In London, the shares of Acacia Mining (formerly African Barrick
Gold, the 62%-owned, listed subsidiary of Barrick Corp) have fallen by almost
half in the last 24 hours, after the Tanzania Revenue Authority demanded $190bn
($40bn in alleged back taxes, with the rest in interest and penalty charges).
It is difficult to pinpoint the exact origin of the dispute
between Acacia and the government and, arguably, it goes back to Barrick’s
first major investment in the country in the late 1990’s. Then, the price of
gold had fallen to a 20 year low of US$250/oz and Barrick, which had had some
good exploration success in the Lake Victoria goldfield negotiated some very
keen fiscal terms with the government to develop its new mine, Bulyanhulu. Had
the price of gold stayed where it was, perhaps the current dispute would never
have arisen. However, as the gold price rose to US$1,250/oz (via a record high
of US$1,900/oz in 2013), Barrick’s tax breaks (duly enshrined into Tanzanian
law) became – if you will excuse the pun – a gold mine, effectively shielding
its assets from actually paying cash taxes for years, if not decades. As the
old saying goes however, wealth begets envy and, while Acacia (as it had been
renamed) trumpeted its attractions to western investors, the Tanzanian
government looked on ever more covetously as its natural wealth (as it saw it)
was shipped overseas. If that was the environment, then it only took a spark to
set the plains ablaze. In this case, that spark was provided by the election of
a populist Presidential candidate in 2015, John Magufuli, who was easily able
to incite lingering anti-colonial resentment to paint a picture of rapacious
western investors cynically depriving Tanzania of its natural wealth.
The first Acacia knew of it was when the government passed a law
banning the export of metalliferous concentrate in February 2017 under the
guise of wanting to develop a domestic smelting industry. That was rapidly
followed by the reports of two Presidential committees in the following four
months that alleged that Acacia had been under reporting its gold exports in
concentrate form by a factor of ten. That is to say, when Acacia declared 100oz
of exports, the committees accused them of selling 1,000oz. The implication of
the committee’s findings is that Bulyanhulu and Buzwagi each produce more than
1.5 million ounces of gold per year and are the two largest gold producers in
the world, that Acacia is the world’s third largest gold producer and that it
produces more gold from its three mines than AngloGold Ashanti from 19 mines,
Goldcorp from 11 mines and Kinross from nine mines. Suffice it to say that
Acacia is a publicly listed company and that its financial, production and gold
reserve records are audited to international standards and that it must comply
with government oversight agencies in Tanzania, the UK, Canada, and the USA
that have the right to impose heavy penalties on companies that do not report
their production and financial results accurately. Despite requesting it,
Acacia has yet to be given a copies of the reports, nor has it been provided
with details of the sampling protocols followed by the committees.
At the same time as the Tanzania Revenue Authority (TRA) ceased
providing Acacia with VAT refunds, parliament then passed the Natural Wealth
& Resources Contracts (Review & Re-Negotiation of Unconscionable Terms)
Act and the Natural Wealth & Resources (Permanent Sovereignty) Act. The
former allows the government to dissolve existing contracts deemed prejudicial
to the interests of Tanzanians, while the latter prohibits the involvement of
foreign courts or tribunals in disputes between the government and investors
and compels companies to process minerals within the country rather than
exporting them as raw materials. New laws have also increased the royalty rate
applicable to metallic minerals by 2% as well as imposing a 1% clearing fee on
exports, while President Magufuli has ordered the Energy & Minerals
Ministry to neither issue new mining licenses nor renew expired ones.
With the dispute apparently escalating, earlier this week,
Acacia announced that it had received a series of Notices of Adjusted
Assessment from the TRA for historical corporate income tax, covering the period
from 2000 to 2017, which assert that it owes the Tanzanian government
approximately US$40bn of alleged unpaid taxes and approximately a further
US$150bn in penalties and interest. To put that in context, the GDP of Tanzania
is only about US$50bn! At the same time, local regulations now require miners
to list operating assets locally and to achieve a 30% minimum local
shareholding by 23 August. Finally, as if to add insult to injury, the Tanzania
government appears to be deliberately sidelining the company by insisting on
negotiating solely with its parent, Barrick, rather than with it, directly.
