Foreign companies operating in Tanzania’s mining sector have started to feel the impact of a new controversial law that forces them to cede 50% of equity to the State.
Aim-listed TanzaniteOne has become the first company to fall victim to the new law after it was forced to sign an agreement with the Tanzania government under which it has to surrender a 50% stake in its operations, after a protracted standoff.
Tanzania’s Minister of Energy and Minerals, Professor Sospeter Muhongo, reveals that a deal brokered between government and TanzaniteOne will result in TanzaniteOne transferring a 50% stake to the publicly owned State Mining Corporation (Stamico).
“We have reached an agreement . . . that gives government a 50% stake and the remaining shares will be in the hands of TanzaniteOne,” he says.
TanzaniteOne is the largest tanzanite mining company in the world.
The deal brings to a close a three-year dispute that was ignited by Tanzania’s decision to enact a new mining law aimed at wresting control of the mining sector from foreigners to ensure Tanzanians benefit more.
The quest by Tanzania to have control over the mining sector culminated in the passing of the new Mining Act of 2010, which came into effect last year.
Besides other things, the Act requires foreign-owned companies to cede 50% of their equity to the State, on pain of losing their mining permits.
In opposing the new shareholding requirement, TanzaniteOne had maintained it could not dispossess its investors of their shares but offered to offload 20% through an initial public offer (IPO) on the Dar es Salaam Stock Exchange.
In retaliation, the Tanzania government threatened not to renew the company’s mining licence, which expired in August last year.
TanzaniteOne is a subsidiary of gemstone producer and developer Richland Resources, which is listed on the LSE’s Aim.
Richland CEO Bernard Olivier says, although the company has signed a letter of intent to relinquish the shareholding to the government of Tanzania, the parties intend to enter into a binding agreement spelling out how operations will be undertaken and how costs and revenue will be shared.
“We are pleased to have reached mutually acceptable terms, in principle, for a partnership with the government of Tanzania that recognises the company’s investment under its former licence is in full compliance with the local participation requirement of the 2010 Mining Act and provides a com-mercially acceptable framework for the continuation of its mining operations in Tanzania.”
He adds that the parties are in the process of determining “a fair and reasonable sum” to be paid by Stamico to TanzaniteOne in exchange for a 50% stake in the company. The compensation will either be paid in full or using 40% of the yearly profit due to it from the mining operations.
The deal, however, excludes revenue and profits that TanzaniteOne will earn from activities other than mining and also stipulates that all current assets, including build- ings, machinery, plant and equipment, will remain under the ownership of TanzaniteOne.
In 2011, TanzaniteOne produced 2.4-million carats, raking in $24-million.