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Tanzania: Mining’s steady growth continues

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Dar Es Salaam in Tanzania. The country is attracting new investment despite a number of challenges. Image credit: Leon Louw for WhyAfrica

Tanzania: Mining’s steady growth continues 

Following a period of political and regulatory uncertainty under President Magufuli (2015 – March 2021), Tanzania is regaining its status as a favourable mining investment jurisdiction. 

By Anna Rabin

Whilst the long-term fundamentals of what makes Tanzania an attractive mining market, namely safety, security, and strategic location, didn’t change under President Magufuli, the political and regulatory uncertainty that became a hallmark of President Magufuli’s time in office deterred many from investing in what is a capital intensive and long-term sector.

President Samia Suluhu (March 2021 – present) has worked to repair Tanzania’s reputation on the global stage, ensuring that the country is perceived as open for business in all sectors, including the potentially lucrative extractives sector.

However, despite these efforts, Tanzania remains a challenging country in which to do business.

The mining sector must engage with dozens of regulators and ministries, many of which work in silos, and where regulations can be interpreted one way by the central government in Dodoma and differently at the regional or district levels.

Despite these ongoing challenges, optimism in the sector is seeing numerous goods and service providers re-visit Tanzania as a potential market. Additional companies are picking up Prospecting Licenses (PL) and, critically, more projects are inching towards construction and development.

Exploration to construction (Tanzania: Mining’s steady growth continues)

Whilst the legislative and regulatory changes of President Magufuli impacted the entire sector, perhaps the most notable impact was that the changes, that included a government free carried interest, removal of stabilisation clauses and changes in royalty rates, meant it was near impossible for companies with a Mining License (ML) or even a Special Mining License (SML) – where the capex of a project is in excess of USD100-million – to attract debt funding.

This has resulted in a backlog of projects, a handful of them falling into the SML category, stalling pre-construction. This sweet spot, if managed successfully by both government and the exploration companies, could see a disproportionate number of mines move into construction in the next 12-24 months.

Even more appealing perhaps, is the diversification of these projects, ranging from more traditional gold, coal and copper projects to nickel, rare earth, graphite, and heavy mineral sands.

Projects with a SML that are seeking to move into construction include ASX-listed OreCorp’s Nyanzaga Gold Project, Black Rock Mining’s Mahenge Graphite Project, the Kabanga Nickel project, which has received investment from global giant BHP, and Cradle Resources’ Panda Hill Niobium Project, amongst others.

Unlocking these projects will bring significant benefits to the government (that has a free carried interest stake in each project) as well as the companies, the surrounding communities, and the entire value chain that is required to support mines of this size.

Furthermore, beneath the SML holders, there are dozens of companies with MLs trying to raise funding to move into construction that represent geologically and geographically diverse opportunities for the country.

Current regulatory hurdles (Tanzania: Mining’s steady growth continues)

The ability to entice more companies to view Tanzania as an attractive exploration jurisdiction and entice financial institutions to look seriously at projects in Tanzania, will continue to be driven to a large extent by the country’s policymaking.

Key regulatory issues that the sector is currently trying to navigate are the Mining (Local Content) Regulations 2018 and subsequent amendments and The Mining (State Participation) Regulations 2022.

The country’s local content regulations aim to ensure that as much of the mining value chain as possible is conducted by companies that have at least 20% Tanzanian ownership (either held by Tanzanian citizens or via a joint venture with a Tanzanian owned company).

Companies must also demonstrate that they are conducting training initiatives, transferring technology into Tanzania, replacing expatriate workers with Tanzanians and that their supply chain gives preference to goods and services available in Tanzania, where possible.

Recent amendments to the regulation indicate that the government – via the Ministry of Minerals and the Mining Commission – is seeking to broaden and deepen which goods and services are required to comply with the local content regulations.

Whilst many companies have been successful in complying, a number of large companies continue to struggle to find an appropriate local partner. Procurement guidelines outlined in the regulations continue to cause challenges for the sector, specifically the lengthy approvals process required every time a company wants to sign a purchase order in excess of USD100,000.

These burdensome requirements remain a frustration for the sector, particularly as purchases can often be unplanned or just-in-time solutions.

Additionally, the enactment of The Mining (State Participation) Regulations 2022 on September the 23rd, 2022 are designed to provide further clarity on the government’s free carried interest in all mining projects – a concept that was enshrined in law in 2017 but was lacking transparency on how the government’s shareholding would work in practice.

The passing of the regulations, that revoke The Mining (State Participation) Regulations 2020, raises the question of what happens to the agreements that pre-date the 2022 regulations. At the time of writing, it remains unclear what the answer is. However, if companies are forced to amend their agreements, questions around contract sanctity and policy predictability will, once again, be raised within the sector.

Nevertheless, the change in administration, the geological opportunities and the country’s continued commitment to see mining contribute to 10% of GDP by 2025, indicate that the optimism surrounding Tanzania’s mining sector that steadily grew throughout 2022, is likely to continue into 2023.

Anna Rabin is the Managing Director of Above Ground Advisory (AGA). 

AGA advises prospective and current investors in the mining and oil and gas sectors. AGA works closely with clients to help them understand market dynamics, assess opportunities and navigate in-country challenges. AGA’s advice is tailored to meet clients’ commercial objectives and risk appetite. 

Tanzania: Mining’s steady growth continues 

WhyAfrica will visit Tanzania next year as part of its annual Road Trip through SA, Zimbabwe, Zambia, DRC, Malawi, Tanzania and Kenya.

WhyAfrica reports about, and publishes newsletters, magazines and research reports about natural resources and the primary sectors of African economies, and the infrastructure, equipment and engineering methods needed to extract and utilise these resources in an efficient, responsible, sustainable, ethic and environmentally friendly way, so that it will benefit the people of Africa.

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The company will undertake its annual road trip through South Africa, Zimbabwe, Zambia, the DRC, Malawi, Tanzania and Kenya in 2023. If you are interested in sponsorship or advertising opportunities, please contact me at leon@whyafrica.co.za. We have a wide range of different packages and combo deals to give your company the greatest exposure to a rapidly growing, African readership.  

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Tanzania: Mining’s steady growth continues

 

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AgricultureEnvironmental Management & Climate ChangeEnergyESGInfrastructureMiningPolitical EconomyTourism and ConservationWater Management