Barrick Strikes $300 Million Deal With Tanzania in Acacia Fight

(Bloomberg) -- It took a day, but Barrick Gold Corp.’s tentative deal with Tanzania’s government to end a tax dispute at its African subsidiary is becoming clearer.

In a press conference and two statements, the world’s largest gold producer revealed that Acacia Mining Plc would pay Tanzania’s government $300 million and divide the future “economic benefits” of its mining operations in the African nation.

The proposed payment is a “a show of good faith,” Barrick Executive Chairman John Thornton said Thursday at a briefing after a six-hour meeting with President John Magufuli in the commercial capital, Dar es Salaam.

“A partnership requires trust between the two parties,” Thornton said. “I wouldn’t be standing here today if we didn’t feel that there was good trust established between the two parties as a result of our three months of discussions.”

In a subsequent statement, Toronto-based Barrick clarified that its subsidiary would make the $300 million payment and reiterated it agreed with the government to establish a working group that will seek to resolve outstanding issues on the tax claims, including the terms of the payment.

50/50

As part of the proposed deal, a new Tanzanian operating company will be created to manage Acacia’s three main mines, and the government “will participate in decisions” related to its operations, investment, planning, procurement and marketing, Barrick said in a second statement. The economic benefits would be split on a 50/50 basis between the new company and Tanzania, and the government’s share will be “delivered in the form of royalties, taxes, and a 16 percent free carry interest in the Tanzanian operations,” Barrick said.

Magufuli in July slapped a $190 billion tax bill on Acacia Mining, which is 64 percent owned by Barrick, claiming the company under-declared export revenue from its mines from 2000 to 2017. Acacia stopped underground production at its Bulyanhulu mine in September until the dispute is resolved, and said output would drop as much as 17 percent this year as a result.

Acacia rose as much as 41 percent in London, the biggest intraday gain since its initial public offering in March 2010, and ended the session up 16 percent. Barrick fell 0.2 percent in Toronto.

All of the proposals are subject to review and approval by Acacia’s board and shareholders, Barrick said.

State Supervision

Acacia said in its own statement it had yet to sign off on the plan. “Acacia has just received a copy of the framework agreement referred to in Barrick’s release and is seeking further clarification,” it said.

Justice and Constitutional Affairs Minister Palamagamba Kabudi said the two sides also agreed:

• The state will have representatives on the board of the company and at every mine.
• The company will hire local full-time staff.
• Acacia will have the headquarters for its operations in Mwanza, Tanzania.
• Acacia will keep all cash generated by mines in Tanzania in accounts within the country.

The funds that Acacia pays will be used to fund infrastructure projects in Tanzania, Magufuli said at the briefing. Magufuli is overhauling the country’s natural-resources industry to try to ensure the government gets a greater share of revenue from its raw materials and help finance his plan to industrialize sub-Saharan Africa’s sixth-biggest economy. The country plans transport and utilities projects worth at least $19 billion, according to PricewaterhouseCoopers LLP.

“This new structure that Barrick has recommended, a system for the 21st century, of a 50-50 partnership, is a huge shift in the regulation of natural resources, not only on the African continent, but the world,” Magufuli said. “This shows the intent of the Tanzanian government, but also the intent of Barrick: that now we open a new chapter that will enable Tanzanians to see the benefits of their mines.”

--With assistance from Danielle Bochove Tom Wilson and Steven Frank

To contact the reporter on this story: Omar Mohammed in Dar es Salaam at omohammed4@bloomberg.net.

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, James Attwood at jattwood3@bloomberg.net, Liezel Hill