Acacia initiates arbitration with Tanzania as fallout continues

John Magufuli, President, Tanzania

ACACIA Mining has initiated arbitration proceedings with the Tanzanian government but added that it welcomed a separate line of talks between the state and its 64% shareholder, Barrick Gold Corporation, the Canadian firm.

The UK-listed company is embroiled in a dispute with the Tanzanian government which claims the company has under-estimated the value of concentrate exports. As a result,  concentrate has been impounded at the Dar-es-Salaam port since about April, a position that is threatening the viability of Bulyanhulu and Buzwagi, the two Acacia mines from which the concentrate was produced.

The arbitration between Bulyanhulu Gold Mine, the owner of the Bulyanhulu mine, and Pangea Minerals, which owns Buzwagi was in line with a dispute resolution process agreed with the Tanzanian government in Mineral Development Agreements with the subsidiaries.

“The Government of Tanzania has informed Barrick Gold Corporation that at this stage it wishes to continue their dialogue, and therefore Acacia will not participate directly in these discussions when they commence,” it said. Any agreements reached between the parties would also have to receive the support of Acacia, it said.

“The serving of the notices at this time is necessary to protect the company, but this notwithstanding, Acacia remains of the view that a negotiated resolution is the preference outcome to the current disputes,” it said. It would continue to “… work to achieve this”.

Production at Acacia’s three mines, which also includes North Mara which is unaffected by the ban on concentrate exports was continuing as usual, it said.

Acacia also said it would provide an update on proposed new legislation in Tanzania once the legislative process had been completed. This follows a report by Reuters on July 3 that the Tanzanian government had passed bills which could result in the re-negotiation of project development agreements between the government and junior mining companies.

A host of mining companies operating in Tanzania requested share trading suspensions on July 3 following the emergence of the terms of proposed legislation last week.

The legislation suggested future rehabilitation agreements would be time-bound and make provision for periodic renegotiation, and that a commitment to beneficiation in Tanzania should be made by the investor.

Procurement policies that preferred Tanzanian goods and services, a proposed 16% free-carry in the equity of the investing companies, and a right to acquire up to 50% of a foreign investor were also part of the proposals. It is unclear from the Tanzanian statement on Monday evening if some or all of these elements have actually passed into law.

The Tanzanian government also floated a new Finance Act that would impose a 1% clearing fee on the value of minerals exported from the country as of July 1.

The legislation may affect Johannesburg-listed Kibo Mining which is developing a $17m coal mine to supply an independent power producer proposing to generate 300MW in electricity, the Mbeya Coal-to-Power Project (MCCP).

On June 14, Louis Coetzee, CEO of Kibo Mining, reported progress in discussions with Tanzanian authorities after a period of disruption during which time Tanzania’s President, John Magufuli, fired the country’s mines minister as well as the chief of the state-owned mineral audit agency.

“Over the past two weeks we have seen strong and committed engagement from all the Tanzanian stakeholders towards moving the MCPP development process forward and the progress meetings on 12 and 13 June underscored this,” said Coetzee at that time. “The proposed changes would contribute to a robust mining industry in Tanzania,” he added.

Kibo Mining said in an announcement this morning that it noted the submission of proposed legislation to the Tanzanian Parliament which recommended “material changes to the legal framework” regarding natural resources in the country.

“Kibo is currently reviewing the proposed legislation and will continue to monitor the situation closely,” it said. “The company will provide an update to the market when appropriate.” Shares in Kibo Mining are down about a fifth in the last 30 days while Acacia shares have been unaffected in the last 30 days, but down 47% since April.

On Monday, Kibaran Resources, Magnus Resources, Orecorp and Volt Resources felt compelled to apply for a trading half whilst another – Cradle Resources – saw a takeover by Tremont Investments by scheme or arrangement fall through as a result of the regulatory uncertainty in Tanzania.

“The good news is that the three new laws likely to be passed this week – two have been passed already – at least sets up a platform for negotiation which should lead to some resolution for companies in limbo, like Acacia which is currently barred from exporting concentrates,” said Investec Securities.