ENERGY & MINERALS

by Roger Nellist

Tanzanian mining – some progress
2017 was a particularly dramatic year for Tanzania’s mining sector. The mineral sands export scandal resulted in the sackings of senior government personnel and far-reaching changes in the governing legislation and administrative machinery for management of the country’s mineral resources. In our feature article, TA118 presented the background to the saga and highlighted the radical responses initiated personally by President Magufuli.

Whilst things now seem to be settling down on the gold mining front, in recent months the President’s crusade against proven and presumed malpractise in the mining sector has turned to the country’s tanzanite and diamond operations.

Important agreement reached with Barrick Gold (Acacia)
On 19 October at a ceremony presided over by President Magufulu in State House, and after three months of intensive high-level negotiations between the government and Barrick Gold Corporation, the two parties signed a framework agreement which in the words of Barrick’s chairman (John Thornton) signals “… a modern, 21st century partnership that should ensure Acacia’s operations generate sustainable benefits and mutual prosperity for the people of Tanzania, as well as for the owners of Barrick and Acacia”. (Barrick – a Canadian multinational based in Toronto – is the world’s largest gold producer and is the parent company of Acacia Mining plc whose Tanzanian gold mining operations triggered the crisis last year. Tanzania is the African continent’s fourth-largest gold producer and Acacia is its largest miner).

Although there are still important details to be negotiated between the two sides, it is expected that the agreement will put an end to the acrimonious state of affairs that has existed between Tanzania and Acacia over the last year. It is understood that the main principles agreed are: (a) the net profits (‘economic benefits’) generated by Acacia’s operations will be shared with Tanzania on a 50/50 basis from now on; (b) additionally, the government will take a 16% stake in the venture (with a new company being established in Mwanza to reflect the new shareholding arrangement, under which Tanzanians will also be appointed to the Board); (c) all income of the company will be banked in Tanzania, no longer abroad, and any disputes will be settled in Tanzania, not internationally; and (d) significantly it has also been agreed that a smelting plant will be built in Tanzania so that the gold, copper and silver produced by Acacia can be processed in the country, obviating the need to export the raw materials. These terms are a big departure for Tanzania and are expected to create more jobs and revenues and generally boost the domestic value-addition from the country’s substantial gold mining operations.

Two other important matters have also been agreed in principle, with the details yet to be worked out. First, arrangements will be established to ensure that the local communities surrounding the gold mines benefit more from the mining operations, and that the mine workers will be much better treated (in terms of contracts, housing, health and social services and the like). Second, Acacia will make a “good faith” payment of US$300 million to the government whilst experts from the two sides continue to haggle over the enormous amount (US$190 billion) that Tanzania has demanded by way of unpaid taxes, fines and interest.

This deal (which was to be approved by the Acacia Board and shareholders) has been acclaimed as especially good news for Tanzania. At the televised signing event the Minister for Constitutional and Legal Affairs, Professor Palamagamba Kabudi (who led the government negotiating team with Barrick), clarified that – with the 50/50 profit split, 16% government shareholding and the other payments to be made by the company – Tanzania’s overall share should amount to about 70%. President Magufuli said “Now that we are all shareholders, we can sit down over a cup of coffee and amicably resolve any outstanding issues”. The deal means that, as a shareholder, the Tanzanian government will be involved in key decisions governing the gold operations (such as investment, employment and training of Tanzanians, procurement of goods and services, and marketing). There appeared to be investor relief too, as Acacia’s London-listed share values rose 16 percent on news of the agreement.

Nevertheless, there continues to be fall-out from the 2017 saga. In the autumn, because of the original ban imposed on the export of gold and copper concentrates, Acacia scaled back production at one of its three gold mines (Bulyanhulu) and retrenched about 2,000 workers. This led to fears of serious impacts on their families and the local economy and worries from banks that many of the mineworkers would default on the personal loans that had been extended to them.

Then, a day after signature of the framework agreement, a senior representative of Acacia said his company did not have $300 million with which to pay the upfront “good faith” sum. That prompted Barrick to announce that it would meet part of the bill. Finally, in the first week of November Acacia’s top two executives – Chief Executive Officer (Brad Gordon) and Chief Finance Officer (Andrew Wray) – resigned and the Board announced their replacements. It was unclear whether their departures were directly related to the October framework agreement with government, but commentators hinted that the two had been excluded from the negotiations that Barrick had conducted effectively on Acacia’s behalf.

More widely, a few experts were predicting in September that no Tanzanian mining venture would be economic after the recent changes in the mining tax laws, and in early October, two weeks before the Barrick agreement, a government spokesman denied that Tanzania was moving to nationalise mining operations. He said: “The laws are not intended to lay the ground for nationalisation but seek to ensure sovereign ownership of natural resources … in conformity with international principles. … The government will continue attracting and protecting investors in the mining and other sectors so long as they adhere to the law and regulations”.

Diamonds and Tanzanite
In July 2017 the Bunge Speaker appointed two parliamentary teams to probe alleged malpractice in Tanzania’s diamond and tanzanite mining operations. Reporting to the Prime Minister and President in early September both teams were very critical of the country’s mineral sector regulatory bodies (especially the Ministry of Energy & Minerals, where the last three Ministers were singled out for having supervised the gemstone industry poorly); they pointed to the likelihood of substantial tax losses whilst also questioning missing revenues in that Ministry’s accounts.

The diamond probe identified huge differences in diamond production statistics kept by different organs of government and, startlingly, asserted that “…. one high-level government leader was given a gift of diamonds with a current value of $200 million”. Amid public and parliamentary controversy, that leader was not named.

Decrying the secrecy surrounding tanzanite mining, the other probe team suggested that only 20% of Tanzania’s tanzanite production passes through official channels (the remainder disappears through smuggling) and that government gets only about 5% from the likely global sales and other disposals of that gemstone, which is uniquely produced in Tanzania.

As with gold earlier, government responded robustly. In early September London-listed Petra Diamonds (which owns 75% of Williamson Diamond Ltd) temporarily suspended diamond mining at its Shinyanga Williamson mine after a parcel of diamonds destined for export to Antwerp had been seized by government on 31 August at Dar’s international airport and some of the company’s key staff had been detained for questioning by the authorities. It was alleged that the diamonds had been deliberately under-valued by half (with a declared preliminary value of some $15 million instead of nearly $30 million established through a government re-valuation of the stones) as a result of possible collusion between mine workers and dishonest officials. Petra’s share price fell by 28% on news of the seizure but the company maintained that it had sought and been granted all relevant export documentation, and even published copies of the government’s certificates on its web-site.

On tanzanite, in mid-September whilst on a visit to the north, President Magufuli ordered the military to build a wall around the tanzanite mining areas at Mirerani (close to Mt Kilimanjaro), allowing only one way in and out of the mine, and to install enhanced electronic security equipment, so that smuggling of the precious stones can be stopped and the government can secure its proper share of their worth. Mirerani is the only known tanzanite mine in the world. Magufuli also instructed the Bank of Tanzania to start buying stocks of tanzanite to boost its reserves.

It is understood that following the conclusion of the gold framework agreement with Barrick, the President ordered government officials to commence talks with diamond and tanzanite miners with a view to reaching similar agreements.

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