Tanzania, Acacia Mining agree on 50-50 revenue share deal

Tanzanian President John Magufuli. FILE PHOTO | NMG 

By THE CITIZEN

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Summary

• The deal will also see the government acquiring a 16 per cent stake in each mine owned by Acacia
• The issue of the $190 billion (Sh418 trillion) has not yet been resolved.
• The agreement puts to rest a tug-of-war that dates back to early this year.
• Barrick Gold executive chairman John L. Thornton described Thursday’s agreement as “the single most distinctive business model for the 21st century that exists in the world”
• President Magufuli said the framework agreement would serve as a model for other mining companies operating in the country.

Dar es Salaam.

The government and UK's Barrick Gold Corporation on Thursday reached a landmark deal that will ensure that economic benefits generated by Acacia Mining’s operations in the country are shared between the two parties on a 50/50 basis.

The deal, which will also see the government acquiring a 16 per cent stake in each mine owned by Acacia, puts to rest a tug-of-war that dates back to early this year.

The standoff began when the government banned the export of metallic mineral concentrates produced by Acacia in March, this year, with the gold miner claiming a loss of $1 million per day following the decision.

Barrick Gold executive chairman John L. Thornton described Thursday’s agreement as “the single most distinctive business model for the 21st century that exists in the world”, adding that it created trust between the two partners.

“The currency of trust is transparency. We are very excited about this partnership as it creates the potential to build a very compelling business inside Tanzania and in this party of Africa,” Prof Thornton said soon after the two sides signed the framework agreement during a function that was broadcast live from State House.

READ: Investors wary as Tanzania asserts control over mines

'Here to stay'

President John Magufuli said the deal enabled him to call Barrick Gold Corporation executives “brothers” because “they are here to stay” for benefit of both the investors and the Tanzanian government and its people.

Barrick Gold owns 63.9 per cent of Acacia Mining.

READ: Magufuli 'will close' all mines if firms delay talks on tax dispute

President Magufuli added that the framework agreement would serve as a model for other mining companies operating in the country.

“We should start negotiations with other gold miners as soon as possible as well as with tanzanite and diamond mining companies to reach similar kind of agreements. Those who will not be ready to renegotiate will have to make hard choices,” he told the government’s negotiating team.

Prof Palamagamba Kabudi, who was the government’s chief negotiator, said the negotiations were not easy.

“The most difficult point which took most of the time during the negotiations was the $190 billion tax bill,” said Prof Kabudi, who is also the Minister of Constitutional and Legal Affairs.

Key aspects

Barrick Gold Corporation agreed to abide by all conditions and requirements of the new natural resources laws that were adopted earlier this year.

One of the conditions provided for by the laws and which Barrick agreed to is the acquisition of 16 per cent “free carried interest” in each of Acacia’s mines, Prof Kabudi said.

The two sides have also agreed to share profits equally going forward.

“We have also agreed that a holding company for Acacia’s assets in Tanzania should be formed, that Tanzanian directors should be appointed to Acacia mining subsidiaries’ board of directors,” Prof Kabudi noted.

The holding company’s headquarters had to be in Tanzania, and preferably in Mwanza, Prof Kabudi added, and whose managing director, finance director and the director of procurement would be Tanzanians.

Another key agreement as far as the metallic minerals concentrates is concerned is that Acacia will own only the three types of minerals (gold, silver and copper) while the rest of the metallic minerals as well as the rare earth that are contained in the concentrates will be owned by the government.

Acacia Mining’s Treasury office will have to be shifted to Tanzania from South Africa, while all the proceeds from the sale of the minerals will be banked in Tanzania, Prof Kabudi noted.

“We have also agreed that Tanzanian directors should be appointed to all gold mines owned by Acacia.”

$190 billion tax row

The issue of the $190 billion (Sh418 trillion) has not yet been resolved.

The two parties have agreed to form a task force that will continue with negotiations to resolve the issue. But as a sign of goodwill, Barrick Gold had agreed to pay $300 million (Sh660 billion), Prof Thorton said.

“We still have a lot to do as you know all these agreements need to be approved by Acacia shareholders and independent committee of Barrick directors of Barrick.”

President Magufuli directed that the $300 million be paid as soon as possible so that it could be channelled to various development projects.

“I need you to pay without delay this $300 million, which is approximately Sh700 billion, so that we can inject it into road and railway construction projects,” he said.

“Part of money will also be channelled towards Stiegler`s George hydroelectric power project as well as the purchase of medicines for our hospitals,” he added.

Nothing was mentioned about whether Acacia will now be allowed to export the thousands of tonnes of mineral concentrates that have been piling up at the Dar es Salaam port and at the mines since the government banned their export in March this year.