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JULY 2014
Legal Focus
55 Mining Law
This month, we focus on the mining industry and find out more about the legal implications by speaking to Fayaz Bhojani, who heads the Corporate Law desk at FB Attorneys mainly focusing on Mining, Oil and Gas, Competition and Tax Law.
What are the common challenges faced by your clients when involved in Mining Law– e.g. too many/not enough restrictions, working
conditions/strikes, workers, etc.
The biggest challenge is taxation and lack of clarity in interpretation of some tax statutes. Mining Companies also face issues with the way their Mining Development Agreements (MDAs) are interpreted especially the tax and fiscal stabilisation clauses. For example an MDA might provide for certain taxes to be exempt, but the law doesn’t incorporate such exemptions leading to a conflict. However the Government is working on addressing this issue.
Other issues, as is the case elsewhere is labour but I believe these are more or less under control at the moment.
Overall mining is perceived by citizens as not having benefited the country the way it could have. This is arguable, although we see mining as having brought a number of direct and indirect benefits to specific regions in the country.
How has/can your firm assist the client when such challenges arise?
We have different departments handling poverty for
the different issues. For taxation, our tax department is one of the strongest in the country. When it comes to labour, we have both in house and external consultants who support our mining clients. We also have a dedicated client services person who oversees timely and effective delivery of our services.
What have been the main legislative developments within the mining industry recently?
The major one has been the Mining Act 2010 which has tightened the mining regime to ensure that more benefits accrue to Tanzanians. It provides for government participation in mining projects, limited the number of licences an individual company can have, removed automatic tax exemptions amongst others. The annual rent fees for licences including application fees have been increased by between 100 to 400% which has led to an outcry by local investors who see it as working against the principles of local participation in mining.
What are the current trends in the mining industry and how are companies are faring in the current landscape?
We must admit that in the last nine years, after the pro mining President
Mkapa government, there has been no new mines opened in Tanzania by the current administration. In fact two mines have actually closed down because of normal mining economics. Some observers see this as an anti-mining policy of the current government but we do not believe that is the case. We believe that the current president is pro mining and is working towards at least starting one mine (uranium mine) to his credit before his term of office expires in 2015. It is believed that the government will participate in this mining project.
Can you tell me about M&A within the mining industry at the moment? Is there much buoyancy? What is the situation regarding financing for mining assets at the moment?
M&A in the mining sector has slowed down. With resource prices having depreciated between 20 to 50%, mainly led by gold, the growth in the mining sector overall has slowed down, not only in Tanzania but around the world. Mining ventures are finding it hard to raise funds from capital markets as funding has tightened. You must realize that more than 90% of mining projects do not succeed and with depressed prices many projects are on hold. LM