A ban on gold and copper concentrate exports has embroiled London-listed miner Acacia Mining in a dispute with the government of Tanzania over recent months.
The dispute has exacted a heavy toll on the company: Acacia’s share price has nearly halved since the ban was first announced in March, and the ongoing row is costing it $1m a day.
The miner, Tanzania’s biggest investor, has been accused by the country of hiding exports and underpaying the government by tens of billions of dollars. In a bid to settle the row, it has served notices of arbitration on behalf of its Bulyanhulu and Buzwagi mines.
However, the situation is now escalating beyond it alone. President John Magufuli last week signed a raft of new bills into law which put even more pressure on the mining sector.
The new laws increase royalties tax on gold and other minerals. They require the government to own at least a 16 per cent stake in projects and allow it to dissolve or renegotiate contracts as well as removing the right to international arbitration.
This is in addition to a new Finance Act that imposed a one per cent clearing fee on the value of all minerals exported from the country, which went into effect earlier this month.
Magufuli fast-tracked the mining bills through parliament in a bid to redistribute revenue made from the country’s minerals back to the Tanzanian state.
However, these tough new restrictions for the mining sector threaten to impact future foreign investment, and subsequently put the country’s economy on shaky ground.
“If the Finance Act had been all, we would not have been unduly concerned. But the three bills being debated in parliament are of great concern,” Yuen Low, analyst at Shore Capital said before the new laws had been passed.
“We fear that Tanzania, once a relative haven of stability and sense in African mining, will continue down a self-destructive path that began with TanzaniteOne, transforming into yet another African basket case.”
TanzaniteOne is a Tanzania-focused gemstone mining company that was founded by London-listed Richland Resources and sold off to Sky Associates, a private company, in 2014.
“The Tanzanian government effectively expropriated 50 per cent of the company’s tanzanite mining operations by stipulating this as a condition of licence renewal,” Low said.
The reverberations of the government's more recent actions are already being felt. Russian state nuclear group Rosatom shelved a huge project in the country earlier this month in part because of Tanzania’s tough new mining restrictions. The $1.2bn uranium project will be put on hold until 2020.
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In addition, one of the largest gold producers in the world, South Africa’s AngloGold Ashanti, followed Acacia's lead last week by starting arbitration proceedings against Tanzania over the country’s new mining laws. It said that it had “no choice”.
Analysts are now raising questions over how attractive Tanzania’s business environment will remain.
Magufuli himself said the country will issue no new mining licenses until it “puts things in order”.
The City points to worrying precedents on the African continent.
Zimbabwe’s “Black Friday” in 1997, which sparked an economic crisis when the Zimbabwean dollar crashed by 72 per cent and the stock market plunged 46 per cent, caused foreign investors and skilled resources to flee the country, which turned a country with a prosperous mining sector into a disaster.
There is also considerable concern in the market that further government “interventionism” could spread to other sectors such as the oil and gas industry.
But all hope may not be lost yet as Acacia’s majority shareholder, Barrick Gold, is still in talks with the government.“We see this as defensive move by Acacia and it is likely that a resolution will be negotiated, the effect of which will flow down to the smaller operators in country,” said analysts at Northland Capital.
However the talks play out, Acacia is expected to continue to feel the burn of the reforms for some time yet. Tyler Broda, analyst at RBC Capital Markets said:
While encouraging that Acacia continues to show [it is] willing to reach an agreement with the government, the additional cash outflow is a challenge given the concentrate export ban and the implied valuation downgrade is likely to weigh on the shares.