Rumours of Tanzania mining Super Tax

Tanzanian President Jakaya Kikwete is excited by the possibility of increasing revenues through a mining super tax.

Tanzania has become one of the fastest emerging gold producers in Africa, and is now the continent’s third largest gold producing country after South Africa and Ghana. Tanzania has proven gold reserves in excess of 36 million ounces and each year since 1998, a new gold mine has been opened in Tanzania. Majors mining gold in Tanzania include South Africa’s AngloGold Ashanti (NYSE: AU) and Barrick Gold (TSX: ABX) through its subsidiary African Barrick Gold (LSE: ABG).

Today, Reuters reported that the Tanzanian government is considering a “super profit” tax on earnings from miners in order to fund the development of their nation. President Jakaya Kikwete said on Tuesday, “Revenue from the mineral resources will be one of the important sources of financing the medium-term plan. Considering the increasing trend in mineral prices, it is optimal to introduce a super profit tax on the windfall earnings from the mineral sector.”

Gold exports from Tanzania account for 7% of the country’s gross domestic product. Annual sales of gold have grown from $500 million to $1.5 billion over the past five years while the government revenue from sales of the metal has remained at $100 million from a report issued by the East African nation’s planning commission.

Most mining contracts in Africa were negotiated in the 1980s and 1990s when commodity prices were low and political risks were high which discouraged foreign investments in Africa’s mining sector. Festus Mogae, the former president of Botswana, one of Africa’s most successful mineral exporters, stated that previously African countries had to entice investors by granting incentives such as extensive tax and royalty exemptions. Consequently, many countries earned very little from such contracts. “That is why it is necessary to renegotiate some of them,” he said at a meeting of the Africa Development Bank.

Tanzanian Royalty Exploration Corporation (TSX: TNX) is a junior miner with gold exploration projects in the Lake Victoria Goldfields of Tanzania. The company is developing the projects independently and in association with third parties. James Sinclair, the company’s President & CEO issued a statement on the company’s website refuting the reports on the proposed super tax as erroneous. Mr. Sinclair wrote, “Rumours of a supertax on minerals production in Tanzania are totally without merit and based upon a recommendation by a Uganda-based non-governmental organization that is not connected to the Tanzanian government in any way. It is the company’s understanding that no such supertax has been proposed in the latest budget tabled by the Tanzanian government.”

Tanzanian Minerals (TSX-V: TZM)Canaco Resources (TSX-V: CAN), and Currie Rose Resources (TSX-V: CUI) are three juniors listed on the TSX Venture Exchange with exploration activities in the East African nation of Tanzania. All of which may, or may not, be affected by the rumoured super tax.

Mike Luft

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