The deal involves the Buckreef mine located in the recently-established Geita region, some 115 kilometers southwest of Mwanza region.
Tanzanian Royalty Exploration, through its Tanzanian unit TANZAM 2000, owns a 55 per cent stake in the project while the government-run State Mining Corporation of Tanzania (STAMICO) holds the remaining stake.
However, since the agreement was signed in 2011, the Canadian-owned investor firm has still not started mining activities, prompting the Tanzanian government to give it a 14-day ultimatum back in January to get the project running.
With the deadline issued by the Deputy Minister for Energy and Minerals, Medard Kalemani, having long passed and still no progress, Tanzanian Royalty Exploration declared a force majeure on the joint venture project, saying it was aggrieved by the deputy minister’s statements.
Force majeure is declared in investment contracts when a company is unable to fulfill its contractual obligation to deliver.
According to a statement issued yesterday by Tanzanian Royalty Exploration chief executive officer James Sinclair, the company is now considering the option of proceeding "to London binding arbitration with financial demands equal to our invested funds in Tanzania, lost opportunity and damage to the value of our shares",
Alternatively, Sinclair said, the company could "seek a sale of all our Tanzanian assets to a major mining company in Tanzania with commitment of size.
The structuring of the transaction would be for shares, not cash in this what we believe will soon to be a major gold bull market."
On the issue of force majeure, the company CEO said the "trigger” was a significant increase in the number of “illegal miners” that entered the project area after Kalemani’s declaration.
“We maintain that there is a direct connection between the increase in the illegal occupation of property under our license and a speech made in the village by the deputy minister for mining,” Sinclair asserted.
He added: "It is our opinion that the deputy minister speaks for the minister who in turn speaks for the government.
As such, we take seriously such statements made as a statement representing the leadership of Tanzania."
"He (Kalemani) presented the repercussions of non-compliance that were draconian.
None of his orders are stipulated by the contract we have with STAMICO," said Sinclair.
The company announced last month that the Buckreef project had done its first pour of gold at the deputy minister’s behest although it was yet to become fully operational.
“The timing and amount of the pour of gold (from the pilot carbon-in-column process plant at the project) was not a decision of management but was done in response to a request made by the deputy minister of energy and minerals," the company said in a statement.
"As a show of reasonable willingness to cooperate on this non-contract item, we did what we preferred not to do – pour prematurely to proper market price.
It is the opinion of management that in time the gold price will rise to at least $800 higher than it was at the time of the pour," it added.
The Ministry of Energy and Minerals issued a statement last month officially criticizing the Canadian-owned firm for declaring such a dispute with the government.
"Unfortunately, the news release by the Tanzania Royalty Exploration Corporation regarding the Buckreef mine JV (joint venture) contains misleading information regarding the state of affairs at (the) mine and appears to have been designed to portray the deputy minister, the government of Tanzania and Tanzanians as being unruly and not law abiding," the ministry’s statement said.
It added: "We wish to inform the public that the Buckreef mine is secure and there is no invasion or forced occupation of the mine at present.
The onus is for JV partners to develop the mine according to the authorised timeline and in accordance with the license conditions."
The Buckreef project represents the government's biggest involvement in local large-scale gold mining activities since the passing of a new mining law in 2010 that allows it to own a stake in such strategic projects.
According to Tanzanian Royalty Exploration Corporation, this project covers an area of around four square kilometres with inferred resources of about 826,000 ounces of gold.
A total of 15 licenses are included in the project area, which could substantially boost the future reserves of the mine.