Tanzania Mining – Kongamano la Madini?

Unlocking African Mining Investment: “Stability, Security, and Supply”

Unlocking African Mining Investment: “Stability, Security, and Supply” is the theme for the 2023 Investing in African Mining Indaba (“Indaba”) in Cape Town, which runs from today through to Thursday.

This annual event is the largest such event solely focussed on mining in Africa and brings together investors, financiers, mining companies (junior, mid-tier and major) as well as Government representatives from various African mining jurisdictions. With over 6,500 mining experts descending on Cape Town for the event, accommodation is almost as in short supply as in Moshi for the Kili marathon weekend (last weekend in February)!

Mining’s macroeconomic contribution to Tanzania is increasingly better understood – especially given its role during the pandemic in buttressing foreign exchange earnings. Indeed, even with tourism’s recovery, export receipts from gold still exceed tourism – $2.84bn and $2.56bn respectively for the 12 months to December 2022 (according to the Bank of Tanzania Monthly Economic Review). Yet these buoyant mining revenues are primarily generated by gold mines that opened over 20 years ago – namely, Geita (2000), Bulyanhulu (2001) and North Mara (2002).

Tanzania’s desire is to fast track the development of new mines (including nickel (Kabanga), gold (Nyanzaga), rare earths (Ngualla) and graphite (Mahenge and others)). Against this background, this year’s Indaba is of interest in understanding the broader current dynamics for the mining industry particularly so given various sessions on issues pertinent to Tanzania including on energy transition and related demand for “green minerals” (including lithium, cobalt, nickel, manganese and rare earths), as well as on prospects for the global gold market.

More generally, the opportunity at Indaba for stakeholders to meet with Government representatives can be instrumental in building mutual trust and confidence. Indeed, the question of confidence underlies some of the Indaba sessions including one on taxation titled “balancing the host countries revenue needs and investment climate” and another titled “unlocking the future of African mining through balanced contracts”.

For prospective investors looking to develop mines in Tanzania the biggest immediate tax concern is the so-called “change in control” provision (Section 56 of the Income Tax Act 2004), and indeed this issue was raised at the recent national tax dialogue (“Kongamano la Kodi”). The concern arises because of the potential for a deemed disposal for income tax purposes when new investment dilutes underlying ownership of a Tanzanian company by more than 50 per cent. In such a case, the company is deemed to realise its assets and liabilities at market value resulting in potential taxation on the new funds raised – something that clearly would discourage investment. So, to enable mining projects to go to capital markets to raise funds required to move forward with development, this issue needs urgent resolution.

Once in development, the timeliness of VAT refunds will be high on the agenda. When previous large scale mines were developed, a “special relief” process enabled most local supplies to be made VAT free, but such a relief no longer exists as VAT relief for the extractive sector is now restricted to VAT on imports. One solution could be for automatic VAT refunds (following the filing of a refund claim) during the development phase of large scale mines, with TRA’s audit of the refund taking place post refund rather than before.

Once in production, taxes generated will include taxes on revenues (royalty; inspection fee; service fee) and on profits pre-tax (corporate income tax) and post-tax (government free carry; dividend withholding tax). Whereas concerns historically were as to an unduly generous overall tax regime, the concern now is that the pendulum may have now swung too far the other way.

25 years ago (on 11 and 12 February 1998, so more or less to the day) then President Mkapa hosted a conference in Arusha with mining executives titled “Mining in Tanzania: A New Engine Of Growth – a Dialogue with Chief Executives of Mining Companies”. I was privileged to present at this event, which was one of the initiatives taken at the time to encourage major mining investors to take the plunge into Tanzania. Today we continue to reap the significant benefits arising from the reforms at that time that unleashed the investment into large scale mines. Having taken part a few weeks ago in the “Kongamano la Kodi”, I do wonder whether there is a need for a sector specific “Kongamano la Madini” (mining conference) with international mining companies so as to better understand and resolve any roadblocks standing in the way of expeditious exploration and development. And, who knows, if timed around the end of February, and again held in Arusha, participants could easily combine this with a trip to Moshi for the Kili marathon!