Gold mining firms up in arms over Tanzania’s legal changes

Gold miners Acacia Mining Plc and AngloGold Ashanti want fresh talks with the Tanzania government on the amended mining laws and regulations in which Dar demands a bigger slice of the pie from its vast mineral resources.

The firms say some of the regulations run counter to the provisions of the Mineral Development Agreements (MDAs), which they say protect them from the effects of any change of rules, especially those on local content which came into force on April 10, and the amended Value Added Tax Act 2015.

“Under Acacia’s existing Mineral Development Agreements, the company is protected from changes to laws that govern our operations, including the introduction of the local content regulations,” Acacia states in its 2018 Quarter 1 report.

AngloGold Ashanti’s subsidiaries are also “seeking constructive dialogue with the Government of Tanzania to gain assurances” that the Geita goldmine will not be affected by these legal and fiscal changes, “given the Mineral Development Agreements (MDAs) which guarantee fiscal and regulatory stability as well as the agreement between all parties before material legal and regulatory changes are made.”

The three new laws mandate the government of Tanzania to renegotiate existing MDAs at its discretion; assure government of a non-dilutable share of proceeds; and gives the right to Tanzania to acquire up to 50 per cent of any mining asset commensurate with the value of tax benefits provided to the owner of that asset by the government.

Three months notice

The government has also directed that foreign companies operate bank accounts in the country.

With regard to the Amended VAT Act 2015, Acacia contests the provision that no input tax credit can be claimed for the exportation of raw minerals, with effect from July 20, 2017, saying it contravenes “the relevant terms of Acacia MDAs with the Government of Tanzania.”

Since President John Magufuli took office in 2015, Tanzania has restructured its mining sector by amending the Mining Act, Petroleum Act, Insurance Act and other tax laws, as well as releasing regulations on local content with regard to mining.

The regulations on local content gave three months’ notice for mining companies to comply with the new guidelines requiring that Tanzanian benefit from the country’s natural resources by owning shares in the mining companies.

Section 36 (I) requires contractors, subcontractors and other entities engaged in mining activities to maintain a bank account with a 100 per cent Tanzanian-owned bank or with Tanzanians as majority shareholders.

The section explains an “indigenous Tanzanian bank” as one that has one hundred per cent Tanzanian or a majority Tanzanian shareholding,”
This is a contradiction of the MDA which allows Acacia Mining to operate bank accounts as it deems fit.

Article 5 of the Mineral Development Agreement between Pangea Mineral Ltd (later on Barrick gold and now Acacia Mining Plc) and the United Republic of Tanzania provides that: “Subject to prior approval with the Bank of Tanzania, Pangea is further entitled to operate foreign currency bank accounts outside of Tanzania and dispose of funds therein as it deems fit.”

“Pangea is allowed to source funding from outside Tanzania to finance its mining operations within Tanzania, as well as to retain outside of Tanzania the proceeds of any disbursements from such loans, subject to obtaining the approval of the Bank of Tanzania,” reads the MDA.

Experts argue that by then the country had not yet properly set out its development strategy for the sector unlike now where the state has the capacity to regulate, administer and monitor mining.

Dismissed MP

The regulations on local content also give the government the right to oversee the implementation of these regulations and ensure measurable and continuous growth in local content in all mining activities, evaluate and review contracts as it sees fit.

“In these circumstances, the company’s subsidiaries have had no choice but to take the precautionary step of safeguarding its interests by commencing international arbitration proceedings as first announced in July 2017,” says Acacia.

Members of the opposition parties and President Magufuli have repeatedly said that Tanzania is not benefiting as it should from proceeds of its natural resources. The President demonstrated his commitment to reassert control over the country’s extractives industry.

Barrick, the parent company, was once quoted to have dismissed legislator Tundu Lissu’s MDA critique saying it was “basically an advocacy piece by a hired Tanzanian anti-mining activist which encourages the Government of Tanzania to extract much higher taxes, rents, and royalties from Tanzania’s nascent gold mining industry irrespective of its impacts on that industry, or the benefits that flow from it.”

President Magufuli signed the new mining Act in July last year which requires the government to at least own 16 per cent stake in mining activities. The troubled sector generates about 3.5 per cent of the country’s overall GDP.

Acacia and other mining firms are yet to comply with a requirement to list at least 16 per cent of its shares at the Dar bourse.