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Sun, Apr 1st, 2012
Tanzania | Sun, April 1st 2012
When tenants make billions at the expense of landlords, a tale of other side of Tanzania's lucrative mining sector
sThe mining sector, which has so far fetched about $5billion in foreign direct investments, has also sparked heated debate during the past decade, with the locals crying foul against foreign companies operating in Tanzania.
The debate focused mainly on issues like the eviction of locals from their land, violations of human rights and tax exemptions granted to the foreign companies, but less attention was paid to the acquisition style, which has dominated the industry since the 1990s.
Whether measured by the total number of deals sealed or the amount of money involved, acquisition has become the centre of making a ‘killing' in the mining industry, thanks to the obsolete laws passed by Benjamin Mkapa's regime.
Surprisingly, even the Judge Mark Bomani-led committee didn't pay much attention to the acquisition or buyout issue in the lucrative mining industry.
In 1994, a foreign mining exploration firm came to Tanzania with information about Geita Gold Mine, which was closed in the 1960s by the government of Tanzania. After arriving in Dar es Salaam, the two investors representing a foreign British company applied for a prospecting licence to conduct exploration in Geita to establish whether there was enough gold deposits which could justify the putting up of a multimillion-dollar mine.
The company was none other than Cluff Resources, a UK-based company, which acquired two prospecting licences covering much of east and west of Geita area, including the old Geita mine and surrounding prospects.
After nearly two and half years, the two Britons have made a killing, making millions of dollars just by claiming that ‘they have discovered' huge gold deposits in Geita town, located in the western part of Lake Victoria.
However, for those who knew the geological profile of Geita, even without fresh exploration, the area was rich in gold deposits basing on a survey conducted by the State Mining Corporation (STAMICO) in the early 1970s and 1980s. After two year of the so-called exploration, Cluff, which had its headquarters in Mwanza's Capripoint suburb, announced that it had hit the jackpot in Tanzania's Lake Victoria Gold Field.
On the same day, the company's shares surged by 25 per cent in London after announcing that it had discovered huge gold deposits which could be economically viable to mine at the cost of $250 per ounce. During the period gold was trading at an average of $650 per ounce on the global market, and various outlooks showed that in the next five years the price of the commodity would surge, buoyed mainly by a strong purchasing power in China and elsewhere.
According to the documents seen by The Guardian on Sunday, the British company spent not more than $10 million on exploration before it announced the good news of ‘discovering ‘huge gold reserves' in Geita. But it finally sold the mine to Ashanti Gold Field Ltd in a deal supervised by Sam Jonah, who was the chief executive officer of the Ghana-based company, at the cost of $100million.
So, the Australian investors came with their briefcase and technical know-how, spent about $10 million, but made ten times the amount just by compiling a report about how much gold reserves were in Geita and their economic viability. But Tanzanians living near the gold mine were left with nothing, along with their government, though they were finally forced to vacate the area to pave way for the construction of the new gold mine.
The Tanzania government didn't get anything, though the transaction was about gold reserves discovered in its territory. What followed was a series of tax exemptions to the new investor, AngloGold Ashanti, who committed another $165 million to construct Africa's largest open-pit gold mine.
After Ashanti took over Cluff Resources in 1997, SAMAX Resources, another foreign company, acquired licences to the north and north-east (Kukuluma Hill) of the old Geita mine to conduct exploration. After the discovery of the huge gold deposits, SAMAX was also taken over by Ashanti Gold for an undisclosed amount in a deal sealed in London in 1998.
The two acquisitions enabled Ashanti Gold Field Ltd to construct Africa's largest open pit gold mine in Geita town at a cost of $165 million.
Geita Gold Mine – situated in north-western Tanzania, 90km from the regional capital of Mwanza – was completed in less than a year from the first concrete pour to first gold pour, more than three months ahead of schedule and within the budgeted capital cost of US$165 million. The mine's first gold was poured on 8 June 8, 2000 and to date more than 41,000 ounces have been produced during the commissioning phase.
All these were enabled by the Mining Act of 1998, written under the assistance of foreigners, mainly investors, and close monitoring of the World Bank. The Benjamin Mkapa regime saw the IMF and the World Bank as pro-reform and blessed the situation through the Mining Act of 1998.
The Africa Strategy for Mining Technical Paper of 1992, developed by the World Bank and the IMF, played a significant role in financing and developing a blueprint for the mining sector in Tanzania through the Mineral Sector Development Programme.
The main interest of this programme was to oversee the privatisation and liberalisation of the state-controlled mining corporations and the mining sector in order to facilitate the entry of foreign mining corporations.
The strategy paper argued for the need to emulate success stories in countries such as Botswana, Gabon, Ghana, Guinea and Niger, where new mining development had been successful, mainly as a result of the formation of joint ventures between the private sector and the government.
This programme, carried out under the WB/IMF directives and support, resulted in the engagement of consultants to carry out legal policy reforms. The Mining Department was restructured to accommodate these changes and the Mineral Policy Act of 1997, and later the Mining Act of 1998, reflects the direction charted by the reform process.
These reforms highlighted mining in Tanzania as a priority economic sector, targeted to grow to 10 percent of GDP from 1.5 percent. A strong, vibrant, well-organized private sector was envisioned to enable the process.
But today, nearly twelve years since the second gold mine was opened, the contribution of the mining sector to the country's GDP has remained low, below 3 per cent. So far two gold mines are set to close business after operating for about ten years without paying corporate taxes.
The coming of giants like Ashanti Gold Field in Tanzania opened the floodgates for other big brothers to fight for the glittering gold, but at the expense of Tanzanians.
Just 272km from Geita there was another company called Placerdome from Australia, conducting exploration at Nyamongo Gold Mine, in Tarime district. Having got reliable information about the availability of gold in the area in the 1990s, the Australian company entered the country in 1994 through their host, the late Chacha Zakayo Wangwe, and registered an exploration company called Afrika Mashariki Gold Mine.
Because of stiff resistance from the locals, the company spent nearly four years negotiating to acquire land in order to conduct the so-called exploration. At the end of 1998, the Australian company had a breakthrough after sealing a corrupt deal with some locals with the assistance of government officers. After conducting exploration, the company announced that it had discovered huge gold deposits in Nyamongo area.
Africa Mashariki was bought by Placerdome in 2004 at a cost of about $252million(Sh404 billion) from its previous owner – East Afrika Mines of Australia.
The Australian company spent about $75 million in Nyamongo in exploration and construction of the North Mara Gold mine, but earned $252 million by selling the company to Placerdome.
In this transaction, the Tanzanian government didn't earn any single dollar, though the sold gold mine belonged to its territorial land. It didn't make sense for a foreign investor to acquire a gold mine with a lifetime of over 10 years today, and then sell it suddenly after two years or when tax exemption was about to expire.
But, it made sense in Tanzania and the foreigners made the killing for selling what legally didn't belong to them.
They came with a briefcase and technical know-how, spent some few million dollars, before making the killing at the expense of Tanzanians.
The North Mara mine, which opened in 2002, consists of four open pits, a process plant, waste rock dumps, a tailings containment pond and other associated facilities.The mine was owned by Afrika Mashariki Gold Mines, which became Placerdome Tanzania, a subsidiary of Placerdome. Barrick Gold took over Placerdome in January 2006.
Placerdome Inc. was a large mining company specializing in gold and other precious metals, with corporate headquarters in Vancouver, British Columbia, Canada. In August 2005, the company had interests in 16 gold mining operations in 7 countries; it had a market capitalization of $6.7 billion (on June 30, 2005). For the year 2004, it had sales of $1.888 billion, net earnings of $284 million and cash from operations of $376 million.
Though the Placerdome transaction also involved North Mara Gold Mine, the Tanzanian government didn't earn a single penny from it, and during that period the mine was valued at $1 billion.
Placerdome agreed in December, last year, to accept Barrick's sweetened bid to buy the company for $10.4 billion, up from an earlier bid of $9.2 billion.
According to information made available to The Citizen online this week, Barrick said it had acquired 358 million common shares from Placerdome so far and would pay for the stock on or by today. The company also pushed back the deadline for Placerdome shareholders to tender their stock to February 3.
Until then, Placerdome shareholders can take Barrick up on its offer to buy shares at $22.50, or exchange them for roughly 0.83 of a Barrick common share, plus 5c a Placerdome share in cash.
Barrick will pay about $992 million and issue about 260 million shares under the deal. If Barrick is successful in acquiring 90 per cent of Placerdome shares on offer, it intends to acquire all the remaining shares by compulsory acquisition.
Barrick acquired the Bulyanhulu project in 1999 when it purchased Sutton Resources, which was a mineral exploration company. The mine is located 150 kilometres (93 mi) southwest of the city of Mwanza, a regional centre. Bulyanhulu opened in 2001, and was built for a capital cost of $280 million. Following the opening of Bulyanhulu, Tanzania became the third largest producer of gold in Africa, behind South Africa and Mali.
Sutton Resources had spent about $45 million during its exploration period, but earned more than $200 million after selling the property in Bulyanhulu. Sutton didn't pay anything to the Tanzanian government.
The acquisition has become the centre of the game in the mining industry in Tanzania during the past decade, whereby the government, due to the Mining Act of 1998, didn't benefit from all the transactions conducted by multinationals.
Though the new Mining Act of 2010, among other things, tried to address this situation, the games are still being played by big brothers in Tanzania. Just two weeks ago, The Guardian on Sunday reported exclusively about a fierce legal battle between the Tanzania Revenue Authority (TRA) and a Russian company, JSC Atomredmetzoloto (AMRZ), over the $205.8 million (Sh330billion) that TRA demands from the company as income tax and stamp duty emanating from the latter's purchase of Mkuju River uranium mining site from Mantra Resources of Australia in 2011.
The Mkuju River uranium project has estimated resources of 101.4 million pounds (24 million kilogrammes) of uranium oxide concentrate, which, if available in bulk, would represent about 77 per cent of the global mined output in 2010. The project is slated to last for 12 years and the country expects to earn $5 million a year through royalties.
Acquisition is not something new in the international business arena, but what's appalling is when the transactions are done at the expense of the host country. For instance, information about the availability of gold in Tanzania's Lake Victoria gold belt has been there for hundreds years.
Sudden somebody flies to Dar es Salaam, applies for a prospecting licence, stays for two years, then announce to the world that he has ‘discovered' huge gold deposits. The next stage is for the investor to sell the property he almost acquired freely at a staggering amount and leave without paying a single penny to the government.
According to Tanzania's laws, land and its contents, including minerals, belong to the government. But, it seems this is just too theoretical to function, because at the end of the day the man who makes million of dollars was just a tenant who had rented a piece of land for the purpose of exploration.
After conducting the exploration, whatever the outcome should be shared between the landlord and the tenant. If that property is sold, then the total cost of what was spent should be deducted and then the rest be shared at an agreed ratio.
In Tanzania's case, the landlord is left in the cold with empty hands as the tenant smiles all the way to the bank with millions of dollars earned by selling the property belonging to the very same landlord. Mathematically, it doesn't work anywhere except in Tanzania, an apparent ‘no man's land.'
By RICHARD MGAMBA, The Guardian
Tanzania | Sun, April 1st 2012
When tenants make billions at the expense of landlords, a tale of other side of Tanzania's lucrative mining sector
sThe mining sector, which has so far fetched about $5billion in foreign direct investments, has also sparked heated debate during the past decade, with the locals crying foul against foreign companies operating in Tanzania.
The debate focused mainly on issues like the eviction of locals from their land, violations of human rights and tax exemptions granted to the foreign companies, but less attention was paid to the acquisition style, which has dominated the industry since the 1990s.
Whether measured by the total number of deals sealed or the amount of money involved, acquisition has become the centre of making a ‘killing' in the mining industry, thanks to the obsolete laws passed by Benjamin Mkapa's regime.
Surprisingly, even the Judge Mark Bomani-led committee didn't pay much attention to the acquisition or buyout issue in the lucrative mining industry.
In 1994, a foreign mining exploration firm came to Tanzania with information about Geita Gold Mine, which was closed in the 1960s by the government of Tanzania. After arriving in Dar es Salaam, the two investors representing a foreign British company applied for a prospecting licence to conduct exploration in Geita to establish whether there was enough gold deposits which could justify the putting up of a multimillion-dollar mine.
The company was none other than Cluff Resources, a UK-based company, which acquired two prospecting licences covering much of east and west of Geita area, including the old Geita mine and surrounding prospects.
After nearly two and half years, the two Britons have made a killing, making millions of dollars just by claiming that ‘they have discovered' huge gold deposits in Geita town, located in the western part of Lake Victoria.
However, for those who knew the geological profile of Geita, even without fresh exploration, the area was rich in gold deposits basing on a survey conducted by the State Mining Corporation (STAMICO) in the early 1970s and 1980s. After two year of the so-called exploration, Cluff, which had its headquarters in Mwanza's Capripoint suburb, announced that it had hit the jackpot in Tanzania's Lake Victoria Gold Field.
On the same day, the company's shares surged by 25 per cent in London after announcing that it had discovered huge gold deposits which could be economically viable to mine at the cost of $250 per ounce. During the period gold was trading at an average of $650 per ounce on the global market, and various outlooks showed that in the next five years the price of the commodity would surge, buoyed mainly by a strong purchasing power in China and elsewhere.
According to the documents seen by The Guardian on Sunday, the British company spent not more than $10 million on exploration before it announced the good news of ‘discovering ‘huge gold reserves' in Geita. But it finally sold the mine to Ashanti Gold Field Ltd in a deal supervised by Sam Jonah, who was the chief executive officer of the Ghana-based company, at the cost of $100million.
So, the Australian investors came with their briefcase and technical know-how, spent about $10 million, but made ten times the amount just by compiling a report about how much gold reserves were in Geita and their economic viability. But Tanzanians living near the gold mine were left with nothing, along with their government, though they were finally forced to vacate the area to pave way for the construction of the new gold mine.
The Tanzania government didn't get anything, though the transaction was about gold reserves discovered in its territory. What followed was a series of tax exemptions to the new investor, AngloGold Ashanti, who committed another $165 million to construct Africa's largest open-pit gold mine.
After Ashanti took over Cluff Resources in 1997, SAMAX Resources, another foreign company, acquired licences to the north and north-east (Kukuluma Hill) of the old Geita mine to conduct exploration. After the discovery of the huge gold deposits, SAMAX was also taken over by Ashanti Gold for an undisclosed amount in a deal sealed in London in 1998.
The two acquisitions enabled Ashanti Gold Field Ltd to construct Africa's largest open pit gold mine in Geita town at a cost of $165 million.
Geita Gold Mine – situated in north-western Tanzania, 90km from the regional capital of Mwanza – was completed in less than a year from the first concrete pour to first gold pour, more than three months ahead of schedule and within the budgeted capital cost of US$165 million. The mine's first gold was poured on 8 June 8, 2000 and to date more than 41,000 ounces have been produced during the commissioning phase.
All these were enabled by the Mining Act of 1998, written under the assistance of foreigners, mainly investors, and close monitoring of the World Bank. The Benjamin Mkapa regime saw the IMF and the World Bank as pro-reform and blessed the situation through the Mining Act of 1998.
The Africa Strategy for Mining Technical Paper of 1992, developed by the World Bank and the IMF, played a significant role in financing and developing a blueprint for the mining sector in Tanzania through the Mineral Sector Development Programme.
The main interest of this programme was to oversee the privatisation and liberalisation of the state-controlled mining corporations and the mining sector in order to facilitate the entry of foreign mining corporations.
The strategy paper argued for the need to emulate success stories in countries such as Botswana, Gabon, Ghana, Guinea and Niger, where new mining development had been successful, mainly as a result of the formation of joint ventures between the private sector and the government.
This programme, carried out under the WB/IMF directives and support, resulted in the engagement of consultants to carry out legal policy reforms. The Mining Department was restructured to accommodate these changes and the Mineral Policy Act of 1997, and later the Mining Act of 1998, reflects the direction charted by the reform process.
These reforms highlighted mining in Tanzania as a priority economic sector, targeted to grow to 10 percent of GDP from 1.5 percent. A strong, vibrant, well-organized private sector was envisioned to enable the process.
But today, nearly twelve years since the second gold mine was opened, the contribution of the mining sector to the country's GDP has remained low, below 3 per cent. So far two gold mines are set to close business after operating for about ten years without paying corporate taxes.
The coming of giants like Ashanti Gold Field in Tanzania opened the floodgates for other big brothers to fight for the glittering gold, but at the expense of Tanzanians.
Just 272km from Geita there was another company called Placerdome from Australia, conducting exploration at Nyamongo Gold Mine, in Tarime district. Having got reliable information about the availability of gold in the area in the 1990s, the Australian company entered the country in 1994 through their host, the late Chacha Zakayo Wangwe, and registered an exploration company called Afrika Mashariki Gold Mine.
Because of stiff resistance from the locals, the company spent nearly four years negotiating to acquire land in order to conduct the so-called exploration. At the end of 1998, the Australian company had a breakthrough after sealing a corrupt deal with some locals with the assistance of government officers. After conducting exploration, the company announced that it had discovered huge gold deposits in Nyamongo area.
Africa Mashariki was bought by Placerdome in 2004 at a cost of about $252million(Sh404 billion) from its previous owner – East Afrika Mines of Australia.
The Australian company spent about $75 million in Nyamongo in exploration and construction of the North Mara Gold mine, but earned $252 million by selling the company to Placerdome.
In this transaction, the Tanzanian government didn't earn any single dollar, though the sold gold mine belonged to its territorial land. It didn't make sense for a foreign investor to acquire a gold mine with a lifetime of over 10 years today, and then sell it suddenly after two years or when tax exemption was about to expire.
But, it made sense in Tanzania and the foreigners made the killing for selling what legally didn't belong to them.
They came with a briefcase and technical know-how, spent some few million dollars, before making the killing at the expense of Tanzanians.
The North Mara mine, which opened in 2002, consists of four open pits, a process plant, waste rock dumps, a tailings containment pond and other associated facilities.The mine was owned by Afrika Mashariki Gold Mines, which became Placerdome Tanzania, a subsidiary of Placerdome. Barrick Gold took over Placerdome in January 2006.
Placerdome Inc. was a large mining company specializing in gold and other precious metals, with corporate headquarters in Vancouver, British Columbia, Canada. In August 2005, the company had interests in 16 gold mining operations in 7 countries; it had a market capitalization of $6.7 billion (on June 30, 2005). For the year 2004, it had sales of $1.888 billion, net earnings of $284 million and cash from operations of $376 million.
Though the Placerdome transaction also involved North Mara Gold Mine, the Tanzanian government didn't earn a single penny from it, and during that period the mine was valued at $1 billion.
Placerdome agreed in December, last year, to accept Barrick's sweetened bid to buy the company for $10.4 billion, up from an earlier bid of $9.2 billion.
According to information made available to The Citizen online this week, Barrick said it had acquired 358 million common shares from Placerdome so far and would pay for the stock on or by today. The company also pushed back the deadline for Placerdome shareholders to tender their stock to February 3.
Until then, Placerdome shareholders can take Barrick up on its offer to buy shares at $22.50, or exchange them for roughly 0.83 of a Barrick common share, plus 5c a Placerdome share in cash.
Barrick will pay about $992 million and issue about 260 million shares under the deal. If Barrick is successful in acquiring 90 per cent of Placerdome shares on offer, it intends to acquire all the remaining shares by compulsory acquisition.
Barrick acquired the Bulyanhulu project in 1999 when it purchased Sutton Resources, which was a mineral exploration company. The mine is located 150 kilometres (93 mi) southwest of the city of Mwanza, a regional centre. Bulyanhulu opened in 2001, and was built for a capital cost of $280 million. Following the opening of Bulyanhulu, Tanzania became the third largest producer of gold in Africa, behind South Africa and Mali.
Sutton Resources had spent about $45 million during its exploration period, but earned more than $200 million after selling the property in Bulyanhulu. Sutton didn't pay anything to the Tanzanian government.
The acquisition has become the centre of the game in the mining industry in Tanzania during the past decade, whereby the government, due to the Mining Act of 1998, didn't benefit from all the transactions conducted by multinationals.
Though the new Mining Act of 2010, among other things, tried to address this situation, the games are still being played by big brothers in Tanzania. Just two weeks ago, The Guardian on Sunday reported exclusively about a fierce legal battle between the Tanzania Revenue Authority (TRA) and a Russian company, JSC Atomredmetzoloto (AMRZ), over the $205.8 million (Sh330billion) that TRA demands from the company as income tax and stamp duty emanating from the latter's purchase of Mkuju River uranium mining site from Mantra Resources of Australia in 2011.
The Mkuju River uranium project has estimated resources of 101.4 million pounds (24 million kilogrammes) of uranium oxide concentrate, which, if available in bulk, would represent about 77 per cent of the global mined output in 2010. The project is slated to last for 12 years and the country expects to earn $5 million a year through royalties.
Acquisition is not something new in the international business arena, but what's appalling is when the transactions are done at the expense of the host country. For instance, information about the availability of gold in Tanzania's Lake Victoria gold belt has been there for hundreds years.
Sudden somebody flies to Dar es Salaam, applies for a prospecting licence, stays for two years, then announce to the world that he has ‘discovered' huge gold deposits. The next stage is for the investor to sell the property he almost acquired freely at a staggering amount and leave without paying a single penny to the government.
According to Tanzania's laws, land and its contents, including minerals, belong to the government. But, it seems this is just too theoretical to function, because at the end of the day the man who makes million of dollars was just a tenant who had rented a piece of land for the purpose of exploration.
After conducting the exploration, whatever the outcome should be shared between the landlord and the tenant. If that property is sold, then the total cost of what was spent should be deducted and then the rest be shared at an agreed ratio.
In Tanzania's case, the landlord is left in the cold with empty hands as the tenant smiles all the way to the bank with millions of dollars earned by selling the property belonging to the very same landlord. Mathematically, it doesn't work anywhere except in Tanzania, an apparent ‘no man's land.'
By RICHARD MGAMBA, The Guardian
