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Recent legislative changes improve mining sector

14th April 2023

By: Nadine Ramdass

Creamer Media Writer

     

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Although extensive changes made to the Tanzanian mining laws by the previous administration of John Magufuli disincentivised mining investors, subsequent changes – introduced by Magufuli and current President Samia Suluhu Hassan to address investor concerns – have resulted in Tanzania’s becoming a “preferred investment destination”, says law firm Beech Veltman CEO Warren Beech.

In 2017, under the leadership of Magufuli, there were several wide-ranging changes to the Mining Act of 2010. Various regulations were enacted in 2018, and then amended in 2019. These changes made the operating environment for mining companies extremely restrictive, and increased government control over the mining sector.

Key changes were introduced through the Natural Wealth and Resources (Permanent Sovereignty) Act, the Natural Wealth and Resources (Review and Renegotiation of Unconscionable Terms) Act and the Written Laws (Miscellaneous Amendments) Act and were all signed into law in 2017.

These changes enabled government to review and require a renegotiation of previous mining arrangements and agreements, concluded by government and mining companies.

The changes also stipulated the minimum requirements for State participation in mining companies, including a free carried interest, in addition to a significant increase in royalties.

The changes required disputes to be addressed locally, in Tanzania, and denied international companies the right to refer disputes for international arbitration.

Amendments to the Mining Regulations, made in February 2019, appeared to accommodate concerns that had been raised by investors.

Initially, Mining Local Content Regulations, introduced in 2018, required mining companies operating in Tanzania to be 51%-owned by Tanzanian citizens. This was changed to 20% through an amendment in February 2019.

This, together with other changes in 2019, made it slightly easier for foreign companies to operate in Tanzania.

With the appointment of President Hassan – following the passing of Magufuli in 2021 – Tanzania focused on implementing a pro- business stance, which sent positive messages to investors.

The pro-business stance has been implemented without compromising the overall governmental policy of ensuring that Tanzanian citizens benefit from natural resources.

Parliament has, for example, amended Section 129 of the Mining Act to allow for regulations to be passed which substantially increase the quantum of fines that can be imposed and the maximum period of imprisonment for breaches of the Mining Act to encourage compliance. This ultimately benefits all stakeholders, including the citizens of Tanzania. Concurrently, substantive amendments have been made to the Mining Act which provide some certainty to investors.

Beech explains that Section 7 was amended to include a “primary processing licence”, previously not provided for in the Mining Act, and applies to persons operating ball mill operations or sluicing. Section 15 introduces applications for mineral rights through a tender system and applies to any mineral rights that have ceased and which revert to government.

Section 32(1) amends the provisions regarding the granting and renewal of prospecting licences, including restrictions on first and second renewals.

Additionally, Section 55 addresses the granting and validity of a primary mining licence, and provides that a holder of a primary mining licence must begin mining operations within six months from the date of the granting of the licence. This period can, however, be extended by the Mining Commission.

“It seems that the pro-business policies are working, as the number of registered projects in Tanzania has increased significantly,” says Beech.

Mining SPR 2022
The Mining (State) Participation Regulations 2022 (SPR), published on September 23, 2022, by the Minerals Minister, revoked the previous SPRs of 2020. The SPRs apply to all mining companies and are aligned with the amendments to Tanzania’s mining laws.

An important introduction is that of the reversionary mineral rights – mineral rights that have ceased, revert to the State, and will also, in terms of the amendments to Section 15 of the Mining Act, be made available through public tender, explains Beech.

The SPRs also expand State participation in mining activities and the Tanzanian government can hold equity interests in mining operations, including beneficiation operations, which have been a strong focus point for government for several years.

Holders of mining licences were required to notify the Mining Commission by December 23, 2022 to initiate negotiations for joint venture agreements with government.

This enabled government to acquire shares in the mining operations. After this, a complex structure will need to be implemented in the form of a framework and a shareholders agreement to govern State participation.

The SPRs have retained a free carried interest, but have expanded the scope of such interests beyond the current 16% free carried interest shares. Several rights are attached to these shares, including the appointment of independent board members and the executive management, as well as the right to receive distributions.

The free carried interest shares are preferential shares and the State is entitled to preferred dividends once a distribution of profits has been declared.

“While the SPRs have significantly improved the uncertainty surrounding some of the content of the 2020 regulations, as with any legislation, uncertainty remains about the interpretation and application, and in particular, the content of the proforma documents which form part of the SPRs,” Beech concludes.

Edited by Nadine James
Features Deputy Editor

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