Tanzanian lawmakers have passed three new mining laws designed to overhaul the country’s natural resources industry.
Tanzania-based mining companies are under pressure this week after lawmakers passed three new mining laws that will overhaul the country’s natural resources industry.
The bills will allow the government to renegotiate or revoke existing mining and energy contracts, own at least a 16-percent stake in mining projects and increase royalties from 4 to 6 percent, among other changes.
President John Magufuli said the reforms will increase Tanzania’s transparency, and will ensure the nation benefits from its resources. The mining industry contributes 3.5 percent to the gross domestic product of Tanzania, currently Africa’s third-largest gold producer, but Magufuli wants to increase that amount to 10 percent by 2025.
The bills were introduced last Thursday (June 29) and were passed rapidly, despite warnings from the Tanzania Chamber of Minerals and Energy that the legislation will make Tanzania an “unattractive destination for mining investment.”
According to Magufuli, the country is fighting an economic war. “We couldn’t wait to pass the laws because of the large scale theft taking place in the mining sector,” he said.
The reforms started last March, when he imposed an export ban on unprocessed ore to encourage the construction of local smelters. At the time he also ordered an audit of containers carrying ore, which ended with the sacking of Mining Minister Sospeter Muhongo.
Companies exported minerals worth as much as 381 trillion shillings ($170.2 billion) between 1998 and 2017, and declared 40 percent fewer containers than they actually shipped, Magufuli said.
“The nature, scale and manner of the recent changes have spooked the mining community and poses questions around the attractiveness of Tanzania’s business environment,” Rand Merchant Bank analyst Ronak Gopaldas told Bloomberg.
“With the relationship between the mining community and government already strained, the latest bills have fuelled uncertainty and added to a growing list of investor concerns,” he added.
More challenges for Acacia Mining
Last month, the Tanzanian government accused gold miner Acacia Mining (LSE:ACA), which is majority owned by Barrick Gold (TSX:ABX,NYSE:ABX), of operating illegally and evading taxes for years. The company denied the accusations, but its share price slid almost 40 percent after the report.
On Tuesday (July 4), after the first two bills passed, Acacia said it was seeking an adjudicator to resolve its dispute with the Tanzanian government over mining contracts, as Magufuli has ordered the suspension of any new licences, Reuters reported.
Acacia announced today it has served “notices of arbitration” on Bulyanhulu and Buzwagi, two of its three gold mines in the country, for the protection of the company. “[But, Acacia] remains of the view that a negotiated resolution is the preferable outcome to the current disputes and the company will continue to work to achieve this,” the company said.
Currently Barrick is handling talks with the Tanzanian government to end the dispute, and Acacia has been excluded from all negotiations.
Acacia has told investors that any deal reached in the talks will be subject to its approval, and that it will “work with Barrick as necessary to support such discussions.”
Other mining and exploration companies based in Tanzania will also face challenges as the new mining laws are implemented. Many, including AngloGold Ashanti (JSE:ANG), Shanta Gold (LSE:SHG), Kibo Mining (LSE:KIBO) and Kibaran Resources (ASX:KNL), have issued preliminary statements on this week’s developments.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.