Mining boom boosts gold companies in Tanzania
COMMODITY ONLINE - Published on January 19, 2010 at 18:00
Following is a report from the World Gold Council (WGC) on gold mining and the boom in gold production and various dimensions of mining construcion, production process and how it has helped leading global gold mining companies:
The most recent and thorough analysis of the macroeconomic impacts of large-scale gold production can be found in the life-cycle assessment (LCA) work based on Tanzania, conducted by OPM for the ICMM and by World Gold Council in the spring of 2009.
Capturing a broad array of data across the planned 40-year operating period of large-scale gold mining in the country (1995-2034), the study assessed both historical and forward-looking data from the largest operators in the country, as well as from one exploration-stage company. These companies were World Gold Council members Barrick Gold Corporation, AngloGold Ashanti and IAMGOLD.
The data collected spanned some 120 specific annual metrics – describing various dimensions of the gold mining construction and production process - starting with the beginning of construction of the first mine through to the planned closure of the last. Data inputs included fixed and variable costs of operations, community contributions, capital costs of the mine and ancillary facilities, capital costs of the operation, royalties and taxes paid, and closure costs. Appendix A contains the data collection template.
Since these figures are internal and confidential for each company, World Gold Council appointed the author as sole recipient and aggregator of the company data. Combining data from multiple companies preserved the confidentiality of information since only the aggregated data were provided to the OPM researchers. The aggregated figures were used by OPM in developing its paper for presentation to some 14 different government departments and ministries at the ICMM Workshop on Mining in Tanzania in Dar es Salaam in May of 2009.
This OPM research report − Mining in Tanzania – What Future Can We Expect? − reviewed the findings of the LCA in part against certain past criticisms of Tanzania’s gold industry (principally those contained in a 2008 report, A Golden Opportunity, sponsored by a number of faith groups).
However, before delving into the case of Tanzania specifically, it is useful to review the general pattern of largescale mining’s macroeconomic contributions which emerged from the ICMM’s Resource Endowment initiative and from its study of the four cases mentioned in the previous section. Figure 1 below summarizes this pattern schematically.
OPM summarized the key conclusions at each level of the inverted pyramid in Figure 1 which, starting with the most important, are:
1. Mining can be the main source of a country’s foreign direct investment. When this is the case (as it is in Tanzania) the volume of domestic investment is also likely to be significantly increased.
2. Mining can become a major source of foreign exchange by generating new exports, which can quickly overtake traditional exports in this role.
3. Mining often contributes a share of government revenues that is high relative to its share of GDP, since it is a highly visible and therefore an easily taxed activity compared with many traditional activities such as agriculture, small-scale manufacturing and artisanal mining.
4. Modern, large-scale mining is unlikely to contribute a large proportion of Gross Domestic Product (GDP) due to its highly capital-intensive nature. Its contribution to a country’s Gross National Income (GNI) is likely to be even smaller still due to the outflows of mining company dividends and interest on debt that represent part of the difference between GDP and GNI.
5. Modern mining cannot be expected to make a massive contribution to local employment levels. This is mainly due, again, to the capitalintensive nature of the industry and less because of the choices between expatriate and local employment, as is often asserted.
As with the countries profiled in the previous Resource Endowment case studies, Tanzania has witnessed an explosion of mining sector activity since economic liberalization measures – in general and for mining in particular were put in place in the mid-1990s and then gathered momentum. In Tanzania this trend began in 1986 with the Economic Recovery Programme, and then accelerated after 1995. As with many of the REI case study countries, this reform was characterized by greater private sector participation in the country and particularly by a more welcoming environment for foreign investment.
Mining specifically has benefited from the multiple reforms to Tanzania’s mining laws introduced since 1997, including financial legislation, a new Mining Law and relevant changes to the Foreign Exchange Act. As the OPM report shows, the growth of large-scale gold mining has responded rapidly to these developments. According to the Tanzania Chamber of Mines, contracts for six major new gold mines have been put in place since 1994:
Barrick’s Bulyanhulu in Kahama, (operations began in 2001)
Resolute’s Golden Pride in Nzega, (operations began in 1998)
AngloGold Ashanti’s Geita in Geita, (operations began in 2000)
Barrick’s North Mara in Tarime, (operations began in 2003)
Barrick’s Tulawaka in Biharamulo, (operations began in 2005)
Barrick’s Buzwagi in Kahama, (operations began in 2009).
The OPM report first of all considered the contributions of large-scale gold production thus far in Tanzania, based on data from domestic and international authorities such as the Tanzanian Department of Mines and other government agencies, and the UNCTAD World Investment Report, among others. Then the results of the LCA were considered in an attempt to anticipate the likely future levels of activity and the significance of these to Tanzania’s economic future and its involvement in gold mining.
.In line with the ‘inverted pyramid’ of mining’s macroeconomic benefits, Tanzania’s principal benefit from this large increase in gold production has been FDI. In the past decade, Tanzania The Golden Building Block Section 4 has seen a tremendous increase in FDI receipts.
UNCTAD data shows Tanzania in the upper-middle ranking of African countries in terms of FDI, with its FDI stock rising from US$2.78 billion in 2000 to US$5.94 billion in 2007. As OPM points out, in the early 1990s Tanzania would have appeared at the bottom of this ranking.
With the exception of South Africa, all of the currently higher-ranked countries are oil and gas exporters. How has Tanzania done this? The LCA data indicate that gold mining overwhelmingly dominates the surge in FDI, accounting for more than US$2 billion, nearly two-thirds, of this increase. Over the three years until 2007, Tanzania attracted more than double the FDI of its neighbor Kenya, traditionally a strong FDI-attracting nation.
The second major difference in Tanzania’s economy accompanying the recent growth of gold production is the marked transformation of its export sector. Since well before its independence in 1961, Tanzania’s exports were dominated by agricultural products – primarily coffee, but also tea, cashews, tobacco and sisal. This pattern continued through to 1999, since when gold exports have steadily grown to dwarf even the combined totals of the traditional exports (see Figure 2).
In fact, as OPM notes, between 1999 and 2008, traditional crop exports grew by approximately 4% on an annual basis, while non-traditional exports such as mined products and manufactured goods grew by 31% per annum. Within the non-traditional sector, gold exports alone have outpaced all other manufactured goods by eight to one in the peak of 2004, and still do so by a factor of two to one.
Without the recent earnings from gold mining, Tanzania would be foregoing some US$750 million per year in foreign exchange earnings – comparable to significantly more than the total annual aid flows to Tanzania in any year prior to 2006, and higher than the value of HIPC debt relief in most years. It is also 700% higher than the earnings from Tanzania’s main traditional export of coffee in recent years.