International firm Norton Rose Fulbright reports that Tanzania’s mining industry is currently facing a number of challenges, the most recent of which, made public last month, concerns the issuing of draft regulations under the Mining Act, passed by Tanzania’s Parliament in 2010, which, if passed into law, will require compulsory listings on the local stock exchange.
The Tanzanian government’s aim is to have a strong, vibrant, well-organised private sector, led by the small- and large-scale mining industry, which operates in a safe and environment-friendly manner, all the while providing employment for Tanzanians, says global law firm Clyde & Co.
To achieve this, the Tanzanian government will address the challenges that it has identi-fied in relation to the mining sector in Tanzania. Specifically, it will focus on the sector’s weak integration into other sectors of the economy, its weak contribution to the gross domestic product, compared with the sector’s growth, and government’s lack of the required capacity to effectively regulate and administer the sector, says Clyde & Co.
It is a concern for the mining sector, as it requires a 30% listing on the Dar es Salaam Stock Exchange within one year of being issued with a special mining licence. Companies that already hold a special mining licence will have two years to list on the stock exchange. Norton Rose Fulbright partner Adam Lovett notes that, after the first year, a mine is still in its development stage and is usually not yet generating profits, adding that, forcing a company to publicly list a portion of its shares, without regard to economic and financial conditions of either the company or the market, is unlikely to lead to a vibrant and buoyant exchange for the locally listed shares.
Further, Lovett explains that for those mines that are currently in operation, the draft regulations take decisions about ‘if’ and ‘when’ a company should list away from the particular company, noting that com-panies usually list on the stock exchange in order to raise capital and not to broaden their shareholder base.
The draft regulations will also potentially place a regulatory burden on mining com-panies, as a host of reporting will bind them and, once listed, procedural obligations will have to be complied with.
If the regulation leads to companies not investing or developing in the market, or, ultimately, withdrawing from the market, the regulations will have a negative effect on the Tanzanian mining industry.