Tanzania’s Mining Sector Sees Higher Fees, Yet Continued Growth

A mid-tier market in resource-rich Tanzania struggles to emerge.

Amelia Salutz

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Regarded as one of Africa’s leading mining jurisdictions, as it vies closely with Mali for the title of Africa’s third largest gold producer, Tanzania holds an enviable spot in the East African region as prime mining territory. Yet, while neighbors Kenya, Uganda and Rwanda aim to lift their mineral sectors off the ground, Tanzania’s mineral future hangs more uncertainly in the balance. Tanzania boasts a lengthier mining resumé than its regional counterparts due to a revamping of the country’s investment act in 1997, which reinvigorated the sector following a period of latency induced by socialism. In spite of its head start, however, new government policies for the industry have raised concerns about the industry’s staying power.

Endowed with diverse mineral resources, Tanzania‘s potential has been developed by comparatively high levels of exploration for the region. This has, in turn, attracted investment from majors, but as surrounding countries develop their geological databases, regional competition is set to grow.

The way forward for the industry lies in commodity diversification and an improved climate for greenfield developers and smaller-scale players. Tanzania, while host to the massive gold mines of African Barrick Gold (ABG) and AngloGold Ashanti, lacks a vibrant market for junior companies. The current mining downturn has shown just how vulnerable the local industry is to market dynamics, as its mainstays struggle with large overheads amidst economic woes.

What has the potential to flourish, even as the price of gold hovers around $1300, are more modestly-scaled operations run by smaller players. Evidence to attest to the feasibility of such projects is mounting, with the startup of operations for Shanta Gold’s New Luika mine, and the continued development of projects such as Tanzoz Minerals’ Lake Victoria project.

Yet fostering the growth of the exploration sector, and the evolution of juniors into mid-tier producers, requires careful calibrating of Tanzania’s regulatory framework. With companies like ABG slashing its exploration budget for the year, there is little reason to believe that juniors would not follow suit, if not in a more extreme degree. If mining’s share in national GDP is to increase, as the government has vowed it should, more exploration-friendly policies are needed to ensure a robust pipeline of projects. ABG’s Lake Victoria gold mines and AngloGold’s Geita are maturing, and time is of the essence to encourage smaller operations to come online.

With a new minister of energy and minerals in place as of 2012, however, the government is trying on new policies for size, to varying degrees of success. In a move widely disputed by the private sector, the government issued rent increases on prospecting licenses at the start of the year, more than tripling application fees. Contrary to the goal of increasing government revenue from the sector, the increase in rents is driving more explorers to relinquish the vaster majority of their license holdings.

Yet mining was identified as a pillar of Tanzania’s Vision 2025 and the government is set on pursuing further policies to increase government profits. “Mining’s contribution to GDP has risen to 3.5% in 2012-2013 from 2.8% last year because the revenue collected increased. Mining is also contributing 50% to foreign exchange and we are looking to raise the bar up to 10% contribution to GDP by 2025 as the new mines start paying corporate taxes,” said Stephen Masele, deputy minister of minerals at Tanzania’s Ministry of Energy and Minerals. “We have also raised revenue collection to a surplus of 30 billion TZS after changing the royalty rate, which was previously 3% of the net profit, to 4% of the gross value, according to the Mining Act of 2010.”

For its part, the government is focused on investing in the assets of the state-mining corporation, STAMICO. Key projects for STAMICO include the Buhemba gold project near North Mara and a joint venture project, Buckreef, in Geita. In an effort to build up primary data available to investors, the government is also investing in the Geological Survey of Tanzania’s technological capabilities. Following an airborne survey across the country, the Geological Survey is carrying out mapping in new areas in the central part of the country, including the areas of Singida and Dodoma.

Neither the private sector nor the government is limiting their focus to just gold, however. Beyond its chief commodity, Tanzania has seen significant recent developments in the advancement of the country’s nickel and uranium deposits. The Kabanga nickel project, a joint venture between Barrick Gold and Xstrata located in the northwest region, is inching closer to starting operations with an estimated measured and indicated resource of 37.2 million mt grading 2.63% nickel. Both African Eagle Resources’ Dutwa project, as well as IMX Resources’ Ntaka Hill project, are further examples of nickel projects showing strong potential.

Granted the first uranium mining license in the country, Mantra Resources’ Mkuju River project, located in southern Tanzania, is looking to begin commissioning pending financing. Once this hurdle can be overcome in spite of the weak uranium price, Mkuju River will become the first uranium mine in Tanzania’s history and pave a way for further uranium development. The uranium sector is one that the ministry has been vocal in supporting and has highlighted as a strategic area for growth as the world markets continue to crave clean, cheap power.

Strides are also being made in the development of the Rukwa coal mine project, which could stand to generate 300-350 MW as early as 2017, and at Peak Resources’ Ngualla high-grade rare earth project, which is aiming to complete its pre-feasibility study by the year’s end.

While increased rents have hit the industry at a difficult time, the enduring potential of Tanzania speaks for itself and has enabled a handful of players to keep up with their exploration activities. As more regional economies target their natural resource sectors for growth, the jurisdiction will need concerted efforts on the parts of the government and private sector to stay competitive. With a long mining history on its side and strong international presence already on the ground, the components are already in place. It is a question for Tanzania of staying ahead of the game.

This article was produced as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.

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