Investors remained unimpressed with the mining sector in 2018 with market valuations for the world’s 40 largest mining companies falling 18 per cent, according to PwC’s recently released Mine 2019 report, and this despite the sector exhibiting steady growth.
On the other hand, government take increased in 2018; in particular, the share of value distributed by the world’s 40 largest mining companies to governments in the form of direct taxes and royalties increased from 19 per cent to 21 per cent. This share was not dissimilar to the share distributed to shareholders (25 per cent), employees (22 per cent) or spent on capital expenditure (23 per cent).The question of what is a “fair share” is a vexed one, but for 2018 at least and based on these numbers it appears the global average was a 56 per cent:44 per cent split respectively between the shareholders’ share of value and Government’s.
Pertinent to Tanzania given its significant gold sector is reference in the report to the renewed round of consolidation in the gold sector. It explains that this consolidation is driven by a shrinking pipeline of projects, fewer new high-grade discoveries and a lack of funding for junior developments. Gold deals increased from 8 per cent of total Top 40 deal value in 2017 to 25 per cent in 2018, and this year are tracking at close to 95 per cent of deals as at the end of April.
Gold, together with copper, were the dominant sectors for capital expenditure, and approximately half (48 per cent) of capital expenditure was for ongoing projects. Although capital expenditure showed a rise (up 13 per cent), this was from historically low levels. The overall picture on capital expenditure is that miners continue to proceed cautiously.
Tanzania’s Vision 2025 sets out an ambition for mining to contribute 10 per cent of GDP – but if this ambition is to be achieved, there is a need for a number of significant new projects. Interestingly June 2019 marks the twenty year anniversary of the signature date of development agreements and issue of special mining licences (“SMLs”) for Bulyanhulu, North Mara and Geita. Later years saw SMLs issued for Tulawaka and Buzwagi – and then May 2017 saw the opening of Shanta Gold’s mediumscale New Luika mine. Major production for 2018 based on public financial statements was Geita564,000 oz, Acacia 521,980 oz (of which North Mara contributed 336,055 oz) and New Luika81,872 oz.
Given that no new large scale mine has been developed for over a decade, it was great to read a recent interview with the Minister for Minerals where he mentionedthe expected issue of threeSMLs. Of course, once these licences are issued, funding will have to be sought to develop these mines and it is to be hoped that Government will be receptive to any genuine regulatory or tax concerns that might prove a stumbling block when seeking money on the capital markets.
One major current concern for the sector is the status of VAT refunds – and some insight on this front can be gained from a perusal of the publicly available accountsof listed entities. For example, the 2018 accounts on Shanta Gold’s website reveal a $21.8 million VAT receivable at the end of December 2018 (up from $14.7 million at December 2017) – and the significance of this becomes clear when set against the company’s annual turnover ($103.8m), profit before tax ($7.9m) and net assets ($105.1m). It is to be hoped that this year’s budget will see some clear commitment given to clear the backlog of VAT refunds – and also to institute processes to ensure expedited refunds going forward.