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As Barrick Gold Corp.’s Tanzania Nightmare Deepens, Should Investors Worry?

The latest news out of Tanzania pertaining to the government’s mining laws and regulations as well as its latest stance on Acacia Mining aren’t very encouraging for Barrick Gold Corp. (TSX:ABX)(NYSE:ABX), and the gold mining conglomerate might suffer some small but significant losses.

Barrick owns a 63.9% in Acacia Mining, Tanzania’s biggest gold mining company.

Acacia Mining is in the middle of a serious dispute with the host government, which is accusing the miner of under-declaring the values of its mineral ore exports by a factor of 10 since 1998. Tanzania is therefore demanding unpaid royalties and taxes that could range in the billions.

Acacia has lost about a million U.S. dollars due to the government’s ban of unprocessed gold and copper ore concentrates since March 2017, and the company’s cash flows have almost halved since then. Any hopes for the lifting of the ban only lie in negotiations.

However, the latest news from the Tanzania parliament as well as negotiation preparations with Acacia Mining are indicative of a possible stalemate.

The Tanzanian government is said to have blocked Acacia Mining’s management from taking part in the negotiations and has indicated that it will only sit down with the Barrick team.

Relations between the host government and the miner have severely deteriorated, and the denial of Acacia Mining management’s attendance of the meetings could be a clear indication that Tanzania has no good intentions on the miner at all.

The worst development so far, and the most worrying one, is the passing of new mining laws early this week.

The Tanzanian parliament has swiftly and unanimously passed new mining bills and an amendment that could severely negatively affect all mining players in the country.

The new laws include the Natural Wealth and Resources (Permanent Sovereignty) Bill, the Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) Bill, as well as the Written Laws (Miscellaneous Amendments) Bill.

The laws will empower the local parliament to review all arrangements and agreements made by the government regarding natural resources and to renegotiate mining contracts.

The laws also bar the exportation of raw resources and encourage local value addition. This may be a blow in the face of Barrick, which is going into negotiations hoping that Tanzania will lift the raw mineral export ban that’s crippling Acacia Mining.

Most noteworthy, the new pieces of legislation mandate the government will take a 16% stake in mining operations and allow the government to acquire up to 50% stake in a mining company commensurate with the total tax expenditures incurred by the government in favour of a miner.

Most worrying is that the laws also make foreign investors ineligible to bring their grievances to international courts for arbitration; all negotiations will be finalized inside the country.

Should investors worry?

There is bad blood between Acacia Mining and the Tanzanian government, and the new government laws may have been influenced by the current impasse between the two parties.

Tanzania may make outrageous demands during negotiations with Barrick, and Acacia Mining investors may not endorse the outcome, leading to a further fallout.

The worst-case result may be a possible nationalization of half the equity stake in Acacia Mining should Tanzania make the laws effective immediately.

If the export ban is not lifted in good time, or at all, then some of Acacia Mining’s operations in Tanzania may have to be halted. In that case, Barrick will have to absorb some significant losses on its 63.9% stake in Acacia Mining.

Furthermore, Acacia Mining contributes about 10% to Barrick’s 2017 production guidance. If the impasse is not resolved, Barrick may have to revise down its production guidance for 2017, again.

A further downward revision in production guidance will not be good for Barrick’s stock, and the company may fail to meet its earnings and cash flow targets for the year.

Investors may need to follow Tanzania developments closely.

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Fool contributor Brian Paradza has no position in any stocks mentioned.

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