The Mining (State Participation) Regulations of 2022

Acquisition of Equity Interest (Regulation 6)

The Government is now allowed to participate in mining activities through holding equity interests in any mining venture including mineral beneficiation.

The SPR 2022 require ML or SML holders, to, within 90 days from the date of publication of the Regulations, give notice to the Mining Commission to initiate negotiations to enable the Government to acquire a shareholding in the venture.

The JV arrangement must be governed by a Framework Agreement substantially in the form set out in the First Schedule.

Accordingly, the Government equity interest must comprise of or a combination of:

1. statutory allocation of shares by every mining interest in the form of non-dilutable FCI;
2. shares acquired by the Government through contributing its reversionary mineral rights to the JV, which shall reflect the surrender value of such rights;
3. shares acquired through quantification of tax expenditures enjoyed by the mining entity during its establishment provided that the total Government shares in such entity shall not exceed 50% thereof; and
4. shares mutually negotiated and agreed upon between the Government and the mining company.

In the SPR 2020, other than the FCI shares, the Government could only acquire in total up to 50% of the shares in a mining company or any other person holding a ML or SML commensurate with the total tax expenditures incurred by the Government in favour of a mining company or any other person holding ML or SML.

FCI Shares (Regulation 7)

In negotiating the percentage of FCI shares to be issued by the Government over and above 16%, the following must be taken into consideration:

1. extent of Government development of the public infrastructure servicing the mining venture; or
2. any specific infrastructure put in place by the Government which is intended to make the particular venture feasible.

Further, the FCI shares now entitle the Government to the following rights:

1. to appoint two suitable persons, with pertinent qualifications as independent members to the Board of Directors of the company;
2. to, subject to the structure of the company and qualifications set out by the company, approve at least two suitable persons to the Top Executive Management of the company as may be agreed in the shareholders agreement: provided that any other management positions created by the Company shall be shared with the Government Shareholder on a ratio of 3:1;
3. to participate in assets distribution on winding up; and
4. to receive distributions made by the company, including loan notes in respect of qualifying shareholder loans.

The above rights come with no obligation on the part of the Government to provide financial contribution on account of its shares even where there is an increase in share capital. In addition, the Government’s FCI shares shall not be diluted on the basis of increase of shareholders or on account of the borrower.

The rights of the holder of FCI shares included:

1. to be issued with a certificate as evidence of title over a number of shares held in a mining company;
2. to be registered in the members’ register of the company which shall be kept at the registered office of the company within Tanzania;
3. to participate in the company’s statutory meetings, including annual general meetings and other meetings and the right to vote;
4. to participate in the governance of the company;
5. to have access to the company’s reports relating to company’s accounts, director’s and auditor’s reports;
6. to receive dividends;
7. to appoint a director to represent Government interest subject to the provisions of the Memorandum and Articles of Association;
8. to participate in the removal of a director;
9. to the automatic allotment to it of shares of a mining company without direct financial contribution by cash or otherwise for the value of shares;
10. to actual ownership of the non-dilutable FCI shares from the start; and
11. to receive a proportionate share from any repayment of either equity, shareholding loan or third-party loan.

The new regulation in the SPR 2022 provides additional clarity on the entitlement to the FCI shares and how these can be increased as well as other rights granted to the Government Shareholder.

Framework Agreement, Shareholders Agreement & Articles of Association (First, Second and Third Schedules) 

The new regulations have detailed the three documents which are substantially supposed to be adopted by the parties, subject to amendments as maybe negotiated and agreed between the parties.

This is a new concept.

Reversionary Mineral Rights (Regulation 4)

The Government can acquire an equity interest in a JV arrangement by contributing its reversionary mineral rights with a surrender value.

This is a new concept.

Loan Notes (Regulation 8)

The mining company has an obligation to issue loan notes, to the Government, representing a percentage of FCI shares for:

1. any shareholder loan which bears interest; and
2. any shareholder loan raised from an external third party for the purpose of on-lending the funds to the mining company.

However, there is no obligation to issue loan notes to the Government for:

1. any shareholder loan which does not bear interest; and
2. any shareholder loan agreed by the parties which bears a reasonable interest rate that is advantageous to the company.

In the SPR 2020, the Government was entitled to receive a proportionate share from any repayment of either equity, shareholding loan or third-party loan but did not provide for a mechanism to do so.

However, the SPR 2022 provide for a mechanism for the Government to receive its proportionate share through loan notes.

Preferential Shares (Regulation 9)

The FCI shares are now expressly regarded as preferred shares which entitle the Government to dividend, paid at a rate equal to the percentage of FCI, immediately once a distributable profit is recognised by a mining company.

The SPR 2020 treated the FCI shares as a special class of shares with the entitlement to payment of dividend of a fixed amount in priority of another class or classes of shares.

Principle of Mining JV Arrangements (Regulation 11)

The SPR 2022 provide for the underlying principles of any mining JV arrangement with the Government Shareholder which include:

1. application of the equitable economic benefits sharing principle must be on the life of the mine;
2. having a jointly agreed financial model to guide the management and operations of the JV company substantially in the form set out in the Fourth Schedule;
3. jointly managing the JV company in accordance with the Shareholder Agreement in the form set out in the Second Schedule;
4. agreeing on the fiscal assumptions underlying the economic benefits sharing principle;
5. JV company to hold all proceeds from the sale of mineral products in local and foreign currency bank accounts in Tanzania;
6. issuing a ML or SML to the JV company;
7. preference of Tanzanians for appointment to the management positions; and
8. agreeing on modalities of in-country beneficiation of minerals.

Further to the above, the SPR 2022 allow the Government to opt for another modality of state participation in any mining JV other than by the above-mentioned principles by:

1. submitting a special request to the Cabinet giving details of the modality proposed;
2. articulation of the most economic benefits to be acquired; and
3. detailed reasons on why such most economic benefits cannot be achieved through the abovementioned principles.

This is a new concept.

Management of Mining JV Entities (Regulation 12)

The day-to-day running of the JV entity must be governed by the Articles of Association in the form set out in the Third Schedule.

This is a new concept.

Surrender Value and Conversion of Reversionary Mineral Rights (Regulation 5)

 The main thing to note here is that:

1. each reversionary mineral right shall have surrender value for the purpose of quantifying Government contribution to equity capital in any mining JV arrangement;
2. in determining surrender value for the purpose of determining the quantity of Government contribution, the Geological Survey of Tanzania shall need to examine feasibility study and exploration reports submitted by the prospective mining company;
3. for purposes of carrying on mining JV activities, reversionary mineral rights shall be convertible to a ML or SML; and
4. where an area of land which becomes the subject of reversionary mineral rights is not yet explored, the prospective mining company shall have the right to enter into the land subject to having executed a Deed of Preliminary Undertakings satisfying conditions for carrying out a feasibility study and exploration.

This is a new concept.

New Definitions (Regulation 2)

“Government Shareholder” means the Treasury Registrar or a company established or designated as such to hold Government shares in accordance with these Regulations;

“Mineral rights” means prospecting licences, retention licences, mining licence and special mining licence;

“Mineral resource estimation” means quantification of grades and tonnes of mineral deposits present in a given area;

“mining interest” means any entity carrying on mining activities under a mining licence or special mining licence;

“mining joint venture arrangement” means a joint venture arrangement between the Government and a mining company or investor for carrying out any mining activity or mineral refining or processing;

“level of investment” means the investment level determined by the Mining Commission pursuant to the provisions of regulation 10;

“prospecting licence” has the same meaning ascribed to it by the [Mining] Act [RE 2019];

“public infrastructure” means infrastructure facilities, systems, and structures that are developed, owned, and operated by the Government, including all infrastructure facilities that are open to the general public use;

“retention licence” means a licence that ceased to exist by operation of regulation 21 of the Mining (Mineral Rights) Regulations;

“reversionary mineral rights” means mineral right which revert to the Government upon cessation by operation of law and includes Prospecting Licence, Retention Licence, Mining Licence or Special Mining Licence;

“reversionary certificate” means certificate granted under regulation 4(2) to the Government Shareholder in respect of reversionary mineral rights;

“surrender value” means the value of reversionary mineral rights to be determined pursuant to these Regulations for the purpose of determination of the Government’s equity contribution to a mining joint venture arrangement or any other arrangement;

“top executive management” means top management officials responsible for executive matters relating to management of company’s affairs;

These were not provided in the revoked SPR 2020.