The Mining (State Participation) Regulations, 2020

The Mining (State Participatio n) Regulations, 2020 The amendments of the Mining Act, 2010 back in 2017 and the publication of the revised edition of 2019 (the Amendments) introduced the right of the Government of Tanzania to be issued with not less than 16% of Free Carried Interest ( FCI) in any entity holding a special mining licence or mining licence (collectively referred to as ‘the Licences’). In addition, the Government has the right to acquire up to 50% of an entity holding the Licences depending on the tax expenditure enjoyed by that entity. Accordingly, the Mining (State Participation) Regulations, 2020 ( State Participation Regulations) came into force on 30 October 2020. The State Participation Regulations apply to nondillutable free carried interest shares (FCI Shares) in the capital of the entity holding either of the Licences.

In this summarized updater, we are going to highlight the key provisions of the State Participation Regulations. Key Provisions 1. Non-dilutable FCI Shares shall: (a) be treated as a special class of shares where the holder shall be entitled to payment of dividend of a fixed amount in priority to another class or classes of shares; and (b) not decrease in value or percentage of ownership of a shareholder or loss of some percentage of equity. 2. The holder of not less than 16% FCI Shares shall be the Treasury Registrar and shall hold those shares on behalf of the Government.

3. In addition to the right to hold the 16% FCI Shares, the Treasury Registrar shall have the right to acquire in total up to 50% of the shares in the entity holding either of the Licences to commensurate the total tax expenditures incurred by the Government in favour of the entity holding the Licences. 4. The total tax expenditures shall be calculated based on the total value of the tax expenditures enjoyed by the entity holding either of the Licences through tax exemptions and reliefs. 5. In every two years the Government shall review the tax expenditures enjoyed by the entity holding either of the Licences and accordingly the Government will determine how many shares it can acquire equal to the tax expenditure enjoyed by the said entity. 6.

The computation of the Government’s shares shall base on an amount of tax expenditure enjoyed by that entity up to the date of computation divided by the market value of shares at the date of computation. 7. Any benefit enjoyed arising from a stabilization agreement which may have been entered into between the Government (or the representative authorities) and the entity holding either of the Licences shall be included in the computation of the Government shares. 8. In determining the amount of FCI to be acquired by the Government, the following shall be considered (a) capital invested, (b) mining technology involved, (c) profit, and (d) total value of tax expenditures enjoyed by the relevant company.

9. The mode of and procedures for payment of profit resulting from non-dilutable FCI Shares or other additional shares to the Treasury Registrar shall be communicated to the relevant mining entity by the Treasury Registrar. 10. The Government as the holder of the FCI has the following rights: (a) right to participate in the company’s statutory meetings; (b) right to participate in the governance of the company; (c) have access to company’s reports relating to company’s accounts, directors and auditors reports; (d) appoint a director to represent the Government’s interest; (e) participate in the removal of a director; (f)automatic allotment to its FCI Shares without direct financial contribution by cash or otherwise for the value of shares; and (g) right to receive a proportionate share from any repayment of either equity, shareholding loan or third party loan. 11.

The FCI Shares to the Government shall be deemed to be fully paid up shares at the time of its allotment or issuance. 12. The FCI Shares to the Government shall exist throughout the life time of the mineral right. 13. The Treasury Registrar may issue specific or general directives to any entity holding either of the Licences relating to the Government’s FCI Shares in that entity. Our support for your We are a full-fledged law firm with expertise across various sectors. We have a strong mining team

business which provides ongoing support to mining companies and their service providers. Our attorneys have extensive experience in advising companies in all matters relating to mining and related operations in Tanzania, including representation in Government negotiations. Disclaimer The views expressed in this paper are those of the author only and should not be considered as an official interpretation, defamatory or interference of any legislation, laws or policies of any country including Tanzania. The contents of this paper should not under any circumstances be reproduced or used without our express written consent. It should not be considered as a legal advice to any of its recipient(s) and should not be relied upon without obtaining further legal advice. We accept no liability for any loss occasioned or suffered due to the contents of this paper.