Africa’s premier mining event, the 25th annual Investing in Africa Mining Indaba, took place last week in Cape Town. Graced by stakeholders both from the private and public sector, it featured not only the mining sector titans but also several political heavyweights (including Presidents Ramaphosa (South Africa) and Nana Akufo-Addo (Ghana)).
Although President Ramaphosa did not walk down from Table Mountain bearing tablets, nevertheless (like Moses) he took the opportunity to announce his “ten commandments”, but in this case for the mining sector. In essence these are ten value-creating principles that mining companies have been challenged to follow so as to contribute more to the development of their immediate mining locations as well as of their workforce, and to society as a whole.
Recent sentiment around South Africa’s mining sector had been very subdued on the back of regulatory change - in particular a proposed new Mining Charter - with the industry increasingly termed a “sunset industry”. However, rapprochement appears to have been reached following consultations with industry, labour and mining communities that resulted in a revised version of the Charter issued in September 2018. Re-emphasising the role of mining as key to the future growth of the South African economy, President Ramaphosa stated his commitment to prioritising the restoration of a stable and predictable policy environment to ensure the realisation of this potential. Against this background, and with three new investment projects totalling $20 billion announced in October 2018, he was optimistic that South Africa’s mining sector should now be described not as a “sunset industry” but a “sunrise industry”.
Tanzania’s Vision 2025 certainly positions mining as a “sunrise industry” - with an aspiration of mining contributing 10 per cent of GDP by 2025. Although currently a significant generator of export earnings (about one third of exports) and of Government revenues, its contribution to GDP is estimated at no higher than 5 per cent.
The revenue impact is not always clearly articulated, but can be further understood by a visit to the sustainability pages of the websites for the relevant mining companies - for example, since inception up to December 2016, the cumulative Government take from the Geita Gold mine totals $1.1 billion (www.geitamine.com). It is also of note that in December 2018 the Minister for Finance highlighted reduced mining activities as having had a significant adverse impact on collections of withholding taxes and payroll taxes.
Prospects for growing the contribution from the sector must be driven not only by expansion of existing projects but also by new projects. However, the last decade has seen the closure of the Golden Pride and Tulawaka mines as well as a move to reduced operations at the Bulyanhulu and Buzwagi mines.
In addition, no new large scale mine has been developed since Buzwagi which started operations in 2009, but whose development started well before with pre-feasibility and feasibility studies dating back to 2005 and 2006, and development commencing in 2007 following approval of a mining development agreement and issue of a special mining licence.
These timelines demonstrate how long it takes to move to production even once an appropriate resource has been identified. To put it another way, if we want significant additional production by 2025, we do need projects to move to feasibility stage and licencing in the next year or two.
Similar to South Africa, the relationship between the industry and Government has been marred by tension and distrust. Industry’s concerns in Tanzania focus on recent regulatory and fiscal changes and are reflected in the latest (2017) Fraser Institute study. This study, which benchmarks the investor attractiveness of mining jurisdictions globally, ranked Tanzania 79th out 91 mining jurisdictions (as compared to 52nd out of 122 in 2014).
A particular investor concern is the fiscal side - something clearly articulated in a January 2019 report from the Natural Resource Governance Institute, which estimated Tanzania’s effective tax rate on a model gold project as a 74 per cent take for Government, and much higher than other gold mining jurisdictions (for example, 58 per cent and 59 per cent for Ghana and South Africa respectively).
This conclusion mirrors the result in a PwC Australia 2018 comparative study (“Battle of the Taxes: who comes out on top?”), which based on its model gold mine arrived at a 73 per cent Government take in Tanzania - again much higher than comparator jurisdictions - for example, 51 per cent in Ghana . The fiscal regime affects not just large scale but also small and medium scale miners; interestingly, in a recent dialogue with small and medium scale miners there was recognition by Government that something needs to change on the fiscal front, and hopefully for the sector as a whole.
Going back to the original “ten commandments”, traditional Judaic teachings in the Talmud stated that the tablets were made of blue sapphire stone as a symbolic reminder of the sky, the heavens, and ultimately of God’s throne. Hopefully, learning from South Africa we can find a way to an appropriate middle ground between Government and the mining industry, so that we can arrive at the aspired “win-win” scenario, and let our mining industry reach for the sky.
David Tarimo, Country Senior Partner, PwC The views expressed do not necessarily represent those of PwC. To refer to the PwC Australia comparative study, go to: www.pwc.com.au/africadesk