Uranium Mining Market in North America to 2020 - Higher Production Driven by New Projects, Improved Mining Methods and Price Increases
- Published: June 2012
- Region: North America, United States
New Super tax To Weigh On Sector
In June 2011, Tanzania's parliament approved a new super-profit tax on the mining sector, in a move which BMI believes could now weigh on inward investment into the country. The tax formed part of a new US$27.4bn five-year national development plan for the country. However, the government has not yet indicated at what percentage rate this tax will be levied and on which level of profits. There is also no clear indication on when the planned super-tax may be introduced and it is still not clear whether this tax will be levied solely on new mining sector entrants or whether it will be levied on all mining companies currently operating in Tanzania.
On one hand, it is clear why the government has taken such a step, as it seeks to claim a greater share of the country's mineral wealth. According to a June 2011 report on Reuters, annual gold exports have tripled over the past five years, to around US$1.5bn, but government revenues from the mining sector have remained static, at around US$100mn a year.
However, weighed against this has to be the negative impact that such a super-tax will have on existing mining company sentiment towards Dar-es-Salaam. On the back of the announcement of the proposed tax, leading domestic gold producer African Barrick Gold's (ABG) share price declined by 7.8% on June 8. The company has four gold mines, all in Tanzania, and this news extends a troubled period for African Barrick, which has seen its stock price fall significantly since being floated in March 2010 due to problems over strikes, theft and falling output.
BMI's concern is that Tanzania, as one of the world's less-diversified gold producing nations, could see further development of the mining sector stymied by this new levy. As such, BMI would urge the government and the mining sector to carry out further negotiations around this issue in the months ahead.
It must also be stated that there are several other operating risks for mining companies in Tanzania at present, notably the country's poor infrastructure and unreliable power supply. BMI believes that the proposed tax could have a detrimental effect on inward investment into the country, especially given rising energy costs for mining companies and falling margins.
Gold Royalty Increase Another Concern
At the same time, the Tanzanian government has been holding talks with mining companies as part of its plan to increase gold export royalty payments from 3%, to 4%. According to an August 2011 report on Reuters, energy and minerals minister William Ngeleja has set the first week of September as a deadline for concluding negotiations with mining companies. There had been no final announcement on this issue at the time this report was written.
The Tanzanian mining industry is relatively small in terms of value, but its importance is highlighted by the fact that mining earns a significant share of the country's export revenues. The mining sector contributes approximately 2.8% to annual GDP, but the government wishes to expand this to 10% by 2025. Major foreign investors in Tanzanian mining include African Barrick Gold (ABG) and AngloGold Ashanti.
Tanzania is home to deposits of many metals and minerals, including: coal, cobalt, copper, diamonds, gold, nickel, silver and uranium. The country has long been a significant producer of gold (currently Africa's fourth largest producer) and diamonds. However, in the coming years, BMI also expects coal, nickel and uranium production to become key sub-sectors of Tanzanian mining output. Indeed, BMi has long held the view that coal should become one of the fastest-growing mining sub-sectors in Tanzania over the coming years, as the country looks to coal-fired power stations to offset an energy shortage that is holding back its development. The country could also be in a position to export coal in the future.
Concerns over a planned new super-tax notwithstanding, BMI is cautiously optimistic on the outlook for Tanzania's mining industry over BMI's forecast period to 2015. Gold production should increase as new projects are developed, with large-scale commercial coal and uranium mining also likely to start in the coming years. Nickel mining should also commence, with two major mining companies developing projects in country.
One further boost to the wider mining sector should come from the news that Chinese firm Sichuan Hongda is to invest US$3bn in the country to build a coal mine at Mchuchuma and an iron ore mine and thermal power station in Liganga.
According to an April 2011 report in Tanzania's Business Times newspaper, negotiations between Sichuan Hongda and the country's National Development Corporation are almost at an end, indicating that a contract to build and operate these mines should be signed soon.
The same report also quotes a local MP, Deo Filikunjombe, as saying that he is working to ensure that electricity is produced from Mchuchuma coal by 2013 and iron ore mined at Liganga from 2014. According to local media reports, Mchuchuma has some 536mn tons of coal reserves, while Liganga has total reserves of up to 1,200mn tons, including iron, vanadium and titanium.
Lastly, diamond production and exports will fall sharply during 2011, due to the temporary closure of the Williamson mine for redevelopment works. However, once diamond mining resumes in late 2011, diamond output is expected to reach new heights over the coming years, given mine owner Petra Diamonds' plans to increase output to 600,000 carats a year over the medium term. SHOW LESS READ MORE >
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Global Mining Outlook
Table: Recent Tax Increases
Table: Largest Coal Projects
Table: Frontier Mining Projects
Industry Trends And Key Projects
Table: Projects In The Pipeline
Mining Business Environment Ratings
Table: Africa Mining Business Environment Ratings
Tanzania's Business Environment
Table: BMI's Business And Operation Risk Ratings
Table: BMI's Legal Framework Ratings
Table: Labour Force Quality
Table: Annual Foreign Direct Investment Inflows Into The Middle East And Africa, 2006-2008
Table: BMI's Trade And Investment Ratings
Table: Tanzania's Top Export Destinations, 2002-2009
Long-Term Political Outlook
Industry Forecast Scenario
Table: Tanzania's Mining Industry, 2008-2015
Table: Recent Tax Increases
African Barrick Gold
Commodity Strategy – Metals Update
Global Assumptions, Q4 2011
Table: Global Assumptions, 2009-2015
Table: Global And Regional Real GDP Growth, 2010-2013 (% change y-o-y)
Table: Developed Market Exchange Rates, 2010-2013 (average)
Table: Emerging Market Exchange Rates, 2010-2013 (average)
Table: Developed States' Real GDP Growth, 2010-2013 (% change y-o-y)
Table: Emerging Markets' Real GDP Growth Forecasts, 2010-2013 (% change y-o-y)
Business Environment Ratings Methodology
Table: Mining Business Environment Indicators
Table: Weighting Of Components
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