Mining Smart in Tanzania: Primary Mining Licences (PMLs) and Technical Service Agreements Explained

Mining Smart in Tanzania: Primary Mining Licences (PMLs) and Technical Service Agreements Explained 1. Can a non-Tanzanian own a Primary Mining Licence (PML)? No. PMLs are set aside for Tanzanians only and entities in which 100% is owned by Tanzanians, and all board members are Tanzanians. 2. Can a non-Tanzanian invest in a PML? Yes. A non-Tanzanian investor can invest in a PML subject to the following: (a) Converting the PML into a Mining Licence, which may involve amalgamation of several PMLs; and/or (b) Entry into a technical services agreement (TSA) with a PML holder. 3. What is the distribution arrangement under the TSA?

(a) PML holder is entitled to not less than 30% of the gross profit share from the production of minerals and concentrates after the royalty, inspection fees, and all government charges have been paid, regardless of the project’s operating costs incurred by the facilitator. (b) The remaining 70% which is inclusive of operating costs and other costs shall be retained by the non-Tanzanian investor. 4. Is the non-Tanzanian investor required to comply with Mining (Local Content) Regulations, 2018 (the Mining Local Content Regulations) when entering into the TSA with the PML holder? Yes. The non-Tanzanian investor is required to comply with the Mining Local Content Regulations when entering into the TSA with the PML Holder. Note that TSA is entered for the supply of technical services over the mine held by the PML Holder.

Part of the requirements under the Mining Local Content Regulations is to have an incorporated joint venture entity with an indigenous Tanzanian company. 5. What qualifies as a technical service? Technical service means expertise in mining, supply/purchase of various equipment or machinery, methods of operating machinery, or skills for conducting mining activities that are not available in Tanzania, provided for the purpose of supporting the exploration, extraction, processing, or knowledge of the minerals intended to be mined under a small-scale mining licence i.e. a PML. 6. What is the maximum period for the TSA? The TSA can be executed for a duration of three years at a time. Application for renewal can be lodged by a PML holder within three months before the expiry of the existing TSA.

7. How many PMLs can be included in the TSA? Maximum 10 PMLs held by one PML holder are allowed in one TSA and over same area. 8. Is the PML holder required to contribute any capital, equipment etc. under the TSA? No. The contribution of the PML holder is the PML only. 9. Is the TSA mandatorily registrable? Yes. The TSA must be registered by the Mining Commission. Any amendments thereto, must also be notified and registered by the Mining Commission. 10. Can the PML holder terminate the TSA at will? No. Just like any other contract, the PML holder cannot terminate the TSA at will unless the grounds for termination are either allowed under the TSA or the law. Otherwise, such termination will amount to specific and general damages against the PML holder provided the courts agree that such termination was without cause.

This calls for strong drafting language in the TSA so each party is aware of the right to terminate and the limitations thereto. 11. What is the minimum investment required for a PML? The Mining Act does not indicate the minimum investment capital but does indicate the maximum investment capital. A PML is defined as follows: ‘a licence for small scale mining characterized by minimal machinery or technology of an initial capital for investment which does not exceed US dollars five million or its equivalent in Tanzania Shilling’. 12. Are PML holders required to comply with environmental, and corporate social responsibility (CSR) regulations? Yes. The PML holders are obligated to comply with the environmental and CSR regulations throughout the existence of the PML and the mining operations. 13. What are the obligations of the non-Tanzanian investor over a PML?

(a) to provide technical assistance in mineral exploration, mining, machinery, various equipment, and expertise or skills related to mining activities and mineral processing; (b) to ensure that all immovable infrastructure complies with environmental protection rules and procedures (c) to ensure that the equipment provided to the license holder forms part of the contract, and if the contract is terminated for any of the stated reasons, the facilitator shall hand over to the license holder the exploration, mining, and processing equipment as agreed in the contract; (d) in consultation with the license holder, to prepare a comprehensive plan for the transfer of knowledge, skills, expertise, and technology to the license holder’s staff, in accordance with the requirements set out in the Commission’s Guidelines for Submission of the Local Content Plan in Mining Activities;

(e) in collaboration with the license holder, to prepare a solid plan for corporate social responsibility projects; (f) to conduct exploration within the licensed area while mining operations are ongoing; (g) to submit an approved environmental impact plan from the relevant authority in accordance with the Environmental Act, before or within one hundred and twenty days after obtaining the Commission’s consent to commence mining in the licensed area; (h) in collaboration with the license holder, to prepare a mine extraction plan, which shall be approved before or within ninety days after obtaining the Commission’s consent to commence mining.

(i) to prepare a mine closure plan and submit it in accordance with the procedures set out in the Occupational Safety, Health and Environmental Protection Regulations; (j) to prepare a plan outlining the procedures for exchanging knowledge and fundamental information regarding the technology used in production and mineral exploration activities. 14. Is the PML holder entitled to be paid his/her share in minerals or in cash? If it is in cash, what is the rate to be used? This is subject to an agreement between the PML holder and the non-Tanzanian investor. If it is agreed that the non-Tanzanian investor is paid in cash, the value of minerals shall be determined at not less than the price schedules which are circulated by the Mining Commission from time to time and it is the same rate which shall be used in assessing the royalties and taxes payable. 15.

On termination of the TSA, is the PML holder entitled to the assets and equipment bought, imported and brought into the PML area by the non-Tanzanian investor? It depends on where the equipment and the assets are registered/imported under. The non- Tanzanian investor is required to have an incorporated joint venture with an indigenous Tanzanian company as provided under the Mining Local Content Regulations. This means that, the non- Tanzanian investor will establish a company (the Company) in Tanzania, within which an indigenous Tanzanian company will hold equity. All assets and equipment imported under the Company shall be owned by the Company. Accordingly, if the PML holder holds shares within the Company, then the PML holder may have an indirect interest or right over the equipment and assets since the PML holder holds shares within the Company.

However, if the PML holder does not own any equity within the Company, then the assets and equipment will remain to be owned by the Company and PML holder will not have direct or indirect interest over the assets and the equipment. Accordingly, the Company should be allowed to remove its assets and the equipment from the PML area, unless the PML holder can establish a valid claim over the equipment and assets of the Company e.g. outstanding share of minerals already mined etc. 16. Can the PML holder and the non-Tanzanian investor commence their collaboration through a TSA and eventually proceed to convert the PML(s) into a mining licence? Yes. This is possible. This will allow the parties to continue with the mining operations whilst working to convert the PMLs into a mining licence. Note that, the moment the PML(s) are

surrendered to the Mining Commission for amalgamation and conversion into a mining licence, the mining operations shall be halted until the mining licence is issued. There is a provision under the Mining Act which allows for a continuation of the licence pending a grant or rejection of an application to renew a licence. However, strict interpretation means that, such automated extension does not apply to pending application for amalgamation and conversion of a PML to a mining licence. 17. Once the PML(s) is converted into a mining licence, it will be issued to who/which entity? Usually, the PML holder will surrender the PMLs to the Mining Commission and apply for a mining licence. The mining licence attracts issuance of a free carry interest ( FCI) of not less than 16% to the Government of Tanzania ( GOT).

The GOT will require entry into a framework agreement (FWA) and a shareholders agreement ( SHA), among others prior to the issuance of a mining licence. Once the FWA and the SHA is executed, there will be incorporation of a new entity ( NewCo) within which the non-Tanzanian investor, the PML holder (now no longer a PML) and the GOT will hold shares. Once the NewCo is incorporated, the mining licence will be issued to the NewCo and the mining operations can continue with an additional capital. The investment capital required for a mining licence is between US$ 5,000,000 to US$ dollars one hundred million or its equivalent in Tanzanian shillings. The distribution of shareholding between the non-Tanzanian investor and the PML holder under NewCo will be subject to their agreement but the two cannot hold more than 84% of equity since the GOT is entitled to not less than 16% equity.

Author: Amalia Lui Africa Projects (Extractives, Energy and M&A), Investment, Policy & Strategy Advisor | Business Development & Cross-Border Deal Execution | Government Relations, Risk & Legal Insight | 16+ Years Driving Growth Across Multiple Jurisdictions Email: amalia@amaluitz.com Linkedin: https://www.linkedin.com/in/amalia-lui-95548317/ 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.

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