Acacia focus on downsizing, Chinese partnership not convincing

24Oct 2018
Financial Times
Acacia focus on downsizing, Chinese partnership not convincing

BARRICK Gold Inc., the Canadian firm that owns 64 per cent of Acacia Mining shares, seems to be on a standstill in its handling of the crisis facing its virtual subsidiary,-

and tenaciously clinging to its prerogatives and strategic objectives that had long been known before the 2017 gold sand exports dispute.

Since the differences emerged, and on the basis of grounds that Barrick Gold freely admits but Acacia often makes an effort to deny – like not paying any income tax during its whole period of operations – the parent company has lacked any real strategy. Recent remarks by the Barrick chief executive shows this.

Prof John Thornton, who is familiar with the situation as he has been closely involved in negotiations with the government, first the proper details with Justice and Constitutional Affairs minister Prof Palamagamba Kabudi and then the wider strategic issues with President Dr John Magufuli, shows no movement in intentions.

Before the crisis was even being imagined the company was regularly talking about selling its African wing, African Barrick Gold (which became Acacia Mining) to a non-identified Chinese bank, an idea that fell through.

More than a year since the crisis broke out, that same idea is surfacing in remarks the Barrick chief executive gave at home in Vancouver, Chinese ‘involvement.’

For local observers, what is most glaringly lacking in his remarks was what to do with the gold sand that the government has restrained its being exported, as its proper minerals content was the subject for tricks and deception, facilitated by inspection and audit officials sleeping on the job.

The president said at that time that it isn’t difficult to find a smelter even for a few million shillings, which means there are scaled options of what sort of smelter is bought, but this idea has never progressed.

Nor apparently is it evident that local officials are working on it either, or any ministerial agency is pursuing it for implementation.

For one thing there is a legal hiatus that only Acacia Mining can proceed to put the gold sand to a smelter by an executive decision, by whatever influence the government will have exercised, as legally the sand is its property and the government can only collect taxes on the same.

  The Barrick CEO lets that aspect of issue remain fallow and seeks Chinese capital involvement, thus transferring the political problem to the Chinese to sort out, that the government will blink when it is faced with China rather than Canada as its potential adversary in containing operations of Acacia. Not a trap that the Chinese are likely to fall into.

In that case it follows that the Barrick Gold strategy on the matter is to conduct full scale downsizing, from 700 employees to 400 and bow billed to come down to 300, and diminish its local operations to the extent possible as it abandons some exploration and direct mining, etc.

As the gold sand remains its property while stranded in Tanzania, it hopes that time will sort out the problem  - rapidly of there is Chinese involvement and shifting the negotiating aspect to that sphere of influence on the government, or long drawn out if that doesn’t happen. It means Barrick Gold doesn’t intend to actually smelter, but take.

It is still too early to speculate on what the government can do about the matter, or indeed what the Canadian company could succeed in doing outside a hypothetical Chinese take-over of its investment gone awry in ways it clearly grasps, like not paying income tax since 1997.

While we aren’t receptive to international arbitration as was the case before, the government may have to look for good offices of precisely those same agencies to sort out this crisis, as Barrick Gold will not move a finger as it appears, and the much needed resource, smelted gold sand lies idle, and operations are dwindling, as divestment.

It is this type of situation among other features that first phase president Julius Nyerere told a convocation at Ibadan University in Nigeria in a trip there in November 1976,  titled ‘The Process of Liberation’ that a newly independent government inherits the power to make treaties, laws, decide the situation of foreign companies in the country.

What it cannot do is to get things going but it can stop what is going on if it so wishes, in which case there is a legal limbo that Barrick Gold seems to be cultivating on the gold sand stand -off.

Evidently international arbitration would be heavily inclined in the company’s favour, so there is need for a middle road like swapping gold sand for back taxes, etc., or such other trade off as the case may be.

The company has also raised the spectre of a law suit, but what can it say there when it admits it has paid no income tax for 20 years? Did it know that minerals content officials were doing their bidding?