Reforms will cut the ground from under mining sector

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Posted  Monday, August 10   2009 at  00:00

The experts all agree: Tanzania’s young mining industry is at a watershed moment.

The sector has grown at an astounding rate since liberal mining legislation was introduced in the late 1990s to attract investment.

However, relations between locals and foreign mining companies have grown untenably tense.

Accusations of exploitation abound, and parliament is now reviewing new mining legislation that could rescind many of the tax breaks enjoyed by mining companies in an effort to increase the industry’s contribution to society.

This could not have come at a worse time.

Tanzania’s mining industry has just reached a critical stage where mining companies are about to turn their first profits, and more investment is needed to keep output flowing.

With little capital to spare thanks to the global crisis, and uncertainty looming around the proposed reforms, no companies have announced plans for major new investments in the country.

Tanzania has roughly 45 million ounces of gold scattered beneath its surface, making it the third largest gold producer in Africa, after South Africa and Ghana, and the second largest non-oil recipient of foreign direct investment ($2.5 billion from mining over the last decade) on the continent.

Six large gold mines are responsible for much of the country’s production.

These companies have yet to pay corporate income taxes because of capital allowances and other tax exemptions under current legislation.

But overall contributions for mining already make up about 4 per cent of government tax revenue (around $100m a year), and production accounts for 3.5 per cent of GDP.

Analysts Oxford Policy Management (OPM) collected data from AGA and Barrick on five of their gold mines, plus a new mine under exploration by IAMGold, and concluded:

• The six mines plan to increase gold production and exports by around 50 per cent to 60 per cent in the next six to 10 years, increased profit from which will hike total mining tax payments to the government by almost 300 per cent to about $280 million per annum, under the current taxation scheme.

• This level of production, if continued long-term, will require these companies to invest an additional $2.3 billion in their existing mines just to stay in business through to 2034.

Contributions from current mines will begin to decline around 2018.

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