Tanzania faces industry opposition to its new mining law

Published by MAC on 2010-05-07
Source: Reuters

Tanzania increases royalties in new mining law

By Fumbuka Ng'wanakilala

Reuters

24 April 2010

* Government to hold stake in new projects
* Tanzania is Africa's third largest gold producer
* Firms to list on stock exchange

DAR ES SALAAM - Tanzania's parliament has passed a new mining law that increases the rate of royalty paid on minerals like gold from 3 percent to 4 percent and requires the government to own a stake in future mining projects.

Tanzania is Africa's third largest gold producer, but also has reserves of uranium, nickel and coal. Gold exports alone earned it $1.076 billion in 2009, up from $932.4 million the previous year.

The Mining Act 2010 passed late on Friday also requires mining companies to list on the Dar es Salaam Stock Exchange.

As part of the new legislation, Tanzania will not issue new gemstone mining licences to foreign companies. Current agreements with foreign mining companies remain unchanged.

"This bill makes comprehensive provision for prospecting for minerals, mining, processing and dealing in minerals, for the granting, renewal and termination of mineral rights, for payment of royalties, fees and other charges and for any other relevant matters," said part of the legislation.

"The bill is a response to challenges faced and experience gained during 12 years of the implementation of the Mining Act ... that was enacted in the year 1998."

African Barrick Gold has four gold mines in Tanzania while Australia's third largest gold miner, Resolute Mining and South Africa's Anglogold Ashanti  also have gold operations there.

British mining company African Eagle Ltd. is raising funds for its nickel project in Tanzania.

Gemstones identified by the new law include diamonds, tanzanite, emerald, ruby, sapphire, turquoise, topaz, and others. Gemstone producer Tanzanite One, will not be affected by the new ownership rules.

Investor Concerns

Mining stakeholders said they will issue a joint statement on the new mining law on Monday.

"The government will increase revenues a lot thanks to the new mining legislation ... But, it might send a negative signal to investors and might impact foreign direct investment. I'm worried on that," Zitto Kabwe, a member of parliament from the opposition Chadema party told Reuters.

The MP, who was a member of a commission appointed in 2007 to review Tanzania's mining sector, said the new legislation would bring significant changes to mining policy.

"We were supposed to pass a new law that balances benefits of the people and the interests of mining companies. The mood of the day in Tanzania is that foreign investors are stealing from the country and this might not necessarily be the case all the time."

Government's stake in future mining projects would be determined by the level of investment in each individual joint venture, Kabwe said.

Tanzania earned $57 million from mining royalties in 2009, but is expected to double this amount after the new mining law comes into force, he said.

"The main highlight of this new legislation is that it makes gemstone mining the preserve of Tanzanians. It also changes the method of calculating royalties by using the gross value of minerals instead of the net value," said Kabwe.

(Editing by Helen Nyambura-Mwaura and William Hardy)

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Mining firms reject Tanzania's new mining law

In a joint statement through the Tanzania Chamber of Minerals and Energy, investors described the legislation as ‘distorted' and warned it would curtail future investment

Fumbuka Ng'wanakilala

Reuters

29 April 2010

DAR ES SALAAM - Mining companies on Wednesday rejected a new law in Tanzania that raises royalties on minerals and prohibits foreign companies from gemstone mining, saying it would further erode investor confidence.

In a joint statement issued through the Tanzania Chamber of Minerals and Energy, investors described the legislation as "distorted," saying it would curtail future mining projects in east Africa's second biggest economy.

"(The bill) ... will only serve to hinder further growth of the mining sector as existing investors resort to curtailing existing and expansion projects and is bound to scare potential investors who will look elsewhere to invest," said the chamber.

The Tanzania Chamber of Minerals and Energy represents the interests of international and local investors in the sector.

Mining companies said they hoped to convince the government to amend the new law before it receives presidential assent, as it would have "serious repercussions" on the industry.

Tanzania is Africa's third largest gold producer after South Africa and Ghana, but also has reserves of uranium, nickel and coal. Gold exports alone earned it $1.076 billion in 2009, up from $932.4 million the previous year.

The Mining Act 2010 passed by parliament on April 23 increases the royalties paid on minerals such as gold to 4 percent from 3 percent and requires mining companies to list on the Dar es Salaam Stock Exchange.

It also says the Tanzanian government will own a stake in future mining projects and the country will no longer issue gemstone mining licences to foreign firms.

"The Bill fails to appreciate that Tanzania's desire to become the preferred destination for mineral exploration and investments demands that it becomes significantly competitive vis-a-vis other countries in attracting FDI into the mining and all other sectors," the chamber said.

"Spoilt Child"

Tanzanian Deputy Minister for Energy and Minerals, Adam Kighoma Ali Malima, said the new legislation was aimed at ensuring Tanzanians benefited from the mining sector.

"This law was not enacted simply with the aim of pleasing investors ... it was passed by parliament last week with the goal of safeguarding the interests of Tanzanians in the country's mining activities," he told Reuters by phone.

He said the chamber had been involved in the dialogue about the new law for more than a year before it was passed.

"I consider statements by the chamber of minerals that the new mining law is distorted are outright irresponsible. The problem is you can't have everything, they are almost behaving like a spoilt child," he said.

African Barrick Gold has four gold mines in Tanzania while Australia's third largest gold miner, Resolute Mining and South Africa's Anglogold Ashanti also have gold operations there.

British mining company African Eagle is raising funds for its nickel project in Tanzania.

The chamber also said the law did not nail down fiscal and regulatory frameworks for the sector, thus "further eroding investor confidence in making long-term investment decisions."

They said that while the law was designed to clear up the imbalances and uncertainties of the past, it had just created "more imbalances, uncertainty, insecurity and instability to both existing and prospecting investors."

Gemstones identified by the new law include diamonds, tanzanite, emerald, ruby, sapphire, turquoise and topaz. The chamber said Tanzanians already dominated the sub-sector and the law would just deny it meaningful investment and modernisation.

Government officials said agreements with AIM-listed miner Petra Diamonds, which owns a 75 percent stake in Tanzania's Williamson diamond mine, and gemstone producer Tanzanite One, will not be affected by the new rules.

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Editorial: Taxes and rumours of taxes

John Cumming

Northern Miner

28 April 2010

Governments have squeezed the golden mining goose a little tighter in two major mining countries over the past week.

In Tanzania, the national government passed its long-anticipated and hotly debated Mining Act 2010, which jacks up mining royalties to levels more common elsewhere in Africa.

The changes are a response to a broadly held view in Tanzania that not enough of the riches generated by the country's booming minerals sector have flowed into the hands of native Tanzanians.

With the new law, gross revenue royalty rates will rise to 4% from 3% for gold and base metals, and to 6% from 5% for diamonds and other gemstones. The rates will be a flat 7% for uranium and 3% for any other minerals.

There are a few other big changes: the government may own a stake in any future new mining developments; the diamond and gemstone trade is to be reserved primarily for native Tanzanians, with new foreign investments needing a local, majority partner; foreign mining companies must list on the Dar Es Salaam Stock Exchange; a "Mining Advisory Board" of limited independence will be created to replace what has been a toothless Mining Advisory Committee; and the government must now set aside land for artisanal miners beside new large projects.

Meanwhile Barrick Gold, the largest gold producer and miner in Tanzania, reported that its newly spun-off, 75%-owned, African-focused subsidiary African Barrick Gold has turned a US$53-million net profit in the first quarter, up from US$12 million in the equivalent, year-ago quarter, thanks to higher gold prices and the start-up of its Buzwagi mine in Tanzania.

ABG expects its four gold mines, all in Tanzania -- Bulyanhulu, Buzwagi, North Mara and Tulawaka -- will produce a total of 800,000 to 850,000 oz. gold in 2010 at cash costs between US$450 to US$500 per oz. gold, up from about 716,000 oz. gold produced in 2009. This output helps make Tanzania Africa's third-largest gold producing nation.

ABG says it is reviewing Tanzania's new mining law, which has yet to be signed by the president, but believes the law will not affect its current mines in the country because its existing "mineral redevelopment agreements remain unchanged."

According to a Reuters report, the Tanzanian government took in US$57 million from mining royalties in 2009, and is expecting to double that sum annually once the new law comes into full force.

On the face of it, it's hard to believe Tanzanian legislators have spent the past year and a half putting together a mining tax reform law that leaves the country's largest gold miner unscathed, so we're inclined to say, "stay tuned."

The stakes are much higher in Australia, where tax-related lobbying has reached a fevered pitch in the lead-up to the May 2 release of a major tax review of all industrial sectors by federal treasury chief Ken Henry.

The Henry Tax Review is expected to push for a new 40% national resource "rent tax" that would be levied on mining companies' windfall profits.

Miners in Australia are now coming to grips with the possibility of paying upwards of A$5 billion in extra federal taxes annually should the rent-tax proposals become law.

The mining industry, which generates more than a third of Australia's export earnings, already pays about A$21 billion in various taxes and royalties per year, and pays a higher tax rate than other industries.

Some commentators have a calculated that, had the proposed windfall taxes been in place over the last nine years, miners would have paid between A$20 billion and A$25 billion in extra federal taxes.

The proposed new federal mining tax grab has ignited all the usual political firestorms in Australia's chief mining states, Western Australia and Queensland.

The governments of the two sparsely populated western states are naturally resisting the politically disempowering but intellectually appealing case for moving from state-based royalties, which are often based on mined tonnages, to a streamlined, profit- and rent-based federal royalty.

There is much speculation that, as a sweetener for mining companies to accept the changes, regular corporate taxes would be cut at the state and federal levels, which might allow more mining companies to weather the low end of mining's inevitable boom-and-bust cycles.

More broadly, the Rudd government says it wants to simplify Australia's over-complex tax code and work with states to reduce payroll taxes, which inhibit hiring.