Barrick and Acacia at odds over taxes paid to Tanzania

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The already difficult relationship between Barrick Gold Corp. and its African arm, Acacia Mining, has taken another blow over claims and counterclaims about Acacia’s tax payments – or lack thereof – to the Tanzanian government.

The spat comes at a tense time for Acacia, whose fate is uncertain as Barrick and African gold producer Randgold Resources merge under a deal announced this week. A new executive team will review the portfolio of the enlarged company and possibly sell, close or restructure mining projects, a process that was already well under way at Barrick.

In an interview earlier this month with The Globe and Mail, Barrick executive chairman John Thornton said Barrick’s Tanzanian mines, which have been housed in 64-per-cent-owned Acacia since 2010, “had not paid corporate income taxes” in Tanzania, although it had made other payments such as royalties and payroll taxes.

The allegedly non-existent tax payments, he said, had severely damaged Acacia’s standing with the Tanzanian government. About a year and a half ago, the government banned exports of gold concentrate, effectively crippling Acacia’s Tanzanian operations and sending its London-listed shares into a tailspin. Since then, Acacia – formerly known as African Barrick – has been cut out of the talks to negotiate a new economic-value sharing deal with the government.

Mr. Thornton’s tax comments apparently came as a surprise to Acacia, whose chief executive, Peter Geleta, dismissed them as “inaccurate” in a Sept. 18 internal memo to employees that was sent to them to “set the record straight.”

The memo said that Acacia and its predecessor corporate entities had paid US$1-billion in taxes and royalties to the Tanzanian government over 15 years. Mr. Geleta added that, in the first half of this year, the corporate tax payments came to US$23.3-million. In 2017, they were US$34.6-million. Over 15 years, the total tax payments have come to about US$140-million.

On Thursday, in a statement to The Globe, Mr. Geleta said that Acacia had to make “clarifying releases” to the Tanzanian government and its own employees after Mr. Thornton’s quotes were published in The Globe. “We were very surprised by Mr. Thornton’s inaccurate comments and reached out to Barrick for an explanation,” he said.

Neither Mr. Thornton nor Barrick have denied that Mr. Thornton said Acacia had paid no corporate taxes in Tanzania. On Thursday, Barrick tried to clarify this statement by saying that “Mr. Thornton slightly exaggerated to make the point that he believes the Tanzanian government deserves a larger share of the revenue generated by mining operations in that country.”

With Acacia out of the negotiating picture with the Tanzanian government, the file to create a new deal has been handed to Kevin Thomson, Barrick’s senior executive vice-president of strategy. Mr. Thornton himself has also waded into the talks and has met with Tanzanian President John Joseph Magufuli at least twice since last year. No breakthrough is thought to be imminent.

In the interview with The Globe, Mr. Thornton said that recruiting Chinese partners in Tanzania might help break the negotiating deadlock, since Chinese investors generally have a good relationship with the Tanzanian government. He said there was an “almost 100-per-cent chance” the Chinese will be brought into Acacia’s projects. “The Chinese need copper as far as the eye can see,” Mr. Thornton said. “I told the Tanzanian President that he has to have a strategic relationship with China.”

In his note to employees, Mr. Geleta said “we do not know why” Mr. Thornton had virtually promised that the Chinese would invest in Acacia’s Tanzanian projects, although he admitted Acacia had talked to “a small number of [Chinese] parties” earlier this year about selling a stake in one or more of the Tanzanian projects. Mr. Geleta said he was not aware of any new developments on the future ownership of Acacia or Barrick’s intentions for its controlling stake in Acacia.

The dispute with the Tanzanian government has played a big role in driving down the value of Acacia shares. They have plunged about 75 per cent in the past two years, taking the company’s market value to less than £550-million ($937.6-million). The shares, however, rallied earlier this week, when Barrick announced its US$6-billion takeover of Randgold.