Tanzania sets stage for review of mining agreements after Acacia deal

Saturday October 21 2017

A miner inside the Bulyanhulu gold mine in northern Tanzania. PHOTO | FILE

A miner inside the Bulyanhulu gold mine in northern Tanzania. PHOTO | FILE 

By ALLAN OLINGO
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Tanzania is hailing the agreement it signed with Barrick Gold, the owners of Acacia Mining, as a reference point for other African countries struggling to get the most from their natural resources in the face of lopsided contracts entered into with multinationals.

The agreement marks a win for President John Magufuli who since the beginning of the year has resolutely pushed through changes to laws governing the extractive industry convinced that, despite the risk of provoking investor flight, they needed urgent reform in order to benefit the country.

“I would want to see all other gold mining firms follow suit and append (signatures) to this kind of agreement. The same goes for diamond and tanzanite. Those who don’t want can leave. We would like to see Tanzania benefit more from its resources and such agreements will guarantee that,” President Magufuli said in a statement after Barrick Gold agreed to cede substantial proceeds from mineral sales to the government.

President Magufuli had shortly before that coaxed out of Barrick chairman John Thornton unprecedented concessions, including splitting halfway the economic benefits from the business, paying $300 million in tax arrears, infrastructure development and better working conditions for workers in the mines.

50:50 economic benefits

President Magufuli instructed Justice and Legal Affairs Minister Palamagamba Kabudi to ensure that other mining firms align their operations to the agreement reached with Acacia.

Acacia agreed to give a 16 per cent stake in its three mines; Bulyanhulu, Buzwagi and North Mara to the government. The two would incorporate a company which, after meeting costs and paying taxes and royalties, would share 50:50 economic benefits from the business. It was not immediately clear what this entails though Mr Kabudi suggested it referred to profit.

“The 50:50 sharing of the revenue will happen after the miner has paid up the requisite royalties and taxes, including 6 per cent royalty, value added tax of 30 per cent, road and fuel levy, and other levies that they are supposed to pay,” Mr Kabudi.

Indonesia

The agreement is being watched with interest by big miners globally as it is likely to embolden other governments to change mining laws or alter operating contracts midstream as a wave of resource nationalism blows across the world.

In Indonesia, Rio Tinto, Newcrest Mining (both Australian) and Freeport McMoran (US) are bracing for bruising new laws that seemingly relax rules on export of ores but actually require companies to show progress after every six months upon setting up of local processing facilities.

The Indonesian laws also remove exemptions from a requirement that companies sell at least 49 per cent of their companies to locals within ten years of operation.

Tanzanian workers

Tanzania got a nod from Barrick that Acacia would construct a smelting facility, and that the miners will list at least 25 per cent of their shares at the Dar es Salaam Stock Exchange. 

“This agreement is a first in Africa and other countries will come to learn from us. We have many projects such as Stigler’s gorge, railway and roads. I want this money ($300 million) to be paid quickly because Tanzania needs it,” President Magufuli said.

Acacia is expected to pay $300 million as goodwill for the $190 billion tax demand that Tanzania slapped on the firm in July.

President Magufuli’s urgent need for cash, however, may not be met has Acacia has indicated it can only make the payment in tranches.

Mr Kabudi said that the miner has agreed to abide by the new laws, and to move their headquarters from Johannesburg to Mwanza, ‘the city that is located at the heart of the gold zone.’

Acacia’s accounting department would also be moved from London to Dar es Salaam.

New company

A new Tanzanian operating company will be created to manage Bulyanhulu, Buzwagi and North Mara, and all future operations in the country.

Barrick said it will allow government representation on the board running the three mines, maximise employment of Tanzanians, build local capacity and a tarmac road to Bulyanhulu to ease access to this mining site.

“It will also increase procurement of goods and services within Tanzania. We have also committed to work with Tanzania to advance concepts for increasing in-country beneficiation of gold,” Barrick said, committing to total transparency of operations.

A ban on export of mineral concentrates is under review.

The mining firm also agreed to allocate funds for the construction of a college building for research, to be complemented by a specialised testing lab. Barrick also said that they were still reviewing conditions, together with Tanzania, for the lifting of the concentrate export ban.

President Magufuli said workers would now be allowed to work from their homes instead of living in dormitories within the mines, be hired permanently and have any disputes resolved within the country.

Prof Thornton, however, said the agreement would be subject to approval by Barrick’s independent directors and shareholders who own 64 per cent of Acacia.

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