Gold Mining in Africa: Golden handcuffs
Tanzania's firebrand leader takes on its largestforeign investor.
“If they accept that they stole from us and seek forgiveness in front of God and the angels andall Tanzanians and enter into negotiations, we are ready to do business.”
As conciliatory gestures go, that one by John Magufuli, Tanzania's president, to Acacia Mining, the country's largest foreign investor, could hardly have been more fork-tongued.
Nonetheless, two days later John Thornton, head of Barrick Gold, Acacia's largest shareholder, met Mr Magufuli to start talks on ending a dispute that has halved Acacia's market value sincethe government in March imposed a ban on the export of gold- and copper-concentrates.
It is a mark of the seriousness of the stand-off that he is ready to negotiate on all points ofcontention between the two sides.
The context of the row is increasingly typical of Africa's mining industry.
The Tanzanian government is seeking more tax revenue from a foreign mining firm that wasinitially wooed into the country by generous tax concessions.
The state also wants to generate more value and jobs by smelting Acacia's concentratesdomestically, rather than abroad.
That may seem reasonable, but Mr Magufuli's firebrand populism, as well as hisunpredictability, have made it a particularly worrying test case for mining firms across theregion.
In April Tanzania announced a new presidential committee to look into its gold exports.
In late May the committee accused Acacia of under-reporting its gold exports by a factor often, an accusation Mr Magufuli repeated.
Acacia says the charges of tax evasion are absurd.
They note that if production were as understated asthe committee alleged, Bulyanhulu and Buzwagi, thetwo mines where it produces concentrate, would bethe biggest gold producers in the world.
The firm says that it “wishes this were true, but sadly it is not the case.”
Its gold production is audited in its accounts.
How far Mr Magufuli wishes to go is unclear.
The big fear is that he may favour full nationalisation.
But he may accept a more pragmatic settlement.
Analysts at UBS, a bank, reckon the Tanzanian government wants to bully Acacia into givingup a share of its “tax assets”, which it values at $532m.
For example, the company is owed some $150m in VAT refunds.
Barrick, which owns almost 64% of Acacia, will discuss all of this.
“A negotiated solution is better than escalation, such as going to international arbitration,” a spokesman says.
That means it is prepared to talk about the tax problem as well as the possible construction ofTanzania's first smelter of gold- and copper-concentrates, even though the latter has long beenconsidered uneconomic because the country's output of concentrates is too low.
Since the ban was imposed, Acacia has continued to mine, stockpiling its output instead ofexporting it.
But it cannot continue without generating cash for ever.
If it stops production, the damage will extend to the country at large.
Last year Tanzania's economy was among Africa's best performers, growing by about 6%.
It needs more foreign investment to maintain that pace.
Mr Magufuli's tactics—whether he has God and the angels on his side or not—will make thatharder to achieve.