The collection of mining agreements reached between 2020 and 2022, following Tanzania’s re-enactment of its mining regulation and the subsequent contract renegotiations over existing mines, signal stable regulatory environment for mining companies in the coming years, according to Fitch Solutions.
While this bodes well for the operating environment of mining companies in the country, the regulations enacted are restrictive and reflect higher government ownership in mining agreements.
Tanzania’s mining regulations saw a major overhaul over 2017-2019, during which the government introduced a number of new laws and new amendments. This led to a period of elevated uncertainty for investors in the country.
During the period, the government moved to temporary suspend new mining licenses and freeze the renewal of expired permits. The government enacted three new laws, giving it the right to renegotiate and revoke existing licenses.
New Mining regulations
These regulations stipulate that the government must own a minimum of 16% non-dilutable free carried interest in any mining company operating under a mining license (US$100,000 to US$100 million) or a special mining license (above US$100 million).
In addition, the government is entitled to acquire up to 50 per cent of the shares of a mining company, calculated on the basis of the total value of tax expenditure extended to the mining company.
The laws stipulated an increase in royalties, from 4 per cent to 6 per cent for metallic minerals, and from 5 per cent to 6 per cent for gemstones and diamonds. The laws also stipulate that mining companies may not export any raw minerals for processing outside Tanzania, and instead are required to develop beneficiation facilities in the country.
Shortly after the passage of the law, Tanzania cancelled 11 licenses in the country, as part of enforcing the law, including the retention license of Glencore and Barrick Gold of the undeveloped Kabanga nickel project.
Since 2020, Tanzania’s government has been working to renegotiate terms of existing mines and projects in the country and sign new agreements which are in line with the new regulations passed in 2017.
“The collection of these agreements reached over 2020-2022 suggest that the government is actively putting into practice the new regulations passed in 2017.
“While this means restrictive regulations and higher government ownership will remain in place, it does also signal a more stable operating environment for mining companies in the country in the coming years”.
Fitch Solutions
New Mining Agreements
The sitting President, Samia Suluhu Hassan, who took office in March 2021 after the sudden death of President Magufuli, has signed a number of new agreements in recent months.
In December 31, 2021, the government signed with Petra Diamond an agreement according to which the government’s share in the Williamson diamond operations will rise from 25 per cent to 37 per cent while Petra Diamond’s share will decrease from 75 per cent to 63 per cent.
The company will also grant Tanzania a 16 per cent free-carried interest in its subsidiary Williamson Diamonds Limited(WDL). In addition, the two partners have agreed to an economic benefit ratio of 55 per cent for the government and 45% for Petra.
The deal also settles other long-standing, historic disputes around the Williamson mine, with WDL assuming liability and agreeing to pay the government USD20mn in installments.
In January 2022, British miner Kabanga Nickel, formerly known as LZ Nickel, inked a framework agreement with the government of Tanzania to develop a battery-grade nickel sulphide deposit.
As part of the deal, the parties have created a joint company called Tembo Nickel Corp, owned by Kabanga Nickel (84%) and by the government of Tanzania (16%). Economic benefits from the project will be shared equally between the two shareholders.
According to Fitch, the announcement of various investments by several major miners in recent quarters show that new projects are making progress and suggest that Tanzania’s mining sector is on track to grow in the coming years.
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