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Tanzania mining sees uptake in reinvestment

RENEWED INTEREST Mining companies have worked hard to lower their all-in production costs, while companies appear willing to reinvest in exploration and development in Tanzania

Photo by Matt Mawson

UNLIKELY FUTURE A repeat of the preferential agreements signed in the early 2000s is unlikely to occur in the Tanzanian mining industry

Photo by Bloomberg

GOLD CONTRIBUTION Tanzania’s six industrial gold mines still generate roughly a third of all export receipts

Photo by Bloomberg

10th October 2014

By: Mia Breytenbach

Creamer Media Deputy Editor: Features

  

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Tanzania’s mining sector has suffered in recent years, owing to “an unpleasant cocktail” of escalating production costs, a subdued gold price, fiscal and regulatory uncertainty, and power shortages in the country’s north-west, says strategy and communications consultancy africapractice Tanzania country manager Ashley Elliot.

Nevertheless, he tells Mining Weekly that mining companies in Tanzania have worked hard to lower their all-in production costs and adds that, after a period of rapid restructuring, companies are adapting to the ‘new normal’.

“The clearest sign of nascent recovery in the sector – or at least of stabilisation after the recent period of contraction – is the pick-up in business we’re seeing for drilling contractors and mining services,” he adds.

Minerals Interests
Beyond the crucial gold sector, Elliot believes exploration and project development activity is increasing in, for example, Tanzania’s rare earths, cobalt, zinc, coal and uranium sectors.

However, he notes it will be some time before these minerals are exploited, as “there are no quick fixes to the industry’s biggest challenges, which include lack of transportation infrastructure and electricity shortages that force some miners to rely on diesel generators”.

Elliot further notes that “political attention has shifted decisively towards the offshore natural gas sector”, despite revenues from natural gas production remaining “several years off”. This might, however, create a greater space for mining companies and regulators to engage constructively to resolve regulatory issues, he adds.

Despite this partial recovery, Elliot does not believe many new large-scale projects will be tabled until the gold price shows clearer signs of life and the government shows greater consistency in its terms.

Nevertheless, Tanzania’s six industrial gold mines still generate about a third of all export receipts, Elliot points out.

Gold mining companies currently active in the country include London-listed gold producer African Barrick Gold (ABG), gold mining major AngloGold Ashanti and exploration company Helio Resources.

ABG reported a net profit of $41-million for the first half-year, owing to its increased production and continued cost-discipline drive.

The company had also achieved its seventh successive reduction of quarterly all-in sustaining costs, according to Creamer Media’s Research Channel Africa. Further, ABG produced 346 581 oz of gold during the first six months, which was an improvement of 13%, compared with the same period in 2013.

Research Channel Africa also reported the successful commissioning of the elution and electrowinning circuit at London-listed Shanta Gold’s New Luika mine, in Tanzania, which has improved gold recovery from 2% to 87%.

Shanta Gold noted a 40% improvement in silver recovery and a decrease in carbon use, while the New Luika mine achieved a record quarterly production of 21 940 oz for the three months that ended June 30. This represents an 8% increase on the 20 254 oz that was produced in the first quarter of this year.

Regulatory Pressure
While investment in the Tanzanian mining industry is seemingly increasing, Elliot believes it is unlikely that there will be a repeat of the preferential agreements signed in the early 2000s.

Nevertheless

, government should be cautious of over-regulation. “A heavy-handed approach involving sweeping contract reviews would probably be a case of ‘too much, too late’, because after a $600 drop in the gold price, the boom years are over,” he says.

Moreover, steep tax and royalty hikes in the current environment could merely forestall new investment and exacerbate cost cutting, adds Elliot.

“Mining and energy companies in Tanzania said they have come under increased regulatory pressure in the past few years, as government seeks to increase its share of revenues”, Mining Weekly reported last month, while Tanzania Chamber of Minerals and Energy chairperson Ami Mpungwe said that “the pressure felt by companies was taking its toll on the industries and investment”.

“[Further], as a result of sustained policy, legal, fiscal and regulatory uncertainties and unpredictability, exploration activities and expenditure have significantly scaled down and the mining industry is declining,” added Mpungwe.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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