Tanzania Proceeds With New Mining Tax Policy

CAPE TOWN () -- In of last year, Tanzanian President Jakaya Mrisho Kikwete directed the Energy and Minerals Ministry to review mining policies and laws. Two mining deals have been renegotiated, and more may be on the way.

At on Tuesday, Kikwete told delegates that Barrick [NYSE:ABX; TSX:ABX] and Resolute Mining [ASX:RSG] have signed new agreements that waive a tax concession.

"It will allow companies to pay tax earlier," he said at a news conference.

Under the new legislation, firms would pay the existing corporate tax of 30% and a royalty of 3% for gold and 5% for diamonds much earlier - with times depending on the life of the mines, he said. Under the old mining policy, companies could defer tax for up to 20 years.

Kikwete said Resolute and Barrick are the only two to sign agreements so far, but other mining companies have been notified of the change.

"We offer one of the more competitive fiscal incentives in the world," said Kikwete.

He said that there are numerous tax incentives in place, like allowances in the year of exploration.

"VAT does not apply to mining companies producing minerals for exports, for example," he added.

Barrick was the first to consent to the new legislation in late , after the government agreed to remove the clause in its earlier contract that required the company to pay 15% additional capital allowance on unredeemed capital expenditure. However, Barrick will be required to pay $6.76 million a year until it starts making profits.

Barrick has three producting properties in Tanzania: Bulyanhulu, Tulawaka JV and North Mara. In 2005, Balyanhulu mine produced 311,000 ounces of gold at total cash costs of $358 per ounce, Tulawaka, a 70/30 joint venture with MDN Northern Mining, produced 87,000 ounces at total cash costs of $253 per ounce (Barrick's share) and North Mara totalled approximately 250,000 ounces.

Resolute agreed to the new legislation in late November, after the government served a $32 million tax assessment on its subsidiary Resolute (Tanzania) Limited. The company estimates the cost impact of this package to be about $10-$15 per ounce of production.

Resolute Mining's Golden Pride project produced 145,043 gold ounces in 2006, down from 149,866 in 2005 at a cost of $312/oz, up from $269 in 2005.

Kikwete said that no further changes to royalty taxes are foreseen in the near future. However, many other mining companies have yet to sign the new agreement.

Other mining companies operating in Tanzania aside from Barrick and Resolute include AngloGold [NYSE:AU], which produces about 600,000 ounces of gold at its Geita Mine per annum, MDN Northern Mining [TSX:MDN] and TanzaniteOne [AIM:TNZ].

Companies exploring include Xstrata [LSE:XTA], Coeur d'Alene Mines [NYSE:CDE] and Tanzanian Royalty Exploration Corp. [AMEX:TRE; TSX:TNX].

Gold, diamonds, gemstones and industrial minerals are the country's main mineral resources. Tanzania is the third largest gold producer in Africa at about 50 tonnes per annum. In addition more than 200 kimberlite pipes are available - many of which are "yet to be evaluated," Kikwete said.

Source: Mineral Resources Department of Tanzania

"Prospects look good particularly for gas but also for oil," he said.

The country's mining sector accounts for roughly 3.3% of total GDP. There has been about $2.5 billion in foreign investment since 1998, according to Kikwete.

"Tanzania is open for business, I invite all of you to come to Tanzania and join hands with us," concluded Kikwete.

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