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Legislation not expected to significantly impact on niobium mine

IN-COUNTRY VALUE-ADDITION Cradle Resources' proposed Panda Hill project will upgrade its niobium concentrate to ferroniobium on site, which is in line with new Tanzanian legislation on local beneficiation

IN THE CLEAR Cradle Resources does not have an mine development agreement with the government for the Panda Hill niobium project

13th October 2017

     

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A significant proportion of the much- discussed new legislation that has been implemented in Tanzania is not expected to impact on ASX-listed Cradle Resources or its jointly owned niobium mining company, Panda Hill Tanzania (PHT), says Cradle Resources.

The new legislation is contained in three bills passed by the Tanzanian Parliament on July 3 and 4, with copies of the new legislation available in full on the websites of the Tanzanian Parliament and Cradle Resources.

The new legislation mainly targets the mining and export of precious metals and metal concentrates from existing operations in Tanzania that have been the focus of recent reviews conducted by Presidential committees, explains the company.

The new legislation proposes to allow the Tanzanian government to renegotiate all existing mine development agreements (MDAs), that mandatory beneficiation be undertaken within the country and that no licences or permits be issued for the exportation of raw minerals and mineral concentrates.

Cradle Resources owns 50% of PHT, which owns 100% of the Panda Hill niobium project, in Tanzania. PHT does not have an MDA with the government for the project, as it consists of three standard mining licences which do not require MDAs, as opposed to the special mining licences required by larger projects that are eligible for concessional tax arrangements through MDAs.

In April last year, Cradle Resources released a definitive feasibility study (DFS) on Panda Hill, based on the upgrading of its niobium concentrate to ferroniobium on site. Ferroniobium is a final product that is sold directly to steel mills, with no further upgrading required.

The company points out that the new legislation proposes that, in any mining operation (under a mining licence or special mining licence), government shall have no less than 16% nondilutable free-carried interest in the capital of the mining company. Cradle Resources’ DFS did not factor in any government free-carried interest. It is expected that the debt funding costs of a new project will be recoverable under the free-carried interest; however, this needs to be clarified.

The new legislation proposes that government be entitled to acquire, in total, up to 50% of the shares of the mining company, commensurate with the quantified value of tax incentives incurred by government in favour of the mining company. Cradle Resources explains that government has not incurred any special tax incentives in favour of PHT, nor is PHT seeking that government incur any in favour of PHT under an MDA.

“The new legislation proposes an increase in the royalty rate for certain minerals, though not for other minerals, which we understand includes niobium. In addition, under the terms of the new Finance Act, which has already been passed by Parliament, a 1% clearing fee has been added on the value of all minerals exported from Tanzania from July 1,” PHT explains.

The company’s DFS did not factor in a 1% clearing fee, although the impact of this fee is expected to be relatively minor. Cradle Resources points out that the new legislation proposes mandatory beneficiation of minerals within Tanzania and that no raw resources shall be exported for beneficiation outside Tanzania.

“It does not appear that this would apply to PHT, as the proposed project will upgrade its niobium concentrate to ferroniobium on site. The new legislation proposes that any earnings from mineral developments must be retained in the banks and financial institutions established in Tanzania. The new legislation does not restrict repatriation of profits in accordance with the laws of Tanzania,” Cradle Resources says.

The new legislation proposes that any disputes that relate to the extraction, exploitation, acquisition or use of natural wealth and resources must be adjudicated in Tanzania in accordance with the laws of the country. It also proposes that mineral rights holders must participate in the growth of the Tanzanian economy by investing a portion of the returns from mining, and contains further provisions on local content, corporate social responsibility and the requirement for mineral rights holders to make an integrity pledge.

“PHT already has significant plans and commitments in this area. As a result, Cradle Resources does not anticipate any issues in meeting such requirements.”

The new legislation proposes that government may renegotiate existing arrangements or agreements relating to the extraction, exploitation and use of natural resources. PHT is not a party to any such agreements with government, so this is not expected to apply to PHT.

“[However], there remains significant uncertainty regarding the operation of the new legislation. The 16% minimum government shareholding and the 1% clearing fee appear to be applicable to PHT. Whether there is any other impact requires further advice and clarification. At this stage, Cradle Resources believes other impacts may be minor or manageable.”

Cradle Resources states that PHT will work with the Tanzanian government to clarify the position and enable appropriate adjustments to the DFS and the Panda Hill development plans, and will provide further updates as appropriate.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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