15 November 2016

Tanzania: Mining Firms in Tanzania Must Float 30% Stake on Dar Bourse

Tanzania has put in place new regulations that make it mandatory for mining companies holding special mining licences to offload at least 30 per cent of their shares at the Dar es Salaam Stock Exchange.

According to the newly published Minimum Shareholding and Public Offering Regulations, companies currently holding the licences must comply with the rules within two years from the date of commencement.

But, companies that acquire special mining licences after the dates of commencement of the regulations will be given one year to comply.

Failure to observe the provisions of the regulations within the prescribed time may lead to suspension or termination of a firm's special licence.

The Minister for Energy and Minerals can revoke the special mining licence of a company if it fails to comply with the regulations.

"This was an idea that was floated many years ago but the concept was shot down because some feared direct participation of the government, saying they doubted the financial capability to invest in such ventures," said Haji Semboja, an economics lecturer at the University of Dar es Salaam.

He added that floating shares was one way of encouraging public-private partnerships, which would boost economic growth.

However, he cautioned that the running of these mining companies was very complex and that it would take time for them to finally list on the bourse.

Prof Semboja said he believes the government should have prioritised creating a system that will enable local companies to work under one umbrella to provide goods and services to mining firms.

"In my opinion, this should have been the first thing to do before requiring mining companies to float shares on the stock exchange. This is because the impact and benefits of local companies providing goods and services to mining firms would be enjoyed by many Tanzanians," he said.

In his first meeting with the media, President John Magufuli said, "Tanzania has a lot of minerals, but there have been a lot of funny deals... we have to look carefully at our laws so that we move forward as a country."

Local ownership

Rules on local ownership are put in place to ensure that residents have more control of their country's natural resources.

According to analysts, listing on the Dar es Salaam Stock Exchange will allow Tanzanians to own shares in these firms and this is likely to improve relations between mining firms and residents; while trading in shares is likely to stimulate the economy and improve economic independence.

However, others caution that at a time when the mining industry worldwide is competing for limited investor resources, there is a risk that the combined regulatory and financial burden of the proposed regulations may deter further investment in the country's mining sector.

Wilson Mutagwaba, a mining consultant with MTL Consulting, told The EastAfrican that Tanzanians now have a chance of participating in the country's mining sector. "A lot of transactions relating to the mining sector have taken place outside the country, which has limited the benefits. However, we are going to be presented with an opportunity to reverse this with the new regulations," said Dr Mutagwaba.

He added that the country would have gained from the recently advertised sale of Kabanga Nickel project by Barrick Gold if the company was listed on the Dar es Salaam Stock Exchange.

Tanzania's mining sector has made tremendous progress over the past 20 years but its contribution to the country's GDP has never exceeded five per cent. The government is targeting a 10 per cent contribution to GDP in the next ten years, which is when the country expects to attain middle-income status.

The mining companies operating in the country include Geita Gold Mine (AngloGold Ashanti), Bulyanhulu (Acacia), Tulawaka (Acacia), Buzwagi (Acacia), North Mara (Acacia) and new entrant Shanta Gold based in Mbeya, while all the others are in the Lake Victoria area.

The Lake Victoria gold fields have proven to be a highly prolific mining region holding over 50 million ounces of gold.

A researcher and lecturer at Mzumbe University, Prosper Ngowi, said floating the shares would increase transparency in the sector.

"This would help in reducing suspicions on matters of taxation and issues of transfer pricing as there would be more transparency because the companies would be partly publicly owned. However, I would like to caution that there is likely to be resistance from the companies over this move because of existing Mineral Development Agreements (MDAs), which have largely remained confidential," said Prof Ngowi.

Despite its contribution to GDP falling at 3.0 per cent, the mining sector still remains one of the leading sectors in Tanzania, with the value of mineral exports increasing each year, despite price fluctuation in the world market.

Tanzania is said to have the fourth largest gold reserves in Africa, making the country a major focus for the exploration and development of gold.


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