April 28, 2010 / 6:23 PM / 10 years ago

Investors reject Tanzania's "distorted" mining law

DAR ES SALAAM (Reuters) - Mining companies on Wednesday rejected a new law in Tanzania that raises royalties on minerals and prohibits foreign companies from gemstone mining, saying it would further erode investor confidence.

Mine workers is seend underground in Modderfontein east mine, outside Johannesburg, February 3, 2009. REUTERS/Siphiwe Sibeko

In a joint statement issued through the Tanzania Chamber of Minerals and Energy, investors described the legislation as “distorted,” saying it would curtail future mining projects in east Africa’s second biggest economy.

“(The bill) ... will only serve to hinder further growth of the mining sector as existing investors resort to curtailing existing and expansion projects and is bound to scare potential investors who will look elsewhere to invest,” said the chamber.

The Tanzania Chamber of Minerals and Energy represents the interests of international and local investors in the sector.

Mining companies said they hoped to convince the government to amend the new law before it receives presidential assent, as it would have “serious repercussions” on the industry.

Tanzania is Africa’s third largest gold producer after South Africa and Ghana, but also has reserves of uranium, nickel and coal. Gold exports alone earned it $1.076 billion in 2009, up from $932.4 million the previous year.

The Mining Act 2010 passed by parliament on April 23 increases the royalties paid on minerals such as gold to 4 percent from 3 percent and requires mining companies to list on the Dar es Salaam Stock Exchange.

It also says the Tanzanian government will own a stake in future mining projects and the country will no longer issue gemstone mining licences to foreign firms.

“The Bill fails to appreciate that Tanzania’s desire to become the preferred destination for mineral exploration and investments demands that it becomes significantly competitive vis-a-vis other countries in attracting FDI into the mining and all other sectors,” the chamber said.


Tanzanian Deputy Minister for Energy and Minerals, Adam Kighoma Ali Malima, said the new legislation was aimed at ensuring Tanzanians benefited from the mining sector.

“This law was not enacted simply with the aim of pleasing investors ... it was passed by parliament last week with the goal of safeguarding the interests of Tanzanians in the country’s mining activities,” he told Reuters by phone.

He said the chamber had been involved in the dialogue about the new law for more than a year before it was passed.

“I consider statements by the chamber of minerals that the new mining law is distorted are outright irresponsible. The problem is you can’t have everything, they are almost behaving like a spoilt child,” he said.

African Barrick Gold has four gold mines in Tanzania while Australia’s third largest gold miner, Resolute Mining and South Africa’s Anglogold Ashanti also have gold operations there.

British mining company African Eagle is raising funds for its nickel project in Tanzania.

The chamber aso said the law did not nail down fiscal and regulatory frameworks for the sector, thus “further eroding investor confidence in making long-term investment decisions.”

They said that while the law was designed to clear up the imbalances and uncertainties of the past, it had just created “more imbalances, uncertainty, insecurity and instability to both existing and prospecting investors.”

Gemstones identified by the new law include diamonds, tanzanite, emerald, ruby, sapphire, turquoise and topaz. The chamber said Tanzanians already dominated the sub-sector and the law would just deny it meaningful investment and modernisation.

Government officials said agreements with AIM-listed miner Petra Diamonds, which owns a 75 percent stake in Tanzania’s Williamson diamond mine, and gemstone producer Tanzanite One, will not be affected by the new rules.

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