Tanzania's new mining laws 'ominous' for Acacia Mining

Tanzania has passed legislation allowing the government to renegotiate and dissolve contracts, the final of three bills aimed to take what it sees as a fairer share of profits from its mining sector, which is dominated by London-listed Acacia Mining.

Following a dispute that has seen the FTSE 250 mining group banned from exporting minerals after it was accused of under-declaring its gold shipments and "mining illegally", the new bill calls for Tanzania's government to be entitled to a non-dilutable free-carried interest in mining companies of at least 16%, rising up to a 50% interest “commensurate with the total tax expenditures incurred by the government in favour of the mining company”.

Parliament's new bills will lift royalty rates for gold, copper, silver and platinum exports to 6% from 4% and stipulate that the government shall be "entitled to reject the valuation” in relation to the calculation of royalties, and “where the government rejects the valuation, it shall have the option to buy the minerals at the low value”.

On Tuesday, Acacia filed notices in Tanzania to refer the months-long dispute with President John Magufuli's government over its Bulyanhulu and Buzwagi gold and copper mines to arbitration, which was presumed to pre-empt the law dis-allowing arbitration.

Acacia said the serving of the notices at this time "is necessary to protect the company” but remains of the view that “a negotiated resolution is the preferable outcome”.

OMINOUS OUTCOMES

"The reference to tax expenditures is particularly ominous - particularly for Acacia," said analyst Yuen Low at Shore Capital, "in that it suggests to us that the government might be looking to ‘fund’ the purchase of additional interests in mining companies by exploiting disputed taxes that it claims to be owed to it."

Low said the government's ability to reject valuations in the calculation of royalties is also "ominous for Acacia" and looked for example to Zimbabwe, where companies "have been whispering in the government’s ear" to have processes taken in-country.

"Worryingly, President Magufuli has been quoted in the press spouting Mugabe-esque rhetoric, saying at a public rally yesterday that Tanzania was fighting 'an economic war' and that it therefore 'couldn’t wait to pass the laws because of the large scale theft taking place in the mining sector'," Low noted.

Tanzania's new legal bills seek to make it illegal for investors to refer complaints regarding investment in Tanzania to any court outside the country so that all grievances will from new be handled by the country's legal system, with all past and prospective arrangements will be reviewed and renegotiated whenever parliament deems fit.

Tanzania's three bills, which follow a new Finance Act that imposes a 1% clearing fee on the value of all minerals exported from the country from 1 July 2017, will become law once assented to by Magufuli, after which the date on which they take effect will be published in the Government Gazette.

PARENT NEGOTIATIONS

The Tanzanian government has apparently informed Acacia's Canadian 63.9% shareholder Barrick Gold that it wishes to continue talks with Barrick and “therefore Acacia will not participate directly in these discussions when they commence”.

Acacia will work with Barrick “as necessary to support such discussions”, with any potential resolution arising from said discussions would be subject to Acacia’s approval.

Last month, Barrick chairman John Thornton agreed to compensate the government of Tanzania to try and resolve an export dispute and following talks, Magufuli said Barrick had "repented" and would "repay all the losses that we as a country incurred".