Tanzania’s mining industry is facing its toughest period in recent years owing to the gold price affecting the sector this year, says consultancy firm Africa Practice senior consultant Tom Savory.

He explains that, despite this, the country has had some success in this sector, as it emerged in the late 1990s and grew robustly in the 2000s. As a result of the last decade’s strong upward price trajectory, Tanzania’s mining industry boomed.

Current State of the Industry

Tanzania’s gold mines are some of the most expensive operating mines in the world – at $1 300/oz – there are genuine profitability questions, Savory notes, adding that the Tanzanian government is pushing hard for additional revenue collection from the gold sector.

“Retroactive application of new royalty rates is still disputed, while a dispute over value-added tax refunds, coupled with slow administrative processes, means that the Tanzanian Revenue Authority has millions of dollars of mining company funds locked away,” he says.

Savory adds that although mining companies received enviable deals in the late 1990s and early 2000s, government is unfortunately damaging long-term investor confidence in Tanzania by aggressively reneging on its responsibility to uphold its side of the contracts.

“The costs of securing mine sites is increasing, with hundreds of incursions taking place daily at some sites, and, unfor- tunately, falls and deaths at mines by intruders have happened,” he states.

Savory emphasises that there are still some smaller, more flexible companies that have developed less costly mines, which is creating positive momentum for gold in Tanzania.

The status for other metals in the country is more positive, he adds. Tanzanite miner TanzaniteOne has registered a positive response to its partnership with State mining company Stamico.

According to the company’s website, the world’s only tanzanite-producing area is located near Mount Kilimanjaro. Only 2 km wide and 4 km long, it is split into mining blocks A, B, C and D.

TanzaniteOne holds the licence to mine the largest of these – Block C. Using sophisticated hard-rock mining techniques at down-shaft depths of up to 900 m. Local artisanal miners mostly mine the remaining blocks.

Further, mining group Petra Diamonds’ Williamson diamond mine, south of Mwanza, has also recorded significant investment in redevelopment. This has resulted not only in promising extraction results, but also, according to the company’s website, increasing the life of the mine from 20 years to 50 years, as 39.4-million carats of the major resource has been revealed.

Tanzania will also be exporting uranium shortly, as uranium mining company UraniumOne is making positive progress with its uranium project in the south of Tanzania. According to Tanzanian media, the Mkuju River site is said to contain at least 36 000 t in known uranium deposits.

Exporting the uranium is likely to spark new interest in the strategic metal. Several firms have good exploration projects, but the low price of uranium has led to these firms struggling to develop the projects, says Savory, adding that, by proving that the industry is profitable in Tanzania, it will be easier to address challenges and raise funds.

Future Gold Prospects

Savory explains that exploration expenditure is currently at an all time low, owing to a decrease in global prices, and market-specific factors, keeping costs high. If prices return to $1 800/oz, the industry’s energy will re-emerge. However, if the price drops below $1 000/oz, it would end the current era of large gold mines in Tanzania in the short term.

Challenges

Savory notes that there has been a diplomatic push for the fast-tracking of nickel production, with the US and Tanzanian government attempting to bring the idea to the surface. “However, realistically, with huge energy and infrastructure needs, the sector is unlikely to develop in the next five years. The coal sector mirrors this, with small deposits unlikely to be commercialised without significant developments in transport infrastructure and power generation,” he explains.

Access to power in most of Tanzania’s mining areas is almost nonexistent and, therefore, miners are forced to invest in grip extensions or use expensive (heavy fuel) generators.

The current transport infrastructure is suitable for the low volume or high-volume minerals, such as gold and gems, but to develop nickel or coal projects will require significant upgrades of ports, rails and roads to make them commercially viable, says Savory.

The discovery of major gas deposits in Tanzania’s deep offshore will most likely revolutionise the country’s economy in the next decade. Tax revenues generated from exports could potentially dwarf those of the mining industry, says Savory, noting that it is difficult to predict how government will react to these changes, especially with one, if not two elections prior to the completion of any projects.

Solutions

The Tanzanian government recently announced the Big Results Now initiative, which is a comprehensive system of implementation that will focus on six priority areas of the economy – energy and natural gas, agriculture, water, education, transport and mobilising of resources. The aim of the initiative is to help develop Tanzania into a middle-income country.

With the delivery targets falling just prior to what will be a landmark general election, there is considerable political will to secure measurable progress. The Ministry of Energy and Minerals (MEM) is leading government’s public pledges on action, and the MEM’s targets centre on energy generation and distribution.

Further, as transport infrastructure is a priority area of the Big Results Now initiative, rail, road and ports are scheduled to be upgraded; however, realistically funding of these projects is a major issue and it is unlikely that the initiative will deliver in the sector.

One project that is likely to make a difference to transport, however, is the development of a new port in Bagamoyo, north of Dar es Salaam. Funded by China, the project will be a centrepiece of President Jakaya Kikwete’s legacy and is likely to be prioritised over the next few years.

A new port will dramatically increase Tanzania’s commercial competitiveness, as there is currently an over-reliance on Dar es Salaam’s notoriously corrupt, slow and overburdened facilities, making logistics difficult, says Savory.

US president Barak Obama’s Power Africa initiative, a commitment of $7-billion to expand energy access across the African continent, is also set to build momentum and raise private-sector interest in Tanzania’s power sector, while the Mnazi-Dar gas pipeline will also add extra power generation to the commercial capital. The 532-km-long pipeline will carry Mnazi Bay gas along the main line to Dar es Salaam and other major population and industrial centres. The initiative and pipeline could make a difference to the operating environment for miners, if fully successful, says Savory.

The prioritisation of distribution to the ever politically significant Tanzanian consumers, however, means that mining companies are unlikely to benefit directly in the short to medium term, even in the unlikely event of Tanzania achieving such ambitious infrastructure developments, states Savory.

He notes that with so many abundant metals, the long-term potential of the Tanzanian mining industry remains impressive. “However, realising success depends on political will and the development of infrastructure to enable these projects to become commercially viable.”