The government and Barrick Gold’s 19 October agreement has brought some closure to the long-standing uncertainty over Barrick’s 63.9% owned Acacia Mining subsidiary. With much mutual fawning in their press releases — Barrick Gold’s Executive Chairman, John Thornton, described it as ‘the single most distinctive business model for the 21^st century that exists in the world’ — the heavily regulated local press announced a victory for Tanzania over the negotiations.

The main terms of the agreement which are known so far are:

• ‘Economic benefits’, but specifically revenues, from Acacia Mining’s three gold mines are to be shared equally with the government;
• 16% of Acacia’s shareholding is to be ceded to the Tanzanian government;
• Acacia will move their headquarters from London, and its mining treasury office from South Africa, to Tanzania and ideally to Mwanza;
• Acacia will own gold, silver and copper while the other metallic minerals and rare earths contained in the concentrates will be owned by the government;
• A holding company with Tanzanian directors is to be formed; and
• Barrick agreed to pay US$300 million on a tax claim of US$190 billion as a sign of goodwill.

The US$190 billion tax claim has been accumulated, the government says, through alleged tax underpayment over the past two decades plus penalties and interest. For comparison, Tanzania’s annual GDP amounted to an estimated US$47.4 billion in 2016. Both sides report that a ‘working group’ has been formed to deal with the issue moving forward.

This provides some closure and certainty to the standoff over an export ban that has lasted since March 2017. The optimism was shared by the market after Acacia’s share price increased by more than 18% on the day of the announcement.

However, there are still a number of question marks hanging over the agreement which needs the approval of Barrick shareholders and directors. Acacia has already warned that it has no financial reserves to pay US$300 million and — because the company had not been involved in the discussions — it was still seeking detailed information and clarifications.

President John Magufuli lauded the deal and intends to make it the model for other players in the industry. He ordered the Minister of Justice and Constitutional Affairs, Palamagamba Kabudi, to begin similar negotiations with the other companies mentioned in the special parliamentary committee on diamonds and tanzanite.

Barrick is a large firm and has a long and extensive track-record in Tanzania: it has accumulated sufficient profits from its operations there to be able to absorb this hit, assuming a solution to the tax bill is found and other open issues are settled. Moreover, according to Dar es Salaam-based sources, Barrick will be content that this agreement will lead onto its long-awaited departure from the country.

For new and junior players, however, the government’s approach may well remain a deterrent, despite the likelihood of a 16% shareholding cessation for all future mining activities providing some form of certainty.

This article was taken from our fortnightly analytical paper East Africa Politics & Security. If you wish to discuss this topic with our consultants, or are in need of advice in regards to East Africa, then please contact us.