Publisher: Miningweb, Author: Stewart Bailey
Posted: 2002/02/07 (c) Miningweb 1997-2002

It is no mistake that Tanzania has become the investment destination of choice for some of the world's biggest names in mining. The country has long suffered under the yoke of socialism and then a maverick brand of capitalism riddled by corruption; a common malaise crippling many African states. But under the new order, presided over by President Benjamin Mkapa, the government is making great strides to ensure a sound fiscal and macroeconomic framework, as well as a backbone of well trained and incentivised bureaucrats to oversee the economy's reformation.

The cornerstone of the rebirth of the central African state - along with a concerted drive to privatize bloated and inefficient parastatals - has been a reworking of Tanzania's mining legislation. The new regulatory framework around the country's resource sector has been customised to entice global mining companies to sink dollars into fixed investment in the country. As with many other Southern and central African states, Tanzania is well endowed with a wealth of minerals; gold, copper, zinc, diamonds and of course, tanzanite and the government is eager to capitalize on the country's natural riches.

Mining – the economic bedrock

According to a recent feature in the Washington Post, mining will contribute more than $1 billion a year to the Tanzanian treasury from royalty, tax and dividend payments within five years. Recent figures show its already on the right track; on an annualized basis, Tanzania's mining sector recorded impressive growth of around 17 percent a year between 1997 and 1999, while some of its major gold deposits were being developed. The Ministry of Energy and Minerals hopes the industry will represent as much as 10 percent of Tanzania's gross domestic product by 2025. Ambitious, but eminently achievable, according to senior mining and exploration players in the country.

Senior government officials acknowledge the success of the investor-friendly mining policy, but dismiss criticism that the state has given too much away to foreign raiders. Patrick Rutabanzibwa, the Permanent Secretary of the Ministry of Energy and Minerals, told the Post: "We have seemed to be very generous because we have had to be. We had to be as competitive as others who are already on the market, some of which already had good infrastructure."

The policy has worked. Even notoriously risk-averse Canadian gold producer Barrick, the world's biggest gold company, has pinned its colours to Tanzania's mast by developing its 500,000 ounce a year Bulyanhulu gold deposit in the country. Company executives gush about their investments at every chance, as do their peers at South Africa's AngloGold and London-based Ashanti Goldfields, the two gold giants that share the Geita deposit in northwest Tanzania, one of the world's most profitable mines.

Mid-tier miners stake their claims

But along with the mining giants, come a raft of middle tier and junior miners across the resources spectrum, hitching a profitable ride on the coat tails of the majors. A number of gold exploration companies have found substantial deposits in the greenstone belt surrounding Lake Victoria and the coloured gemstone sector has received a welcome boost from the introduction of tanzanite miner AFGEM, in the Northern part of the country.

The bigger picture – rosy

Mkapa's government has made great strides in correcting some of the economic devastation of Julius Nyerere's socialists and Ali Hassan Mwinyi's somewhat misguided capitalists. The picture looks good for investors, with inflation at its lowest point in almost three decades and growth for the year to July 2002 is expected to come in at an impressive 5.3 percent. Investment bank HSBC says the country is arguably one of the most attractive to do mining business in Africa.

"Civil unrest is virtually unheard of, a free floating currency, progressive policies and low inflation are all redeeming features of the economy," says HSBC in report.

But while the macroeconomic picture has been steadily improving, the new wave of mining investors into Tanzania has encountered their own brand of civil unrest. Most have had their mining lease areas swamped by locals before their projects have truly taken off. The invaders are unhappy at perceived irregularities in their resettlement or allocation of mining licenses. Seasoned mining campaigners working in the country say the locals are merely trying to net the best benefits for themselves before mining begins in earnest.

"It's become part and parcel of doing business in Tanzania and it can be managed. You only negotiate on your way in or on the way out and these guys are trying to get the most out of the foreigners -- who can blame them," says one operator.

AFGEM chief executive Mike Nunn is more than familiar with the problem, after the group's mine was invaded by small scale artisanal miners earlier this year.

The invasion was followed by a protracted court case, where Nunn says various groups of miners "with questionable representation", challenged the award of AFGEM's mining license. Far from being dejected by the militancy of some of the locals, Nunn focuses rather on the efficiency of Tanzania's legal system in dealing with matter, after what he describes as a "very thorough and professional" process.

"There can be no doubts in the minds of Tanzania's small scale miners over the legitimacy of our mining license, or of the support and commitment we have lent to the formalization of this industry. The case has given us a good idea of how the court system works," says Nunn. The complaint against AFGEM was dismissed in its entirety, with costs.

AFGEM – The mine

AFGEM's tanzanite mine lies in the northern town of Merelani, between the gem-trading center of Arusha and Mount Kilimanjaro, Africa's highest peak. Despite initial conflict with the garampieros working the claims on neighbouring its mine, AFGEM has established a solid relationship with the broader Maasai community that lives in the area.

Joanne Herbstein, head of investor relations for the group, says AFGEM has already built a school and a church in the region. It has also built an all-important road from the Kilimanjaro airport to the mine - AFGEM's vehicles account for less than one percent of the traffic on the road - and provides water for more than 4,000 head of cattle in the immediate (perennially drought-stricken) vicinity.