Barrick Gold outlines Acacia deal with Tanzania

Barrick Gold Corp.’s [ABX-TSX; GOLD-NYSE] said it has reached a comprehensive agreement with the Government of Tanzania (GoT) to resolve ongoing disputes related to the operations of its Acacia Mining unit.

News of the resolution comes more than two years after Tanzania imposed a concentrates export ban after alleging that mining companies had underpaid up to US$50 billion in taxes over the past 20 years. It recommended that an export ban on concentrates remain in place until the back taxes are paid.

The GoT subsequently stated that it would not sign any agreements related to the ongoing disputes directly with Acacia (under its previous management), a move that prompted Barrick to offer to consolidate its ownership of Acacia in order to facilitate a deal with the GoT. Acacia has three mines in Tanzania, including Bulyanhulu, Buzwagi, and North Mara.

The terms of the deal appear to resolve certain key issues, including back taxes, go-forward economic split between Barrick and GoT, lifting of concentrate export ban (in place since March 2017), which should allow Barrick to begin re-opening the Bulyanhulu underground mine.

However, Barrick shares reacted to the lower gold price Monday, falling 2.2% or 50 cents to $22.08. The shares are currently trading in a 52-week range of $15.37 and $26.69.

The final agreements have been submitted to the Tanzanian Attorney General for review and legalization. In conjunction with the agreement, the company has formed a new operating company called Twiga Mineral Corp. to manage the Bulyanhulu, North Mara, and Buzwagi mines. Twiga is the Swahili word for giraffe, Tanzania’s national symbol.

Under the agreement, Barrick will pay $300 million to settle all outstanding tax. Economic benefits of the mines will be shared on a 50/50 basis (in the form of taxes, royalties, clearing fees, and a new 16% free carried interest).  An annual tune-up mechanism will also be put in place to maintain the 50/50 split.

The agreement also establishes a “unique, Africa-focused dispute resolution framework” though no specific details have been provided.

Other potentially material issues not addressed in the release include the treatment of VAT credits (i.e. whether Barrick will receive VAT refunds, doré and/or concentrate exports) or whether GoT will back down from previous demands for Barrick to build a smelter in Tanzania.

It is thought likely that these issues have been dealt with in the agreement.

Speaking after a meeting with the chairman of the Negotiating Committee of the Government of Tanzania, Prof Palamagamba Kabudi, Barrick President and CEO Mark Bristow said the agreements introduced a new era of productive partnership with the GoT and would ensure that Tanzania and its people would share fully in the value created by the mines they hosted.