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Mining in Tanzania

  • South Africa
  • Energy and infrastructure - Mining

05-12-2019

Tanzania, like several African and other jurisdictions, is facing significant demands from its citizens to benefit more from Tanzania’s vast mineral resources, particularly gold and diamonds, with other minerals such as gemstones, nickel, copper, uranium, kaolin, titanium, platinum also present in Tanzania.

Nationalism takes various forms, from subtle measures such as increased royalties and taxes, all the way through, to nationalisation.

Tanzania has implemented various measures along the spectrum of resource nationalism, which has impacted dramatically on investment in Tanzania, including in relation to prospecting, which is the life blood of a long term, sustainable Mining and Natural Resources Sector.

Tanzania has also had a unique mining history, with many of the historical mining operations being conducted illegally, and through small scale and artisanal miners. The relaxation of the Mining Laws in the early 1980s and 1990s, which allowed for private ownership of mining claims and foreign investment, started changing this landscape but it is extremely difficult to reconcile small scale and artisanal mining with large scale, formalised mining, and unless the small scale and artisanal mining is regularised in such a way that it is easy for the small scale and artisanal miners to obtain licences and to mine lawfully, illegall mining may continue, with all the adverse consequences that flow from this including loss of revenue to the Tanzanian government, unsafe mining operations, detriment to the environment, and adverse impacts on social and socio-economic structures.

The new mining legislation introduced in Tanzania, from 2017 which was ostensibly aimed at increasing revenue to the Tanzanian government, caused investors to be concerned. The highly publicised fight between the Tanzanian government and Acacia, which has been recently resolved through Barrick acquiring the remaining shares, sent all the wrong messages to investors and created concerns regarding stability arrangements, security of tenure, and security over substantial investment that have been made. Without debating the merits of the fight between Acacia and the Tanzanian government, the events surrounding the stoppages of Acacia’s mines, and its gold exports, understandably made current operators and potential investors a little cautious.

The amended Mining Laws which were imposed in 2017 included higher taxation on mineral exports and a more substantial government stake in various mining operations.

While laws that are implemented to support and encourage flow of benefits from the Natural Resources Sector, to the citizens of Tanzania, the manner in which these laws have been introduced and implemented in Tanzania has impacted on investment, and are certainly aimed at furthering the interests of resource nationalism.

Having said that however, Tanzania holds vast mineral resources, and remains a potential investment destination for major minerals such as gold and diamonds, and other minerals that are becoming more important such as copper, nickel, platinum, and rare earth elements, which are required to support the growing “green economy” and the move towards a circular economy.

With the settlement between Acacia (through the intervention of Barrick) and the Tanzanian government, the “roadblock” has now been removed, and will open up further investment into the Tanzanian Mining and Natural Resources Sector, which can then contribute significantly to growth, development and transformation of the Tanzanian Mining and Natural Resources Sector.

The primary challenges in relation to the Tanzanian Mining and Natural Resources Sector include regular changes to minerals policy and legislation, the implementation of measures aimed at appeasing demands for resource nationalism, inadequate infrastructure (rail, electricity, water, etc.), and aligning Tanzania’s historical small scale and artisanal Mining Sector with the more formalised Mining Sector, predominantly owned and operated by multi-national corporates (with Tanzanian government free-carried interest).

The changes introduced by President John Magufuli created various concerns amongst investors and operators of mines. The new Mining Laws require the Tanzanian government to own at least a 16% stake in mining projects, and has raised royalty taxes on gold, copper, silver and platinum. Of most concern however, is that the changes allow the Tanzanian government to declare existing Mining Development Agreements with existing operators null and void, and empowers the Tanzanian government to re-negotiate the terms and conditions.

The dictatorial and autocratic approach adopted by President John Magufuli, has also been of concern, because it impacts on stability, the Rule of Law, and expectations that there should be some certainty in relation to the political structures in place, and how politics plays out in Tanzania.

The banning of the export of unprocessed ores, by the Tanzanian government, ostensibly in order to encourage the construction of domestically based beneficiation plants seems to make sense, on the face of it. However, any mining company that faces such a ban, will have its share price impacted, and make its investors nervous. Where major companies process their ore in Tanzania, like AngloGold Ashanti, the recent changes are unlikely to be as concerning.

The settlement by Barrick with the Tanzanian government saw Barrick acquiring the shares that it did not hold in Acacia, but at the same time, the Tanzanian government acquired shares and 50% of the beneficial economic interest in Acacia. This is likely to be regarded by the Tanzanian government as a success story and other mining companies will probably be weary about how this could impact on them, and the precedent it may have set.

The changes to the Mining Laws which require mandatory listing of mining companies on the Dar es Salaam Stock Exchange may also present challenges – the listing would be aimed at unlocking investment. If the Dar es Salaam Stock Exchange is unable, for any reason, to facilitate capital raising, this could impact on prospecting and other projects, and the development of mines in Tanzania.

Investors interested in Tanzania are, understandably, cautious but investments are still being made, because of the vast natural resources that are available for extraction and beneficiation in Tanzania. It is hoped that the Tanzanian government moves towards stability on the application and interpretation of its Mining Laws so that investors have relatively certain basis on which to make their investment decisions.

The primary trend sweeping Tanzania, as is the case with many African jurisdictions, is resource nationalism and most, if not all of the measures that have been implemented by President John Magufuli in the changes to the Mining Laws, are aimed at securing substantial benefits for Tanzanian citizens through mechanism such as banning of exports of unprocessed ores, increasing royalties, increasing shareholding in foreign companies, and increasing the beneficial interest in mining companies.

Meeting the demands for resource nationalism often creates an unstable investment environment, which can only be mitigated by a very deliberate attempt to create stability through clear policies and Mineral Laws. For example, if the government shareholding in mining companies is set at 16%, provided that this percentage remains stable for a specified period, appropriate investment decisions can be made.

The momentum across Africa in support of resource nationalism has been driven, primarily, by the view that Africa can stand on its own feet, and that Africa is therefore “open for business”. At the same time however, expectations are created, and, understandably, the Tanzanian citizens, as is the case with other African countries, expect to benefit substantially from the vast natural resources in Tanzania. If these expectations are not met, this unfortunately creates a vicious cycle of unmet expectations, greater demand for participation, and community activism in support of these demands.

The primary drivers behind resource nationalism are social and socio-economic conditions, and the perception that vast mineral wealth equates to vast financial wealth which should be made available to all.

The calls for greater resource nationalism across the African content, are likely to increase in the latter part of 2019 and early into 2020.

Africa has one of the largest untapped work forces in the world.

Tanzania, like many African countries has a sector of the population (18 to 25) which crave education, because this is often seen as the key to accessing formal jobs.

The Mining Sector is complex, and because it is so multi-disciplinary, the Mining Sector provides an ideal training ground for education across key skills such as engineering, environmental, safety, and beneficiation.

There is high demand for education and skills development both from the eligible population and the mines, as they develop their operations.

The Mining Sector is the “engine room” of growth, development and transformation, and can play a significant role in upskilling persons and providing both formal and informal education opportunities.

Zimbabwe’s Indigenisation Laws are a good example of the general principle that, for the Mining and Natural Resources Sector to thrive, the government needs to acknowledge the “roadblocks” to success, and greater investment.

The announcement of the intention to repeal the Indigenisation and Economic Empowerment Act by the Zimbabwean government in March 2019 was driven by various factors, including investor, political and legal motivations.

Under the Indigenisation and Economic Empowerment Act, implemented by former President Robert Mugabe in 2019, 51% of mines had to be Black Zimbabwean-owned, which limited foreign ownership. The Indigenisation and Economic Empowerment Act was subsequently amended, to limit the requirement to platinum and diamond mining companies. The realities however dictated, that even in relation to platinum and diamond mining companies, the Zimbabwean government needed to re-visit the requirement, and the recent announcement that the Indigenisation and Economic Empowerment Act will be repealed and replaced, supports the facilitation of investment in Zimbabwe. This does not mean that Zimbabwe is facing significant challenges – like many countries, it still faces substantial challenges associated with historical Mining Laws, uncertain policies, and aging infrastructure (ports, rail, road and electricity), and an uncertain political environment.

Ownership is one of the pillars in most Indigenisation Laws, such as South Africa’s Mining Charters. It is however, not the only pillar and it is necessary to look at Indigenisation Laws, holistically. It is more about ensuring that, across the spectrum, an appropriate approach is adopted in support of growth, development and transformation. For example, in the South African Mining Charter, in addition to ownership, Mining Charter 3 addresses procurement, supplier and enterprise development, human resource development, employment equity (at all levels including board, executive management, senior management, middle management, junior management, employees with disabilities, and core and critical skills), career progression, mine community development, housing and living conditions and related aspects.

For an Indigenisation Law, such a Mining Charter to be successful, it is necessary for all of these aspects to be addressed holistically, in such a way that mining companies can achieve compliance through appropriate and applicable allocation of resources depending on the specific circumstances applicable to that mining company. For example, in certain instances, ownership may not be the most efficient method of transformation, because, for example, employment equity and community development, requires greater priority. Demands from “doorstep” communities cannot be underestimated. These demands include access to procurement contracts, employment, and education. The seamy not be achievable, through compliance with the ownership element / pillar.

In our view, successful implementation of Indigenisation Laws, through structures such as Mining Charters, is dependent on adopting a holistic approach.

The cautious approach adopted by investors is typically influenced by (a) regulatory and policy uncertainty, (b) security threats, (c) political instability, (d) increasing royalties and other taxes, (e) increased cost associated with employment, (f) commodity cycles and uncertain commodity cycles, and (g) political instability and risk.

However, one of the biggest factors has been the threat of enforcement (or actual enforcement) of Environmental Laws, and the environmental liabilities (rehabilitation and remediation).

Recent claims by Zambian communities against mining companies, including Vedanta, and the court cases in multiple jurisdictions (Zambia, South Africa and the United Kingdom) will have a sobering effect on mining companies.

There are therefore several common themes and concerns regarding recent changes to Mining Laws in countries such as the DRC, Mali, Tanzania and Zimbabwe, and the political landscape. These themes include (a) stabilisation arrangements which are generally put in place to attract investments, and theoretically, to support such investment until the mine becomes profitable, (b) Indigenisation Laws, particularly where specific indigenisation levels are required in relation to strategic minerals (which often require higher investments), (c) increased royalties, (d) exchange control and the impacts that this has on procurement, particularly of imported goods, and (e) currency fluctuation.

The primary concerns voiced by investors is the uncertainty which results from regular changes to Mining Laws, often because the particular political climate and socio-economic drivers.

If Tanzania wants to truly be “open for business”, its Mining Laws must make it as easy as possible for foreign companies to invest in Tanzania and there should be a strong focus on creating a stable policy and regulatory environment, implementation of principles which support security of tenure and stabilisation for relevant periods, a transparent application process, and once mining and prospecting rights have been granted, an apparent framework of interpretation and application of the Mining Laws. If the Tanzanian government can achieve certainty on these aspects through its Mining Laws, this will significantly facilitate investment in the Tanzanian Mining and Natural Resources Sector.

Tanzania’s unique historical mining industry, which was focused on small scale and artisanal mining, together with illegal mining that has taken place, has created a legacy of concern, specifically in relation to environmental impacts, and health and safety.

Environmental compliance is a complex business, which requires dedication of human and capital resources to ensure compliance not only with domestic laws, but also international laws. Recent, major environmental disasters, such as the tailings dam collapse in Brazil, once again highlighted how fragile a seemingly well-run mining operation can be, with devastating consequences to the environment, people, and structures.

Disasters at mines create a focus point, which often results in the regulators of a particular country implementing new laws, and taking a tough stance on compliance and enforcement. There is a growing global trend towards the enforcement of the principle “polluter pays” which has significant financial implications for the mining companies. At the same time, regulators are prosecuting decision-makers and the mining companies themselves.

For example, in South Africa, the prosecution of British Petroleum for environmental and non-compliance, has also made companies stand up, and pay attention.

The move towards the “circular economy”, and the “green economy” is gaining momentum and is being implemented or encouraged through various mechanisms including decisions by major investors to divest from “dirty minerals” such as coal. The failure by mining communities to obtain the “social licence to mine”, without which mines typically do not start up, or, once they have started up, cannot operate, without disruption, will be a major disruptor, and of course, enforcement by the regulators, always impacts.

As global standards become more entrenched, and enforced through formal and informal (such as investment decision-making) mechanisms, Tanzania will also be faced with how to align its local aspirations for growth, development and transformation, with the desire to make the world a better place, for future generations.

There are significant, potential consequences of illegal mining including health and safety, environment, and social and socio-economic consequences. It is an unfortunate realty that, often, the illegal miners taking the most risk i.e. extracting the mineral, receive the least benefit and often work under appalling conditions, and often exposed to toxic materials. Those that benefit most, are often syndicates that take the least direct risk, but drive up demand. Socio-economic conditions drive illegal mining, and until socio-economic factors can be addressed, there will always be an opportunity for illegal mining.

Once this reality has been accepted, real conversations can start about regularising the small scale and artisanal mining, and the illegal miners, into mainstream mining, with a strong focus on compliance. Regularisation will require the small scale

miners / illegal miners and the large scale miners, to work together to support growth, development and transformation of the small scale and artisanal mining / illegal mining subsector. In addition, the Tanzanian government will need to implement systems and laws which facilitates smaller miners, while at the same time acknowledging that, in certain respects, smaller miners cannot achieve compliance (there are certain aspects which should be non-negotiable, such as compliance with Environmental Laws.

One of the primary concerns faced by investors is the uncertainty which results from regular changes to Mining Laws and Regulations, often, because of the particular political climate and socio-economic drivers. Often, regardless of the wording of a particular Mining Law or Regulation, governments and the relevant ministries such as the Ministry of Mines, interpret and apply the Mining Laws and Regulations to suit the political climate at that time and socio-economic demands at a particular time. It is extremely difficult, in these circumstances, to do business, because often, by challenging the interpretation and application of the Mining Laws and Regulations, this creates an adversarial relationship between the miner and government. The reality is that the relevant governments hold the power and this power can be used to disrupt mining operations, impact export of the minerals, and repatriation of funds.

Indigenisation Laws, which are often linked to resource nationalism, remain a concern, because of the regular changes that are made to the Indigenisation Laws i.e. if they remain stable (no “moving of the goal posts”), investors can factor the requirements into the feasibility studies, and investment decisions.

Historically, investors have required higher levels of certainty in relation to the various factors that are taken into account to determine the feasibility of a proposed investment, and whether to continue investing in a particular project or operation.

While certain investors still require high levels of certainty, there is a growing group of investors that are prepared to invest, despite uncertainty regarding certain investment criteria. However, most if not all investors require specific levels of certainty in relation to criteria such as the required levels of indigenisation, security of tenure, and a legal system which gives the investor an opportunity to challenge any adverse decisions of the government, in a fair, reasonable and transparent manner.

Regular changers to the Mining Laws and those laws which impact materially, such as exchange control, are probably where governments go wrong, particularly where changes to the Mining Laws and related laws, are made with little or no consultation or in complete disregard to bilateral or multilateral treaties, and without having regard to international conventions.

Investors cannot of course expect indefinite consultation, particularly in those African countries where governments are facing increasing pressure by their citizens to participate and benefit from natural resources.

The starting point, is always, for there to be policy certainty, because policies provide the framework for regulatory certainty. For African governments to increase investment, not only directly in relation to the Natural Resources Sector, but also for example, infrastructure development, policies which are clear, are necessary. Sometimes, for example, it is not necessarily about the percentage of indigenisation, but rather, that there is certainty around indigenisation requirements with the expectation, that those requirements will remain stable, for a particular period.

Transparency is critical – all processes, including applications for prospecting or mining rights and how those rights can be impacted upon, must be readily available and accessible to stakeholders.

Just as important however, is the need for fair administrative processes, where rights may be impacted upon or where the exercise of administrative discretion, can impact on or disrupt operations.

Lastly, the rule of law remains a critical factor, together with accessibility to a court system which is independent, unbiased, and which can determine disputes quickly.

The most important thing that mining companies can do, before investing in a country, and to mitigate the risks, is to have a proper understanding of the relevant landscape in the relevant country – there has to be a realistic view, and expectations must be managed accordingly.

What is absolutely critical to successful investment is to have a good understanding of the community landscape. Unless mining companies invest and develop mines in such a way that they are granted the “social license” to mine, investors and the mining companies can expect to face lengthy delays, and disruption to the implementation of the project, and, once the mine is up and running, disruption to mining operations, including getting the minerals to market.

Community activism is extensive, and potentially disruptive. This can be avoided by not only identifying the need to engage with communities, but also to understand the needs and wants of particular communities (social and socio-economic projects cannot simply be implemented without understanding what the needs and wants of the community are), and delivering on promises made. For example, it is not simply good enough to build a structure for a

school – everything that is required to make the school function properly, must also be provided, such as furniture, IT, qualified teachers, and proper administration and funding.

Recent cases in South Africa (Duduzile Baleni and Others, and the Minister of Mineral Resources and Others, and Grace Masele Mpane Maledu and Others, and Itereleng Bakgatla Minerals Resources (Pty) Ltd and Others) have also highlighted the importance of understanding decision–making structures within communities and the acknowledgement that, different communities have different decision making structures and requirements. These principles also apply elsewhere in Africa.

Hidden costs of implementing mining projects must also be considered. These hidden costs may come in the form of additional taxes, import and export duties, exchange control regulations, regulations around which minerals can be sold, and to whom, and the often, extensive costs involved in complying with a particular country’s Mining Laws. Investors and mining companies should also be mindful of the additional costs incurred as a result of delays, particularly where the processes contemplated in the Mining Laws, are not complied with, properly, or at all, because they are not understood properly.

The most important thing that mining companies can do, before investing in a country, and to mitigate the risks, is to have a proper understanding of the relevant landscape in the relevant country – there has to be a realistic view, and expectations must be managed accordingly.

What is absolutely critical to successful investment is to have a good understanding of the community landscape. Unless mining companies invest and develop mines in such a way that they are granted the “social license” to mine, investors and the mining companies can expect to face lengthy delays, and disruption to the implementation of the project, and, once the mine is up and running, disruption to mining operations, including getting the minerals to market.

Community activism is extensive, and potentially disruptive. This can be avoided by not only identifying the need to engage with communities, but also to understand the needs and wants of particular communities (social and socio-economic projects cannot simply be implemented without understanding what the needs and wants of the community are), and delivering on promises made. For example, it is not simply good enough to build a structure for a school – everything that is required to make the school function properly, must also be provided, such as furniture, IT, qualified teachers, and proper administration and funding.

Hidden costs of implementing mining projects must also be considered. These hidden costs may come in the form of additional taxes, import and export duties, exchange control regulations, regulations around which minerals can be sold, and to whom, and the often, extensive costs involved in complying with a particular country’s Mining Laws. Investors and mining companies should also be mindful of the additional costs incurred as a result of delays, particularly where the processes contemplated in the Mining Laws, are not complied with, properly, or at all, because they are not understood properly.

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