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- Jul 31, 2017
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Tanzania: Mining Investors Remain Cautious of Tanzania Market
Potential investors are holding back on their entry into Tanzania over President John Magufuli's stringent policy changes.
Last week, Acacia Mining was in talks for the sale of a stake in one or more of its three gold mines in Tanzania for a 50-50 joint venture.
Three Chinese firms, Shandong Gold, Zijing Mining Group and China National Gold Group, are said to have held discussions with Acacia.
This comes barely a year after a Reuters report showed that some of Tanzania's biggest foreign firms in mining, telecoms and shipping had considered scaling down their operations, halting expansion plans, or even exiting altogether because of tougher policy demands like increased tax bills.
Last year, Tanzania slapped Acacia with an export ban and a $190 billion tax bill, and seized its gold consignment for alleged under-declaration. New mining laws were also put in place.
Acacia has confirmed that it is in talks for a possible joint venture, having received expressions of interest from Chinese counter-parties.
"We are engaging with a small number of potential investors and the process remains at an early stage so there can be no certainty that an agreement will be reached," Acacia said.
Barrick Gold, the main shareholding firm of Acacia, has a close relationship with Shandong Gold. Last June, Barrick sold a 50 per cent interest in its Veladero mine in Argentina to Shandong. The Canada-headquartered miner is also said to have a strategic partnership with Zijin Group.
Due diligence
Last year, then chief executive of Acacia Brad Gordon said it was facing its most difficult year after the introduction of the concentrate export ban in March as well as the $190 billion tax demand that has since been reduced through arbitration.
"We are currently in a complex and fluid situation that has led to a significant reduction in their cash balance," Mr Gordon said at the time.
The EastAfrican has learnt that Chinese executives from Shandong were in Tanzania in January to undertake due diligence on Acacia's mines.
"It's a very delicate balance for Barrick as it continues its arbitration process. They need to have the Chinese on board to smooth their relations with Tanzania. The Chinese have clout with the current administration and this will boost Acacias' negotiation standing," The EastAfrican was told.
China is Tanzania's biggest foreign direct investment source and trading partner, with Dar receiving more than $600 million in 2016.
It is also understood that Barrick Gold could be selling a part of its stake to reduce its debt.
Last week, Acacia said it had registered a net loss of $707 million in 2017. The company also announced that it would cut down its gold production in 2018 by up to 43 per cent as its Buzwagi mine transitions to processing stockpiles.
Operations at the flagship Bulyanhulu mine have been scaled down to re-processing tailings.
"Our financial performance was significantly impacted by the post-tax non-cash impairment charge of $644 million resulting from uncertainty in the operating environment and the ban on exporting concentrate. Our revenue also fell by 29 per cent to $752 million over the period, as the Tanzania's ban on export of mineral concentrate introduced in March last year hit our earnings," Peter Geleta, the interim chief executive officer of Acacia Mining said.
Caution
The export ban, which led to reduced operations at Bulyanhulu mine, resulted in about $264 million in lost revenue and a cash burn of $237 million in 2017.
Petra Diamonds, the country's largest diamond miner, last Monday said there is still no release date for gems that were seized by the Tanzanian government last year, as the firm revealed a fall in sales and profits.
The company announced that its core earnings had fallen 8 per cent in the first half of the year, and issued a profit warning.
Petra CEO Johan Dippenaar said the mining firm is in contact with authorities about the shipment of 71,654 carats of gems worth $15 million, which was blocked from export by the government last August.
The seizure of the consignment in Dar es Salaam led it to flag a possible breach of two debt covenants in October last year. It has also cut down on its production.
Tanzania's foreign direct investment for 2017 is expected to drop as investors remain cautious about the country's new policy on taxation and mining royalty regulations.
Dar es Salaam has traditionally been the region's largest recipient of FDI, given its mining and gas sectors. Data from the UN Conference on Trade and Investment and the World Bank shows that the country received more than $1.5 billion in 2015: Kenya received $900 million.
In 2016, Tanzania's FDI dropped 15 per cent
Tanzania: Mining Investors Remain Cautious of Tanzania Market
