Tanzania counts losses from gold price slump

By Prosper Makene

Acting CEO of Tanzania Minerals Audit Agency (TMAA), Elikana Petro

Tax remittances from gold mining companies have plummeted significantly following the decline of prices in the world market raising fiscal fears in terms of revenue collection targets, The Guardian has learnt.
 

Government officials said last week that corporate tax revenue from the gold sector has fallen by almost 70 per cent in three years.

The government targets to collect 12.36trn/- tax revenue in the current financial year, which is almost 55 cent of this year’s budget.

 

Another major area that has been adversely affected by the tumbling in gold prices has been foreign exchange income generated from the precious metal. 

 

The slump has caused gold to be overtaken by tourism as Tanzania’s top foreign exchange earner.

 

Gold mining firms have not been spared either. Sectoral sources say the price fall has forced many of them to restructure operations in the bid to cut operation costs.

 

Some jobs have already been lost, senior government officials told The Guardian last week. Mining companies have also reported fall in profitability.

 

The acting CEO of Tanzania Minerals Audit Agency (TMAA), Elikana Petro, put the forgone corporate tax income at 200bn/-.

He said that before the falling of gold prices, mining companies had remitted 290bn/- during 2012/13. By the end of last year, the corporate tax had plummeted to 90bn/.

 

“The fall of gold prices has had negative impact. Gold companies paid only 90bn/- in corporate tax last year compared to 290bn/- that was recorded in 2012/13,” Petro told The Guardian last week.

 

He said the impact of the slump will be devastating if the price of gold falls below $900 an ounce. He did not rule out closure of some mines if that happens.

 

During most of last week, the price of the metal was US$1,117 but steadied to $1,133 yesterday.

 

TMAA said the total value of mineral exports by the seven major gold mines decreased by 6.7 per cent in two years. The earnings fell to US$1,66bn/- from US$1.78bn/- between 2013 and 2014.

“Gold exports—which constitutes the largest part of mineral exports—declined as both volume and world market prices decreased (during the year ending July 2015,” the Bank of Tanzania (BoT) said in a new report.

 

According to the latest review of the economy, gold exports fetched US$1.27bn during the period. In the corresponding period in 2014 and 2013, the export earnings from gold were US$1.45bn and US$1.83bn respectively.

 

On the other hand, BoT figures show that earnings from tourism reached US$2.21bn between July 2014 and July 2015. During the same periods in 2014 and 2013, the forex earnings from travel trade were US$1.94bn and US$1.78bn respectively.

 

Gold used to account for about 50 per cent of all non-traditional export earnings. The percentage share fell to 31.8 per cent in the 12 months ending this July.

 

TMAA principal statistician Omary Sige said despite the fall of gold prices, production has remained stable in the country. He said Tanzania continues to export over one million ounces annually.

“Production of gold has not been affected very much. Tanzania exported 1.27m ounces in 2012, 1.24m in 2013 and 1.27m last year,” he told The Guardian.

 

“The problem has been the falling prices. In 2012, the price of an ounce was between US$1,800 and US$1,700. It is now almost under US$1,000. The price declined sharply last year when it went down to US$1,400 and it reached US$1,117 last week,” he said.

 

Yesterday, Reuters reported that Gold steadied below a near three-week high, retaining overnight losses as Asian equities and the dollar edged higher and as investors worried over the possibility of a US  interest rate hike later this year. 

 

Spot gold was little changed at $1,133.01 an ounce after a 0.5 per cent drop on Monday. The metal had climbed to a near three-week high of $1,141.50 last week. 

 

The TMAA CEO said the main factor behind the decline of gold prices was the persistent good performance of the US economy, which has tremendously boosted the dollar.

 

Mining companies that have been affected by the falling prices, include Acacia Mining Plc., which is the top gold producer in the country. The company has three operating mines, which are Bulyanhulu, North Mara and Buzwagi as well as several exploration and development projects.

 

Last month, the miner reported that its second-quarter profit dropped 70 per cent after mining costs rose and bullion prices slid. Net income fell to $5.6m from $18.4m a year earlier, the London-based producer said in a statement.

 

Acacia reported second-quarter sales of US$231.9m as gold output climbed 4.2 per cent to 185,641 ounces. The company maintained its full-year target of 750,000 ounces to 800,000 ounces at a cost of $1,050 to $1,100 an ounce.

 

Together with the prices turmoil, Acacia is upbeat of future prospects.

 

“Over the first half of 2015 we made further progress at each of our mines, with a particular focus on laying the foundations for the future at Bulyanhulu and North Mara which will ensure that we are in a position by the end of 2015 to generate strong cashflow at and below the current gold price.” said Brad Gordon, Chief Executive Officer of Acacia. 

 

“Production at Bulyanhulu increased by 26 per cent over H1 2014, as well as by 16 per cent in Q2 2015 compared to Q1 2015, and we expect further production increases in the second half as we benefit from our investment in the mine; whilst at North Mara we delivered first stoping ore from the Gokona Underground project ahead of schedule in Q2 2015,” he adds in the unaudited half year performance report.