What Next?

Published 5 years ago

In a span of just two weeks, both Kenya and Tanzania made radical policy decisions that baffled investors in East Africa’s nascent mining sector.

Firstly, Kenya’s Parliament passed new operating rules that require all mining companies licensed in the past year to cede a portion of their business to the government for free. Companies awarded the mining licences much earlier, however, were exempted from the rules that handed the government the right to a 10% stake in all mining operations licenced after May 2016.

“The State right to a free equity participation shall not apply to any right that has been granted to a holder to mine or exploit a mineral before the coming into force of the Mining Act,” the Mining (State Participation) Regulations 2017 reads in part.

Furthermore, the law gives the Kenyan government the option of purchasing additional interest or share capital in the holder of the licence but only with the agreement of the licensee.

“Any additional interest that the State may acquire shall be agreed with the holder of the mining licence and the purchase shall be at a fair market value,” the rules further state.

Separately, in neighboring Tanzania, the National Assembly unanimously passed amended mining and tax laws to make it mandatory for the state to own at least 16% of mining projects, while also raising export royalties.

This came back-to-back with the passage of two other laws allowing Tanzania to cancel and renegotiate contracts for natural resources like gas or minerals, and removing the right to international arbitration.

“In addition to the free carried interest shares, the government shall be entitled to acquire, in total, up to 50 percent of the shares of the mining company commensurate with the total tax expenditures incurred by the government in favour of the mining company,” the new law stated in part.

The law also raises Tanzania’s royalties from gold, copper, silver and platinum exports to 6% from 4%. It further raises the royalty on uranium exports from 5% to 6%. The law also gives sweeping powers to the government to reject a company’s valuation in instances where it feels that the price is too low.

These radical decisions by Kenya and Tanzania have triggered anxiety among investors in the region’s mining industry amid fear of the unknown.

“Although they may be targeted at maximizing returns from the sector, the policy decisions have no doubt caused concern for many investors, both existing and potential new ones. Every investor out there is certainly asking what next,” says Peterson Njom, an investment analyst.

“Mining is a long-term venture that needs predictability in both the part of the government and the investor. If things suddenly change then the relationship will hurt one party,” he adds.

In Tanzania, the impact of the policy change has already borne full-blown anxiety among mining companies, especially given the ongoing feud between the government and the country’s largest miner Acacia.

Australia’s OreCorp Limited, which has operations in Tanzania’s Nyanzaga project, says it will review the subsidiary part of the regulations once they are published to gauge the impact they would have on the firm’s operations.

“The regulations, which will assist the implementation of the proposed legislation, are not yet available. The company will review the regulations once they are available,” says Matthew Yates, Managing Director of OreCorp.

The feud between Tanzania and Acacia has caught the world’s attention, rekindling debate on the frosty relation between governments and mining firms in Africa. The firm, majority owned by Barrick Gold, is now pushing for arbitration on behalf of companies that own its Bulyanhulu and Buzwagi mines, which have been hit by an export ban.

In an ongoing court case, Tanzania accuses Acacia of tax evasion in 2016 and operating illegally – accusations the miner has denied.

Analysts say the policy decisions by Kenya and Tanzania, and the feud between Acacia and President John Magufuli’s government, could shape the region’s long-term mining investment profile.

“Both Kenya and Tanzania should work to reassure investors that their respective policy changes are well meaning. Investors need predictability so that they can plan their operations and financing,” says Njom. – Written by Allan Akombo

Related Topics: #Acacia, #Barrick Gold, #Kenya, #Mining, #OreCorp, #Tanzania.