where mineral resources are processed all the way through to a finished product
Tanzania would also like to see all gold mined in the country refined to bullion before exporting is allowed.
“In this way the government could share in actual bullion as opposed to being paid in paper. The same could be applied to diamonds and gemstones currently being mined in the country,” points out Johnson.
The Acacia situation according to Johnson
Examining Acacia’s extensive contentions with the government of Tanzania Johnson believes it is by no means innocent.
“The question that needs to be asked is what led to the charges levied by the government”? Who is responsible for sampling and testing the gold concentrate in question?
“I strongly doubt that the government has the proper facilities, and/or the qualified technical officers as required to analyse the Acacia shipments prior to leaving Tanzania.”
“Acacia knows what they are shipping as they are selling a product and the gold value of the concentrate being shipped is not a mystery.”
"However, to temper this line of thought is the fact that the government is being unrealistic with references to Acacia’s concentrate being treated by a local smelter.”
“If the Tanzanian government opposes the export of mineral concentrates, foreign mining companies will be reluctant to do business in the country. The government has been ill-advised on this matter and it will bear the consequences accordingly.
"The country is blessed with a wealth of mineral potential, but the new government policies mean that the bulk of these resources will remain in the ground for some time to come.”
This is especially true for junior miners and exploration companies looking to develop new mines in Tanzania.
“Unfortunately, Tanzania has now become a "no-go” zone for investors interested in taking a stake in its mineral resource development. The new mining legislation and regulations offer no incentives, only penalties.
"All-in-all Tanzania appears to have embarked on a programme to quasi-nationalise the mining industry and it is a complete overreaction to the activities of Acacia and Petra Diamonds.”
Johnson maintains that everything that has happened so far is tied to corruption.
“This would explain the accusations from the government that mineral exports have been undervalued for export purposes. When Outukumpu of Finland was developing the Bulyanhulu deposit, they made it clear that, due to complex metallurgy, it would be necessary to export a gold/copper concentrate to Finland for smelting.
"Gold would then be recovered as a by-product of smelting a high-grade gold / copper concentrate. Small scale and artisanal mining produced raw gold that was being sold to the central bank for shillings in a very reckless way. The bank was sending the purchased gold to Europe for refining and then stored on behalf of the government.
Johnson believes the government of Tanzania should have convened a meeting comprising stakeholders in Tanzania’s mineral resource development to establish a workable relationship whereby all parties would share in Tanzania’s mineral resources in an equitable manner considering the high-risk nature of the business.
“Instead, it has taken a heavy-handed approach to the matter which is extremely unfortunate,” concludes Johnson.