With production at Russian company Atomredmetzoloto (ARMZ) Uranium Holding’s Mkuju River mine, in Tanzania, imminent, the country’s mining sector is entering a new phase in which its gold output is increasingly balanced by a more diverse mining portfolio, Africa Practice analyst Tom Savory tells Mining Weekly.

He says several other uranium exploration firms are currently active in Tanzania, but cautions that it will take an upturn in uranium demand before new projects in the country are undertaken.

“This may occur soon, as it would not be surprising to see companies and investors becoming more bullish about Tanzanian assets when the mine starts to export its product,” states Savory.

In April, Mining Weekly reported that the licence, issued to Mantra Tanzania, a subsidiary of Australia-based Mantra Resources, was the first to be granted by Tanzania under its new mining legislation. Mantra Resources is wholly owned by ARMZ Uranium Holding.

According to ARMZ, the measured and indicated resources of the Mkuju River project, which is about 470 km south-west of Dar es Salaam, are estimated at 36 000 t of uranium, of which 10 000 t are in the inferred category. The average grade is 0.024% to 0.025% of uranium and Mantra Tanzania expects to produce 14 000 t of uranium each year during the mine life.

Initial projections show that Tanzania will gain $250-million a year in royalties from this project alone. The project is expected to create about 2 000 jobs.

The project has also been approved by the United Nation’s World Heritage Committee as Mkuju was removed from the Selous Game Reserve, which is a World Heritage Site. The project will affect only about 0.69% of the game reserve.

Country Overview

Jakaya Kikwete, president of Tanzania, East Africa’s second-largest economy after Kenya, is relying on revenue from the mining sector to be a key financier of its medium-term economic growth plan, which runs until 2016. The country is targeting an average growth rate of 8% a year.

According to Tanzania’s National Bureau of Statistics, the mining sector contributes a paltry 2.8% to the country’s gross domestic product. Earnings from the sector have increased steadily, from $1.7-billion in 2005 to $3.6-billion in 2011.

Tanzania implemented a new mining law in 2010 that aims to ensure that the nation reaps maximum benefits from the sector. The new law increased royalties to 5% for uranium, diamonds and uncut gemstones, 4% for gold and all metallic minerals, 3% for industrial and other minerals and 1% for gems.

Savory says gold will remain a key foreign exchange earner for the country; however, the failed takeover of gold mining company Barrick Gold’s controlling interest in Tanzania-focused gold producer African Barrick Gold by Chinese State-owned gold mine China National Gold, highlights the challenges of attracting foreign investment to the mining industry in the country.

“Additional challenges that the industry faces include rising tax burdens, major infrastucture deficits and crime,” he avers, adding that these challenges have placed significant pressure on the sector.

Savory notes that the recent decline in the gold price and the Tanzanian government identifying mining companies as a source of extra revenue, make the long-term profitability of some mining operations questionstable.

“Small and medium-sized producers are likely to be the future of the gold mining sector in Tanzania, and several firms in this category are active in the country,” he points out.

Additionally, nickel, rare-earth elements and coal are being explored, but nothing appears to be in the short-term pipeline for development, says Savory.

“Many of these projects require significant infrastructural improvements, particularly the provision of continual and uninterupted electricity supply, as well as upgrades to rail and port infrastructure, before investor confidence in new projects can be garnered,” he concludes.