A Tanzanian export ban has cast a shadow of doubt over a potential $4-billion (U.S.) merger between a Barrick Gold Corp. subsidiary and Toronto-listed Endeavour Mining Corp.
Toronto-based Barrick has been hunting for a buyer for its African subsidiary, Acacia Mining. The possible Endeavour deal could reduce its majority stake in Acacia to a minority holding, but the deal might now be delayed or scuttled by Tanzania's unexpected move to freeze the export of gold and copper ore.
Acacia and Endeavour had confirmed their "preliminary discussions" in January. A merger would create an African mining giant, with mines in five African countries.
But on March 3, the Tanzanian government announced the export ban. "It is expected that all the companies and individuals who were exporting concentrates and mineral ores to foreign countries for beneficiation (processing, smelting or refining) will immediately stop and start doing such activities within the country," the announcement said.
It said the ban would provide "more benefits to the nation" by providing "employment opportunities, revenues and technology transfer."
Acacia's shares immediately plunged by about 18 per cent on the London Stock Exchange, although they recovered somewhat later. The company said it responded to the ban by halting its gold and copper exports from Tanzania, where Acacia's only producing gold mines are located.
Acacia said it was "urgently seeking clarification" from the government. Gold and copper concentrate amounted to about 30 per cent of its revenue last year, it said.
Immediately after the ban was announced, Acacia's chief executive Brad Gordon flew to Tanzania to try to resolve the impasse. But there have been no new developments since then, a company spokeswoman told The Globe and Mail this week.
British media reports on the weekend, quoting sources at the companies, said the merger talks between Acacia and Endeavour had been stalled and thrown into doubt by the Tanzanian export ban.
Barrick, Acacia and Endeavour declined to comment this week when asked about the reports of stalled merger talks.
Barrick spokesman Andy Lloyd emphasized that the production affected by the Tanzania ban represented only 2 to 3 per cent of Barrick's total 2016 revenue. "We remain in close communication with Acacia regarding the matter," he said.
Acacia is the biggest mining company in Tanzania, and it says it has invested $3-billion in the country. The company is responsible for about 2 per cent of Tanzania's entire GDP.
Tanzania's popular new president, John Magufuli, is an anti-corruption campaigner and economic nationalist nicknamed "The Bulldozer" who has repeatedly criticized the foreign-owned mining companies in his East African country.
He has accused the mining companies of "a lot of funny deals" to avoid taxes in Tanzania. His government has revoked one of Acacia's prospecting licenses, and a Tanzanian tax tribunal has accused Acacia of "a sophisticated scheme of tax evasion." Acacia is appealing the court ruling, which ordered it to pay $41.25-million in additional taxes.
Last year, Mr. Magufuli insisted that the foreign mining companies must build smelters in Tanzania to process their minerals. But the Tanzania Chamber of Minerals and Energy, which represents the mining industry, has argued that smelters are not commercially viable. It said the country's annual production of mixed concentrate is about 60,000 tonnes, far less than the 150,000 tonnes needed to justify a gold smelter.
Negotiations between Acacia and the government over the export ban could be protracted. One global law firm, Squire Patton Boggs, has publicly suggested that Tanzania's foreign-owned mining companies could try to resolve the dispute by turning to arbitration under Tanzania's bilateral investment treaties with countries such as Britain and Canada.