Tanzania Mining Report Q3 2012

The Tanzanian mining industry is relatively small in terms of value, but its importance is highlighted by the fact that mining earns a significant share of the country''s export revenues. The mining sector contributes approximately 2.8% to annual GDP, but the government wishes to expand this to 10% by 2025. Major foreign investors in Tanzanian mining include African Barrick Gold and AngloGold Ashanti.
Tanzania is home to deposits of many metals and minerals, including: coal, cobalt, copper, diamonds, gold, nickel, silver and uranium. The country has long been a significant producer of gold (currently Africa''s fourth largest producer) and diamonds. However, in the coming years, we also expect coal, nickel and uranium production to become key sub-sectors of Tanzanian mining output. Indeed, we have long held the view that coal should become one of the fastest-growing mining sub-sectors in Tanzania over the coming years, as the country looks to coal-fired power stations to offset an energy shortage that is holding back its development. The country could also be in a position to export coal in the future.
We forecast rapid growth in gold and nickel production as the country begins to tap some of its mineral wealth. We expect Tanzania''s gold mining sector to recover from its temporary slowdown and post growth from 2013. Much of this growth will be driven by African Barrick Gold, which has four projects in the country. However, the threat of industrial action remains, given the tension between workers and employers at present. In addition, poor infrastructure could be a significant drag on production growth and may see projects delayed.
Aside from gold, nickel will be a significant driver of the country''s mining sector growth. Tanzania''s nickel output is set for dramatic growth as development of the north-west of the country commences. This region is home to some of the largest untapped high-grade nickel deposits in the world; several mining projects in the north-west will transform the country''s mining sector and reduce Tanzania''s dependence on gold as an export earner. In addition, many of these nickel projects are of relatively high grade and cash cost, which make the country even more attractive to investors.
We expect Tanzania''s mining sector to become less attractive to investors given the country''s push to increase regulation and raise taxes on the sector. While other countries, such as Ghana, Peru and South Africa, are also seeking to raise taxes on mining companies, Tanzania is going significantly further with plans to introduce an Australia-style 35% tax on mining companies'' profits and raising royalties. These tax rises, combined with a lack of adequate infrastructure and the absence of huge mineral deposits compared with many of its neighbours could push investors elsewhere on the continent.
One further boost to the wider mining sector should come from the news that Chinese firm Sichuan Hongda is to invest US$3bn in the country to build a coal mine at Mchuchuma and an iron ore mine and thermal power station in Liganga. The company plans to produce electricity from Mchuchuma coal by 2013 and iron ore mined at Liganga from 2014. Mchuchuma has some 536mn tons of coal reserves, while Liganga has total reserves of up to 1,200mn tonnes, including iron, vanadium and titanium.
Competitive Landscape African Barrick Gold dominates the country''s mining sector, with four gold mines that account for the vast majority of Tanzania''s gold production and a significant share of the government''s exports. The company has several expansion plans to drive output growth in gold production. African Barrick has had a troubled time of late, due to problems over strikes, theft and declining grades.