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Is Tanzania’s export ban a high stakes game of poker with Acacia?

First published by Johnny West on openoil.net

Tanzania’s decision to impose a ban on concentrate exports from its mining industry has gained wide coverage among industry watchers. The question is: what does the government hope to achieve with it, and what will companies’ reaction be to it?

In this piece, we explore the possibility that the ban particularly targets Acacia Mining’s gold production in Tanzania and that the objective is to pursue re-negotiation to increase revenues to government from Acacia’s three large gold mines, which generated turnover of over a billion dollars in 2016 but have yet to pay any corporate income tax.

We further consider the impact of the ban on Acacia, and on government revenues. Financial analysis suggests the following preliminary conclusions:

  • The government will lose $1 million or more per month in revenues, as falling sales translate into lower royalties.
  • The economics of the Bulyanhulu mine, which were marginal anyway, could be pushed over into operating loss (depending on gold prices), leaving the company with a tough decision about whether to shutter the mine, and that decision point could come in the next few months. Of Acacia’s three operating mines, Buzwagi could also face difficulties while North Mara lies at the other end of the spectrum and could continue to run at operating profit.
  • Acacia’s overall financial position could be materially affected as lower revenues and profits affect its leverage, and erode investor confidence. Shares dropped by 20 percent in the week following the government’s announcement of the closure and have only partially recovered.

Each of these points is dealt with in detail in the full blog on openoil.net

OpenOil’s Excel model on the Bulyanhulu mine  is available to view the workings of the conclusions in this post. 

 

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Comment by daniel gilbert on April 11, 2017 at 14:53

A great posting, Anton, thanks for sharing and very interesting to see how this OpenOil case study of Bulyanhulu is continuing to develop.

Your OpenOil.net article reports on beneficiation.  More on this important topic below, via http://allafrica.com/stories/201704040052.html

'Zitto Kabwe, who was a member of the Bomani Committee, a special team, tasked with reviewing the mining sector said that all issues related to the concentrate were recommended by the committee report and included in the mining policy but were not implemented.

"I support the idea that we must set up our own smelter in Tanzania instead of exporting gold and copper concentrates to Japan and China. But it is important for such a decision to be backed by scientific evidence instead of President Magufuli's directives, whose impact is adverse to the country,"'

I will now go on to read the NRGI report linked to by yourselves re. Tanzania and beneficiation: "The Challenge of Adding Value in Tanzania's Mining Sector"; http://www.resourcegovernance.org/blog/challenge-adding-value-tanzania’s-mining-sector

Thank you once again.

Comment by Gilbert Makore on April 5, 2017 at 8:12

Thanks a lot Peter Boffin.

Comment by Bubelwa Kaiza on April 4, 2017 at 22:43

It is my correct submission that Tanzania has had changed political environment right from the highest level of government. The government, to my understanding, would be interested in taking stock of mining activities that previously were conducted with relatively inadequate transparency. Vital information regarding  Acacia business of copper concentrates export seem jetting out, after the ban, to public domain. The new Government does no longer entertain business as usual mentality among its personnel. The high level technical committee has been constituted by President and assigned to conduct technical/content auditing of copper concentrates that were about to be shipped to China/Japan/Germany. Let's give Government time to work through this Acacia copper concentrates export riddle.         

Comment by Peter Bofin on April 4, 2017 at 17:27

You can find the report on the viability of a copper concentrate smelter here Gilbert. It was produced by the Tanzanian Minerals Audit Agency (TMAA), in 2011. TMAA is the agency that samples the contents of each container of concentrate before export, in order to determine royalty payments and to measure production. 

Comment by Gilbert Makore on April 4, 2017 at 10:42

Totally agreed. My own take is this is to force mining companies to the table. There is certainly likely to be movement either from company or from gvt on the ban. If media reports are anything to go by- it is indeed odd to try to address issues around mineral and tax auditing through the use of an export ban. My only question is if the previous study on viability of beneficiation covered other minerals besides copper?

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