Tanzania and mining firm TanzaniteOne have reached a deal for the firm to offload a 50 per cent stake to the government after eight months of negotiations.
The firm, which extracts gemstones at Mererani Hills about 40 kilometres southeast of Arusha, has been locked in a tussle with the government over the amount of shares to offload to the public in accordance with the country’s new Mining Act of 2010.
The Mining Act, which took effect last year, requires that foreign-owned companies cede a 50 per cent stake to the public or else loose their mining licence.
At the centre of the dispute was the government’s demand for the share up front and free of charge, while TanzaniteOne wanted to offload a 20 per cent stake through an initial public offering (IPO) at the Dar es Salaam bourse.
“After long, intense negotiations, we have agreed in principle that TanzaniteOne will offload a 50 per cent stake through the government-run State Mining Corporation (Stamico),” said a source.
TanzaniteOne, a multinational listed on the London Stock Exchange had late last year rejected a demand by the government to relinquish a 50 per cent stake to Stamico, setting the stage for a major dispute.
The firm offered to offload a 20 per cent stake through an IPO at the Dar es Salaam Stock Exchange. It is understood that parties are currently drafting a sale agreement. “We are currently working on the details,” said Ami Mpungwe, TanzaniteOne executive chairman.
Stephen Masele the Deputy Minister for Energy and Minerals had earlier said the government was concluding the talks on the acquisition of a 50 per cent stake in TanzaniteOne.
The firm’s licence expired in August 2012 and the State said it would not renew it until the firm surrenders the 50 per cent stake as required by law.
“The firm wants the state to buy the shares, but our position is that the firm ought to offload the stocks to Stamico free of charge or else loose their licence,” said Mr Masele.
The new mining law stipulates that gemstones will be exclusively mined by native Tanzanians, unless the work requires heavy investments and sophisticated technology, which would then allow foreign investors to come in but on condition that they sell a 50 per cent stake to the public.
For existing companies, the Mining Act provides an opportunity for them to offer a 50 per cent stake to the public in order to continue operating in Tanzania.
Available records show that TanzaniteOne invested over $100 million, but analysts say the company has provided marginal contributions to the communities surrounding its area of operation.
The company has been credited with formalising and stabilising the trade of Tanzanite gemstones, which net the country $100 million out of the annual trade volume of $500 million. The firm employs 650 people and has paid $26 million in tax over the past five years.