mining - natcomreport edition of the national … contributions to the economic infrastructures...

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UNESCO NATIONAL COMMISSION OF THE UNITED REPUBLIC OF TANZANIA

IntroductionGiven the country’s rich

endowment of mineral re-sources principally gold,diamonds, gemstones andmore recently nickel anduranium, mining has beenone of the main sectors tohave benefited from Govern-ment reform and investmentincentives. As a result, Tan-zania’s mining industry hasexperienced a boom in bothmineral exploration andmining activities during thepast ten years. With a dis-tinction as the sole producerof the precious Tanzanite inthe world, the country is alsothe fourth largest producerof gold in Africa after Ghana,South Africa and Mali; andranks among the top produc-ers of diamond in the world.

World class multinationalssuch as Resolute MiningLimited, Anglogold Ashanti,African Barrick Gold, MDNNorthern Mining, TanzaniaRoyal Exploration, XstrataNickel, IMX Resources, MantraResources and others areexploring and developingmines in the country.

Economicimportance

Although its contributionto GDP is still small at 3.3 %,mining is currently the singlemost important source offoreign exchange for thecountry. About 40 % of exportearnings accrue from minerals,mainly from gold mining bylarge-scale foreign ownedcompanies.

The cumulative total directforeign investment (FDI) inthe mining industry in thepast ten years exceeded US$2.6 billion. During the sameperiod the value of mineralexports increased from US$26 million to US$ 1,114 mil-lion, employment in largescale mines increased from1,700 to 14,000 workers andGovernment revenue fromlarge scale mining increasedfrom US$2 million to US$78million. Furthermore, miningcompanies have made sig-nificant contributions to the

economic infrastructuresdevelopment and the socialactivities.

However, despite the goldboom, the government admitsthat the full potential of min-eral wealth has not beenforthcoming.

Performance& perspectives

During 2009, miningactivities continued a down-ward trend compared to anannual average growth rateof about 13% between 2000and 2007. The sector recordeda significant fall in growthfrom 2.5% in 2008 to an alltime low of 1.2% in 2009.The sector contribution to theGDP also declined from 3.4%in 2008 to 3.3% in 2009. Thiswas primarily due to a signif-icant reduction in the pricesof Tanzanite and diamondsin the world markets. Thissituation is mainly attributedto the global financial crisis.

Mining:Abundant mineral reserves but…

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However, the value ofmineral exports recorded a12% growth from US$ 995.5million in 2008 to US$ 1,114million in 2009, owing to anincrease in exports of gold andother minerals. The value ofgold exports was USD 1,076.1million, compared to USD932.4 largely due to a rise in

both gold prices in the worldmarket and export volumes.During the year to December2009, prices of gold increasedby 11.6% to USD 972.7 per troyounce. The export volumeincreased to 36.9 tonnesfrom 30.5 tonnes recorded in2008, partly on account ofthe commencement of exportby Buzwagi Gold Mine inJune 2009.

Tanzania expects a better2010 with gold leading themining sector’s revival on theback of higher demand whilediamonds and Tanzanite,driven mostly by demand fromthe luxury retail sector, will beslower to recover. Improvedglobal demand, better pricesand new mining investmentscombined with stability inthe regulatory environmentare expected to help growthin the mining sector.

The sector is forecast toreach a value of US$ 1,500million by 2012.

Mining potentialWidely recognized inter-

nationally for its highly pros-pective geological formations,Tanzania lies on a multi-billion US$ worth deposits

ranging from metallic min-eral deposits, precious metals,platinum group metals, gem-stones, industrial mineralsand fossil fuels.

Ongoing explorationsworks have resulted in dis-covery of resources in excessof 50 million ounces of gold,1.5 million tonnes of nickel,20,769 tonnes of uranium, 300million tonnes of coal and 50million carats of tanzanite,among others.

GoldGold has been one of the

main success stories of Tan-zania over the last 15 yearsand the country is now thefourth largest gold producerin Africa after South Africa,Ghana and Mali. This has beenachieved through a combi-nation of new discoveries andfurther exploration of some

historical prospects and minessince the mid nineties. Theprincipal advanced prospectsand operating mines arelocated in northern Tanzaniain the Lake Victoria Goldfieldswhich is now recognised as aworld-class gold province. Goldtargets have also been revealedin the Proterozoic rocks in theSouthwest of Tanzania.

Presently, gold is minedby world giant mining com-panies African Barrick Gold,AngloGold Ashanti and Res-olute Mining.

The Buzwagi mine startedoutput in May 2009, bringingthe number of large-scale goldmines in the country to six.The mine continues to rampup production and may helpTanzania regain its positionas the third-biggest goldproducer in Africa, this year.

New discoveries of Tanza-nia gold deposits could trans-form the country into thelargest producer of the pre-cious metal on the continent.

DiamondsTanzania has been a sig-

nificant diamond producerfor several decades, with thebulk of production coming

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from the Williamson DiamondMine at Mwadui where com-mercial production began in1940. Williamson DiamondMine is an operating openpit controlled/owned by PetraDiamonds Ltd (75%) andthe government of Tanzania

(25%). It one of the oldest con-tinuously operating diamondmine in the world. Over itslifetime it has produced over20 million carats of diamonds.

The mine saw a 20%increase in output to 101,071carats in the 2009/2010 finan-cial year, compared with the84,486 carats produced theyear before. An expansionplan, which was under wayand which would be imple-mented over the next threeyears to four years, wouldincrease throughput at themine to 10 million tonnes ayear, up from the current 2million tonnes a year. Theincreased tonnages wouldyield about 600,000 carats.

More than 200 otherkimberlites are known inTanzania of which, 20% arediamondiferous.

TanzaniteTanzanite, which is 1,000

times rarer than diamonds,is mined from the world’s onlyknown deposit, at a foot ofMount Kilimanjaro. Produc-tion by TanzaniteOne Ltd forthe year 2009 totalled 1.9

million carats from the pro-cessing of 38,154 tonnes atan average recovery of 50carats per tonne. The com-pany is targeting output of2.2 million carats for 2010.

Other gemstonesTanzania has a host of

other gemstones mined invarious parts of the country

by local as well as foreigncompanies which troopedinto the country from themid 1990s. These includeemerald, sapphire, amethyst,topaz, aquamarine, tourma-line, quartz, rhodelite andmany others.

It is worth noting that thegovernment has recentlydecided to ban the export ofrough gemstones and maxi-mize the local benefit relatedto the gemstone economy.The purpose behind thismove is to develop a cuttingand polishing industry inTanzania itself and boostlocal employment.


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Other Minerals & CoalMineral exploration efforts

are being made by the Pros-pecting Licence holders andit is expected that dependingon their viability, more minedevelopment projects will fol-low. Prominent among theseare the Kabanga nickel depositin Ngara, located north-westof Tanzania and presently atfeasibility stage. Anotherpromising prospect is theMibango Platinum locatedeast of Lake Tanganyika,which is currently under inten-sive exploration. Uraniumdeposits are also expected tobe mined from 2012. Simi-larly, a large coal project atMchuchuma south-west ofTanzania is to be developedfor power generation by theNational Development Cor-poration and other partners.Fifteen different firms haveexpressed interest in investingin the Tanzania coal mineof Mchuchuma.

Legal Framework / RecentDevelopments

A new Mineral Policy wasimplemented during 2009to replace the 1997 version.This Policy, whilst containingmany of the same objectivesas its predecessor seeks toredress the perceived lowcontribution of the miningsector to the country’s GDP.

The new Mineral Policyobjectives are predominantlyconcerned with promotingeconomic integration betweenthe mineral sector and othersectors of the economy, so asto maximize the contributionof the mineral sector to theeconomy. Other objectivesinclude a strengthening ofthe legal and regulatoryframework for the mineralsector to enhance the capacityfor monitoring and enforce-ment, promotion and facilita-

tion of mining related valueadded activities to increaseincome and employmentopportunities and strategicparticipation by the Govern-ment in viable mining projects.

On 23 April 2010 Tan-zania’s Parliament passedThe Mining Act 2010 (theAct). The Act has yet to begazetted but is expected tocome into force shortly.

The vision of the govern-ment of is to have a strong,vibrant, well-organised pri-vate sector led, large andsmall scale mining industryconducted in a safe and envi-ronmentally-sound mannerwhich contributes over 10% ofgross domestic product coupledwith a well developed gem-stone lapidary industry whilstproviding employment toTanzanians. With that visionas a backdrop, the intentionof the government is towithin the Act address chal-lenges that it has identifiedin relation to the miningsector in Tanzania; specifi-cally, low integration withother sectors of the economy,low contribution to the grossdomestic product comparedto the sector growth and lowcapacity of the government

to effectively regulate andadminister the sector.

The Act is more restrictivethan its predecessor and isconsistent with other recentlegislation which seeks toconcentrate a greater interestin the hands of Tanzaniannationals with increasedregulation in key sectorswhilst continuing to encour-age inward investment.

Some of the publiclyexpressed concerns were dueto the restrictions containedin the Initial Reading (such asreservation of mineral rightsand licenses for dealing inminerals being reserved toTanzanian citizens and corpo-rate bodies under the exclu-sive control of Tanzaniancitizens) which were subse-quently relaxed by the provi-sions of the Amendments.However, the Act does mate-rially increase the levels ofroyalty payable to the gov-ernment and places restric-tions on non-Tanzanianparticipation in small scalemining, dealing in mineralsand gemstone operations.

The Act will introducesignificant changes to min-ing policy, in particular thefollowing:


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• Mineral rights and licensesfor dealing in minerals willbe reserved exclusively toTanzanian citizens and cor-porate bodies under the exclu-sive control of Tanzaniancitizens. The restrictions willapply only to “primary mininglicences”, which are licenceswith respect to small scalemining operations involvingcapital expenditure of lessthan US $100,000. Agree-ments/licences currently inforce with non Tanzaniancontrolled mining companiesremain unchanged.

• Licences to mine for gem-stones are only to be grantedto Tanzanians, regardlessof the size of the operation,except where the Ministerdetermines that the develop-ment is most likely to requirespecialised skills, technologyor a high level of investmentin which case the licence maybe granted to an applicant solong as the non-Tanzanianparticipation element is nomore than 50%. Gemstonesidentified by the new lawinclude diamonds, tanzan-ite, emerald, ruby, sapphire,turquoise and topaz.

• The Act gives the Ministerpower to prescribe a standardmodel form Mining Develop-ment Agreement for all proj-ects exceeding US $100m.

• The Act gives the Ministerpower to make regulationsauthorising the government

to participate in the conductand financing of miningoperations and give thegovernment a free carriedinterest, the level of which isnot set by statute but ratherby negotiation.

• It amends the method bywhich royalties are calculatedso that they will in future belevied on the gross value ofminerals, rather than thepresent method of calculationwhich refers to the net value.

• It increases the rates ofroyalties levied on the grossvalue of minerals as follows:Uranium – 5%; gemstone

and diamond – 5%; metallicminerals (copper, gold, silver,and platinum group) – 4%;gem – 1%; industrial min-erals – 3%.

• Although some writers haveasserted that the Act imposesan obligation for miningcompanies to list on the Dares Salaam Stock Exchange,whilst the Act does refer tothe Minister having the rightto make regulations relatingto a public offering, provi-sions for doing so are notcontained within the Actitself. (Section 109).

• The Act requires a greaterdegree of disclosure by theholders of mineral rights inrespect of reports, recordsand general information.

Arguably the changesto be introduced by the Actwill consequentially affectTanzanian’s ability to attractforeign direct investment andindeed some of the provisionsmay reduce its competitive-ness. However, if sector par-ticipants take a holistic viewas to the mining investmentparameters (including byreference to not only royaltieslevied but also income taxrates, withholding tax rates,


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capital deduction allowances,the right to carry forward lossesand import/custom duties) asagainst regional competitors,Tanzania is relatively compa-rable in its investment regime.

Challenges• Lack of a good infrastruc-tural system that discouragespotential investment in theindustry;• Lack of integration withother sectors of the economy;• Slow development of smallscale mining;• Weak government capacityto administer environmentalissues and other parts of themining sector;• Low levels of value-add forminerals and the significantlag in mining sector contri-

bution to state revenue andGDP, when compared to thesector’s steep growth and itshigh contribution to exportrevenues.

ConclusionThe Tanzania government

rightly recognizes the potentialof the mining industry toserve as the engine of growthfor the entire economy. Thatis why it has been receptiveto private sector participa-tion in unlocking the miningpotential in the belief thatthe sector will play a hugerole in attaining the growthtargets set out in Tanzania’sVision 2025. However, thecontribution of the miningsector to state revenue and GDPhas not been satisfactory. It

is hoped that the Tanzania’snew regulatory frameworkwill bring a win-win situationfor both mining companiesand the government whileproviding investors with“direction and assurance”.

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