Tanzania’s Shakedown Of Acacia Mining Might Work – In The Short Term

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Tanzania’s pursuit of Acacia Mining – the lies over gold contents and taxation – looks like it might work in the short term. That very working in that short term being the proof that it won’t work in the long term of course. But then that’s the problem with politics, it’s always far too focused upon that short term to the detriment of the long.

As background here John Magufuli decided to try to shakedown Acacia Mining. They run some gold mines in Tanzania. Some of the gold is extracted as, well, as gold. Given the way this sort of mining works more of it ends up in something called copper concentrate. The Tanzanian gold mining industry just isn’t large enough to make it worthwhile processing that concentrate in country. The much larger and richer industry of DR Congo certainly used to process in country, but it would never make sense to do so in Tanzania, not at these volumes.

So, ship the stuff off to where it can be processed economically. Taxes are payable on the valuable components of that concentrate. This is fine, government should tax – until the pips squeak – the resource rent value. But the estimations of that value do have to be sensible. Which is where Magufuli decided to try it on.

Acacia runs gold mines in Tanzania. Govt alleges – and a government committee has confirmed via analysis – that Acacia is grossly underestimating gold content of semi-processed ore it exports. Thus a tax bill for 2 centuries worth of gross revenue that Acacia reports. This is a shakedown by Tanzanian govt. There is simply no way at all that there is the gold content being claimed. Quite apart from anything else, where the hell is the money going? For it’s most certainly not turning up in the company accounts. They’re also flat out wrong on their valuation method. Ore doesn’t pay out for what is in the ore, only for what is commercially extractable. So things like the level of Ytterbium are an irrelevance.

This is not a matter of opinion. The Tanzanian government is grossly, objectively, wrong here. So much so that they cannot possibly be making the claim in honesty.

Acacia has been in open dispute with the government of Tanzania since March, when the country banned the export of powdered gold concentrate, which represents about a third of its output. The government subsequently accused Acacia of under reporting the amount of concentrate it exports by a factor of 10, essentially amounting to a multi-billion dollar fraud dating back years.

The claim has about the same merit as the late Lyndon LaRouche’s insistence that Brenda runs a heroin ring out of Bucks House. Less actually, as Brenda might be a Grey Lizard, who knows?

But the terrible thing is that this might work:

Acacia Mining’s long-suffering shareholders were finally provided some relief after the gold producer’s biggest investor made a breakthrough in talks to end its costly row with the Tanzanian government. Canadian mining mammoth Barrick Gold brokered an agreement that would force Acacia to share the spoils of its mines in the country on a 50/50 basis and pay Tanzania $300m for “outstanding tax claims”. Acacia has seen its earnings and share price plunge after the East African country banned exports of gold concentrate, alleging that it owed $180bn in unpaid tax.

So, outrageous claims, the end result being a little rise in the royalty rate paid. This will be claimed as a victory for Tanzania. And no one will be seeking the unseen. How much less investment is Tanzania going to get as a result of the government blackmailing investors?

For that is what Magufuli has just done. Blackmail, at great and ongoing cost to the future economic development of Tanzania. That this will be hailed as a political victory is exactly what is wrong with politics.