Tough times for Tanzania explorers targeting 'God-given minerals'

The share prices of ASX-listed Tanzanian explorers continue to suffer a month after drastic changes to the country’s Mining Act, research by Stockhead shows.

Of 11 Tanzanian plays reviewed by Stockhead, eight have lost ground, two are unchanged and one remains suspended following changes to local laws passed on July 4.

Share prices were down between 6 and 62 per cent as of August 4.

Once considered an investment-friendly country, the east-African nation stunned ASX resource plays last month with sweeping changes including compulsory 16 per cent government ownership of mining companies.

Tanzania, with a population of 52 million, is one of the world’s poorest economies, with per capita GDP of about $A3900 compared to $A56,000 in Australia.

But its vast natural resources are driving GDP growth of 6 to 7 per cent per year — and the nation aims to hang on to more mining revenue.

Tanzania is the fourth-largest gold miner in Africa after South Africa, Mali and Ghana.

The country has also been in the spotlight in recent years thanks to abundant discoveries of graphite fields across the country. Graphite has been one of the darlings of the metal scene due to its use in battery storage and other technologies.

Tanzania had been a relatively safe jurisdiction with limited sovereign and political risk compared to some of its African neighbours.

That encouraged a significant number of international mining companies to buy holdings and explore the country for graphite, gold, copper, silver and diamonds.

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In July those investments were thrown into jeopardy when the government introduced amendments to the Tanzanian Mining Act 2010 including potential renegotiation of agreements, a required 16 per cent government ownership of mining projects and the right to acquire up to 50 per cent of mining companies under certain conditions.

The amendments were in the form of three Bills which were passed by the Tanzanian Parliament and signed into law by President John Magufuli.

“We must benefit from our God-given minerals and that is why we must safeguard our natural resource wealth to ensure we do not end up with empty mining pits,” Mr Magufuli was reported as saying.

From ASX to Tanzania

We reviewed 11 ASX-listed stocks undertaking exploration or mining in Tanzania, according to Bloomberg.

Ticker	Company	Commodity	Opening Price (3/7/17)	Closing Price (4/8/17)	% Change
BKT	Black Rock Mining	Graphite	0.066	0.049	-0.2576
CXX	Cradle Resources	Niobium	0.32	0.12	-0.625
GPX	Graphex Mining	Graphite	0.385	0.24	-0.3766
IDA	Indiana Resources	Gold and Nickel	0.095	0.062	-0.3474
KNL	Kibaran Resources	Graphite	0.16	0.16	0
LTR	Liontown Resources	Lithium	0.008999999999999999	0.009	0
MNS	Magnis Resources*	Graphite	0.48	n/a	0
ORR	Orecorp Ltd	Gold	0.345	0.16	-0.5362
STA	Strandline Resources	Mineral Sands	0.006	0.005	-0.1667
VRC	Volt Resources	Graphite	0.03	0.028	-0.0667
WKT	Walkabout Resources	Graphite	0.08799999999999999	0.075	-0.1477

* Remains in voluntary suspension.

About half are prospecting for graphite including Black Rock Mining, Graphex Mining, Kibaran Resources, Magnis Resources, Volt Resources and Walkabout Resources.

Magnis, Kibaran, Walkabout and Volt are seeking clarity as they move towards development decisions.

After news of the amendments broke, the ASX took the unusual step of placing several Tanzanian explorers into trading halts. Since then, all except Magnis have resumed trading.

Walkabout Resources assessed the amendments to the Tanzanian Mining Act. While the amendments were of concern, they would not halt the company’s ability to develop its Lindi Jumbo Project, the company announced.

“The amendments are contrary to encouraging mining investment and of serious concern to all foreign investment in mining-related activities in Tanzania,” said executive chairman Trevor Benson.

“However, following a thorough review of the amendments and their potential impact on the company’s project, and after considering local and international legal opinion, the board considers that none of the amendments as they currently stand, would cause the company to halt or suspend its investment in the project or from working in Tanzania.”

For Cradle Resources (ASX:CXX), the proposed changes resulted in the canning of its proposed $55 million takeover bid by private equity-backed Tremont Investments. Tremont was seeking to take control of Cradle’s Panda Hill niobium project.

“Although significant uncertainty exists about the proposed changes, if passed without significant amendment they are likely to have an adverse effect on the project,” Cradle announced.

Exploration at Cradle’s Panda Hill niobium project

The proposed legislative changes to the Mining Act caused downgrades to several Tanzanian-focused stocks.

Blue Ocean Equities downgraded gold-play OreCorp (ASX:ORR) to “sell” and warned of Tanzania’s heightened sovereign risk. OreCorp’s key project is the Nyanzaga Gold Project in northwest Tanzania.

“Given the significant near-term uncertainty of the draft legislative changes, we believe many institutional investors will look to reduce exposure to Tanzania and we downgrade OreCorp to sell (from buy),” Blue Ocean analyst Steuart McIntyre said in the research note.

“In our view it is very difficult to predict how the situation in Tanzania pans out from here.

“While many of the proposed changes remain somewhat unclear, we believe the new legislation represents a marked increase in sovereign risk for Tanzania.

“We believe many institutional investors will simply sell holdings and avoid Tanzania-based investments until there is better visibility on the legislative framework.”

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.