Tanzania’s mining sector is about to take off despite government interference

Tanzania is emerging as an important hub for the mining of green energy transition minerals in East Africa despite the government taxing the sector heavily. 

The country is abundant in minerals and natural resources – including gold, lithium, diamonds, coal and natural gas. As of 2021, almost 500 active licence-holders were exploring more than 40 kinds of minerals in the country. They include gemstones (such as ruby, aquamarine, tanzanite, sapphire, emerald, rhodolite, opal, zircon, alexandrite, garnet, tourmaline, spinel, peridot and iolite); iron and base metals (nickel and cobalt); platinum group metals (platinum, palladium and rhodium); industrial minerals (soda ash, kaolin, salt, vermiculite, limestone, silica sands, phosphate, gypsum and mica); and dimension stones (granite, travertine, marble and quartzite).

The country is the ninth-largest diamond producer in Africa and boasts 13% of the world's graphite deposits. Its gold production amounts to 55,603 kg a year. It has enormous copper resources, including 5mn tonnes at Mwanga district in the Kilimanjaro region. 

Tanzania is also the only country in the world where tanzanite is mined. Tanzanite is a trade name that was first used by Tiffany and Co, the US luxury jewellery company, for gem-quality specimens of a mineral named zoisite with a blue colour. The tanzanite deposit of commercial importance is located in a 20-square km area in the Merelani Hills, near the base of Mount Kilimanjaro and the city of Arusha.

Mining activities contribute up to 7% to the country’s GDP, which the government would like to raise to 10% by 2025 as part of its economic transformation plan, called Development Vision 2025. The sector employs more than 310,000 Tanzanians. In the year to August 2023, gold exports totalled $2.95bn (up from $2.75bn in the year to August 2022), representing about 39% of the value of the country’s goods exported. It was primarily generated by large-scale mines. Coal exports for the same period were $227m (up from $82m the previous year). Analysts estimate that the mining sector could reach $6.6bn in value by 2027. The government wants to unlock $2.5bn of mining-related projects, which have been delayed for various reasons. 

Tanzania has a $79.6bn economy, with the IMF forecasting growth of 5.5% for the current year and 5.99% next year, among the highest growth rates in Africa. With a population of 65mn, its income per capita stands at $1,220 a year. Inflation is at only 4% and the government’s gross debt to GDP ratio is 46%, low by African standards.

The government and investors are excited because Tanzania is rich in critical minerals – essential components in the manufacturing of electric vehicles (EVs), renewable energy infrastructure and other ‘green’ technologies. There are 19 minerals licences at the grassroots exploration stage, including rare earth elements. It is also endowed with significant lithium deposits. Various projects in the pipeline are related to nickel, graphite and rare earths. Gold also represents an important future opportunity.

Tanzania hosts enormous natural gas reserves, which have been attracting a lot of attention from foreign investors. Developing the gas sector has been one of the government’s priorities during the past few years. But the mining industry also has tremendous potential. Since discovering large volumes of offshore gas, the country has put forward plans to become a major liquified natural gas (LNG) exporter. Its flagship Tanzania LNG project – set to process gas from fields operated by Equinor, Shell and ExxonMobil, producing 10mn tonnes per year (tpy) – is still awaiting the signing of a host government agreement. Shell’s blocks one and four have an estimated 16 trillion cubic feet (453bn cubic metres) of gas, while Equinor’s block two has yielded nine discoveries with more than 20 tcf (566 bcm) of estimated reserves. The country’s total estimated recoverable gas resources amount to 57 tcf (1.61 trillion cubic metres). 

The $30bn project backed by Equinor and Shell – which aims to feed gas from offshore blocks one, two and four to a processing facility in the southern part of the country – has been dogged by regulatory delays for many years. But it has the potential to transform the country’s economy.

Mining in Tanzania originates from the pre-colonial era when Arab and local traders exploited the country’s natural resources, including gold, copper, iron and salt. The German colonial administrations undertook the first commercial gold mining in the area surrounding Lake Victoria under in the 1890s. During the 1920s and 1930s, several British and South African mining operations began and diamonds were discovered in the Mwadui area. However, mining activity subsided during the Second World War, during which prospecting for gold was banned.

Following independence in 1961, the mining sector was increasingly brought under the direct control of the state and public institutions such as the National Development Corporation (NDC) and STAMICO, the state-owned mining company. It was not until the late 1980s that the government embarked upon a process of privatisation and liberalisation.

Today, the future of the mining sector seems a lot brighter than a few years ago, when the late President John Magufuli – in office between 2015 and 2021 – imposed punitive taxes on the industry. But analysts say the sector’s development is long overdue – the last large-scale mine to start production was the Buzwagi gold mine in Shinyanga region in 2007. 

In 2017, Magufuli’s administration introduced amendments to the Mining Act, which increased the royalty rate from 4% to 6% on gold, copper, silver and platinum. Furthermore, the reforms made it mandatory for all mining licensees to give the government at least a 16% free carried interest in the capital of their companies. The government is also entitled to acquire, in total, up to 50% of the shares in a mining company, proportional to the quantified value of tax expenditures incurred by the government in favour of the mining company.

The changes bred fear among potential investors in the industry. Australian miners operating in Tanzania interpreted the changes so severely that they abruptly halted trading on the Australian Stock Exchange (ASX).

In fact, it has taken a long time for international investors to regain confidence in the mining sector. But miners have a more favourable opinion of President Samia Suluhu Hassan since she assumed office in April 2021. She is actively supporting the industry and advocating for improved partnerships with mining companies. She is urging responsible officials to fast-track agreements with mining companies looking to execute operations.

Yet Tanzania still has a unique mining taxation model – based on an “equitable sharing principle” – which could put some investors off. The government and mining companies must share “economic benefits” based on an agreed split. But public information about these deals is limited. The sharing arrangement is based on the framework agreement template in the Mining (State Participation) Regulations 2022 and the framework agreement between the government and Barrick Gold, the Canadian mining company, which first detailed a sharing arrangement on a 50:50 split basis in 2019. 

Analysts believe the government has negotiated even larger shares in some subsequent deals. They argue that negotiating the split on a project-by-project basis – without any legal guardrails for the approach – increases the risks of corruption and unfavourable deal terms.

The country’s top mining projects are focused on critical minerals – nickel, graphite and rare earths – and gold include the Liparamba nickel project, located in Nyasa Ruvuma Province and targeting a 2-km-long “southern corridor” recently identified through exploration by Resource Mining Corporation, the Australian minerals producer and nickel miner Albidon.

Furthermore, the Kabanga nickel project is the biggest, highest-grade development-ready nickel sulphide deposit in the world. It is an active mine exploration project, located 130 km southwest of Lake Victoria in the Ngara district of the Kagera region. It is owned by BHP-backed Lifezone Metals.

The Ngualla rare earth project is one of the largest neodymium and praseodymium rare earth deposits globally. The project is owned and operated by Mamba Minerals Corporation, which is 84% owned by ASX-listed mineral explorer Peak Rare Earths through its 100% owned UK subsidiary Ngualla Group UK. In addition, the Chilalo graphite project is located within the Nachingwea property, a 5,400-sq km tenement area in the country’s southeast. It is the world’s highest-grade graphite deposit and is owned by ASX-listed company Evolution Energy Minerals.

The Lindi Jumbo graphite project is situated in southeastern Tanzania, around 200 km from the port of Mtwara. It is owned by Walkabout Resources, which recently said it was about to complete the mine’s construction. Furthermore, the Epanko graphite project is located in the Ulanga district in the Morogoro region. Duma TanzGraphite, a Tanzanian mining company, will develop and operate Epanko, with an 84% interest held by EcoGraf (formerly Kibaran Resources), the Australian miner, and a 16% free-carried interest held by the Tanzanian government. 

The Bunyu graphite project is wholly owned by Volt Resources, another Australian miner. The project is located close to critical infrastructure, with sealed roads running through the project area and ready access to the deep-water port of Mtwara, some 140 km from the site. Furthermore, the Mahenge graphite project is spread across 324 square km of exploration tenements in the Ulanga district. Black Rock Mining, an ASX-listed miner, has a 100% interest in the project, which hosts a multi-generational graphite resource.

The Nyanzaga gold project – owned by OreCorp, an Australian explorer – is an advanced development project in the Archaean Greenstones of the Lake Victoria goldfields, located in Nyanzaga. It is situated 60 km southwest of the city of Mwanza, 60 km east of the Geita Gold Mine (owned by AngloGold Ashanti), and 30 km northeast of the Bulyanhulu Gold Mine (owned by Barrick Gold).  

Moreover, the Singida gold project is located in Singida in the Ikungi district. The current life of the mine extends until the end of 2029, based on existing reserves. It is owned by Shanta Gold, the East Africa-focused gold developer and explorer.

In April 2023, an exciting $667m deal was signed between the government and three Australian companies (Evolution Energy Minerals, EcoGraf and Peak Rare Earths) to mine rare earths and graphite. The deal formed part of the president's drive to fast-track negotiations on long-pending mining and energy projects.

The deal included the Ngualla project by Peak Rare Earths for bastnaesite mining in Songwe, the Chilalo graphite project by Evolution Energy Minerals and the Epanko graphite project by EcoGraf.

Furthermore, Titan Lithium, a Las Vegas-based mining company, wants to consolidate its position in the country after discovering lithium deposits south of Mount Kilimanjaro. They have the potential to make Tanzania a leading global supplier of the increasingly sought-after mineral. 

It says initial results from separate soil geochemical samplings in two locations straddling the Kilimanjaro and Arusha regions indicate high lithium grades measuring up to 2.79% lithium oxide. It is now seeking formal drilling approvals from the authorities.

Furthermore, in March 2024 Tesla, the US EV maker, signed a contract to buy anode active material (AAM) in the country, through Australian battery-producer Magnis Energy Technologies, and its Tanzanian subsidiaries Uranex Tanzania and Magnis Technologies Tanzania. Tesla is expected to purchase 17,500-35,000 tonnes of AAM a year from 2025. 

Moreover, investors are increasingly seeking opportunities beyond traditional extractive practices that align with sustainable and non-extractive mining models. This shift reflects a broader global trend towards responsible and sustainable resource management.

In addition to minerals mining, the government wants the industry to capture more value from critical minerals before exporting them, through establishing mineral processing centres within the country. Last year, Tanzania said it would ban the export of unrefined lithium from 31 May, 2024. The government told lithium stakeholders that they must have plants for refining inside the country to increase the value of the minerals by at least 5% before export licences would be granted. 

Specific challenges that the industry faces include a complicated and lengthy licensing process for mining operations and a poor road and railway network in project areas. The government is considering adopting a more investor-friendly approach, including tax incentives and a new regulatory framework that prioritises investors’ interests. 

Furthermore, analysts say that communities living close to gold mines in the Geita region are suffering from water scarcity, deforestation and mercury contamination of their water resources. They argue that there is a need to promote safe, responsible, inclusive mining practices and better living conditions for the communities directly impacted by the mines. 

Tanzania's mining sector stands at the cusp of significant growth and transformation. Despite past challenges and government interference, the country's abundant mineral resources could position the country as a key player in the global critical minerals supply chain. With a renewed focus on cultivating relationships with international mining companies and streamlining regulatory processes under President Hassan's leadership, Tanzania could be on the verge of attracting substantial foreign investment and realising its mining potential.