Tanzania-focused mining companies are set to be strangled in further red tape after the country’s parliament passed two laws allowing the government to renegotiate or dissolve contracts.
Under the new laws, the government will be given more power over mining and energy companies operating in Tanzania.
Tanzania’s government had tabled three bills covering natural resources contracts, sovereignty and amendment of existing laws.
"Parliament has passed two (laws) legislation - the Natural Wealth and Resources (Permanent Sovereignty) and the Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) bills," the state-run Tanzania Information Services said in a statement.
The third bill that seeks to amend the country’s Mining & Petroleum Act is being debated in parliament today.
Companies have accused Tanzania President John Magufuli of putting unfair restrictions on them by raising fines and demanding higher tax contributions.
Tanzanian government cracks down on Acacia Mining
Acacia Mining plc (LON:ACA) is among the firms affected by tightening legislation, having been locked in a dispute with the government over royalties it allegedly owes on the exports of gold/ copper concentrate from its two mines in the country.
The government had imposed a ban on the exports, accusing Acacia of under-declaring its gold shipments and mining illegally.
Acacia has “strongly refuted” the allegations. The gold miner’s majority shareholder, Barrick Gold Corp, has intervened in the hopes of settling the dispute on behalf of Acacia.
Acacia's management team has been excluded from the talks betweeen Barrick and the government. Barrick, which owns 63% of Acacia, is hoping to convince President John Magufuli to lift the export ban as it is costing the miner about US$1mln a day from lost revenue.
In a statement today after the legislation was passed in parliament, Acacia said it had served ‘notices of arbitration’ on two of its three gold mines in the country. This means it can seek intervention at the London Court of International Arbitration, should Tanzania honour its original contracts.
"This is a necessary step to protect the interests of our stakeholders in light of the ongoing dispute, however we still believe a negotiated resolution is the best outcome and will continue to work towards this," an Acacia spokesman said.
Last week Acacia’s woes grew after the government approved a new Finance Act, which will impose a 1% clearing fee on all minerals exports. Analysts estimated that the new levy will cost Acacia another US$7mln to US$9mln each year based on last year’s revenues.
Tanzanian miners request trading halts
With the two new laws passed yesterday, Shore Capital said the government would be able to renegotiate contracts to include clauses on revenue sharing and expunge unfavourable terms. Failing that, the government could dissolve the contracts.
The analyst noted that a number of Australian-listed firms had requested trading halts following the decision including Walkabout Resources, Magnis Resources, Kibaran Resources and OreCorp.
Tremont Investments’ acquisition of Cradle Resources was also cancelled, following a proposed change that would see the Tanzanian government entitled to a free-carried interest of not less than 16%.
Other miners with Tanzania operators that will be hit by the strict new laws include Shanta Gold Limited (LON:SHG), Capital Drilling Ltd (LON:CAPD) and Kibo Mining (LON:CAPD).
Latest three bills in Tanzania of great concern, says Shore Capital
Shore Capital said the troubles in Tanzania started with gemstone mining company TanzaniteOne. In 2012 the government said it would not renew the firm’s licence until it compiled with the Act that required jewellery companies to be 50% owned by locals.
The latest three bills are of “great concern”, Shore Capital said, adding that it raises the “spectre that the expropriation of TanzaniteOne’s tanzanite operation a few years back was not an ‘isolated’ special occurrence”.
“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,” the broker said.