STATEMENT FROM THE CHIEF EXECUTIVE OFFICER Table of Contents STATEMENT FROM THE CHIEF EXECUTIVE OFFICER i ABOUT TMAA i i GLOSSARY OF TERMS ...

STATEMENT FROM THE CHIEF EXECUTIVE OFFICER I am pleased to present the 2010 Tanzania Minerals Audit Agency (TMAA) Annual Report. The past year was a successful and important one for TMAA following its establishment on 2nd November, 2009. The strong performance during the year was mainly a result of dedication and hard work of all of the TMAA employees. Intrinsically, TMAA employees were a backbone to the successes recorded for the year under review and are key to its future success. The Agency’s management will continue to nurture and invest in them. On my behalf, I thank them all for their contribution.

During the year under review, the Agency has succeeded to implement 88% of its planned activities (Annex A). As a result, there have been a number of achievements as highlighted in this report. However, the Agency also experienced a number of challenges, including shortage of manpower to meet the workload, inadequate financial resources, inadequate capacity to cope with the rapid change in technology growth in the mineral sector, and lack of awareness and understanding by the medium and small scale miners on TMAA’s roles and functions. Nevertheless, the shared commitment by TMAA staff, political support and strong collaboration with respective Government bodies assisted in dealing with these challenges and ultimately attaining the reported achievements.

There is no doubt that we improved tremendously our efficiency and effectiveness in the year under review in monitoring and auditing large, medium and small scale mining operations. We intend to accelerate our efforts in the coming year to ensure that the Government maximizes its benefits from the mineral sector.

As Chief Executive, I shall ensure that the Agency’s priorities for the coming year are fully implemented, which include strengthening performance management, staff development, and creating a leadership culture which encourages closer integration and teamwork within the organization.

I am looking forward with enormous enthusiasm to see the Agency flourish more and more in the coming year.

Eng. Paul M. Masanja

CHIEF EXECUTIVE OFFICER

ii

ABOUT TMAA

Tanzania Minerals Audit Agency (TMAA) is a semi-autonomous institution established on 2nd November, 2009 under the Executive Agencies Act, Cap. 245. The Establishment Order was published on 6th November, 2009 under Government Notice No. 362. The Agency was officially launched in Mwanza on 23rd June, 2010 by Honourable Hawa A. Ghasia (MP), Minister of State, President’s Office, Public Service Management.

To be a centre of excellence in monitoring and auditing of mining operations.

To conduct financial and environmental audit as well as auditing of quality and quantity of minerals produced and exported by miners in

order to maximize benefits to the Government from the mining industry for sustainable development of the Country.

Mission

Vision

Core Values

iii

a. To monitor and audit quality and quantity of minerals produced

and exported by large, medium and small scale miners; to determine revenue generated to facilitate collection of payable royalty;

b. To audit capital investment and operating expenditure of the large and medium scale mines for the purpose of gathering taxable information and providing the same to the Tanzania Revenue Authority (TRA) and other relevant authorities;

c. To monitor and audit environmental management, environmental budget and expenditure for progressive rehabilitation and mine closure;

d. To collect, analyze, interpret and disseminate minerals production and exports data for projecting Government revenue, planning purposes and decision making in the administration of the mining industry;

e. To counteract minerals smuggling and minerals royalty evasion in collaboration with relevant Government authorities;

f. To assess values of minerals produced by large, medium and small scale miners to facilitate collection of payable royalty;

g. To advise the Government on all matters relating to the administration of the mineral sector with main focus on monitoring and auditing of mining operations to maximize Government revenue;

h. To promote and conduct research and development in the mineral sector that will lead to increased Government revenue; and

Roles and Functions

iv

i. To examine and monitor implementation of feasibility reports; mining programs and plans; annual mining performance reports; and environmental management plans and reports of mining companies.

v

Table of Contents STATEMENT FROM THE CHIEF EXECUTIVE OFFICER ................................................................ i

ABOUT TMAA ............................................................................................................................ ii

GLOSSARY OF TERMS ........................................................................................................... viii

EXECUTIVE SUMMARY ............................................................................................................. 9

1.0 BACKGROUND INFORMATION ................................................................................ 13

2.0 PLANNED AUDIT ACTIVITIES FOR 2010 ..................................................................... 16

3.0 AUDIT RESULTS AND PERFORMANCE FOR 2010 ..................................................... 17

3.1 Auditing of Minerals Produced and Exported ........................................... 17

3.2 Minerals Produced by Large and Medium Scale Mines in 2010 ............ 17

3.2.1 Minerals Exported by Major Gold Mines in 2010 ....................................... 18

3.2.2 Mineral Royalty Payments for 2010 ............................................................. 20

3.2.3 Gold Production Performance Snapshot ................................................... 21

3.2.4 Historical Data on Mining and Financial Performance ............................ 22

3.2.5 Historical Prices of Gold, Silver, Copper and Diamond (2001 - 2010) .... 26

3.2.6 Historical Royalty Payments by Major Gold Mines (2001 - 2010) ............ 29

3.3 Financial Audit and Tax Review ................................................................... 36

3.3.1 Financial Audit and Tax Review Results for 2010 ....................................... 36

3.4 Environmental Monitoring And Auditing .................................................... 38

3.4.1 Environmental Monitoring and Auditing Results for 2010 ......................... 38

4.0 PLANNED AUDIT ACTIVITIES FOR 2011 ..................................................................... 40

5.0 CONCLUSION ............................................................................................................. 44

vi

List of Tables

Table 1: Planned Audit Activities for 2010 ........................................................................... 16

Table 2: Mineral Production Quantity Comparison (2010 Vs 2009) ................................. 18

Table 3: Mineral Export Quantity and Value Comparison (2010 Vs 2009) ...................... 19

Table 4: Historical Mineral Production and Exports by Tanzanian Major Miners (2005 - 2010) ........................................................................................................... 23

Table 5: Status of Employment in the Major Gold Mines – Number of Locals Vs Expatriates (2005 – 2010) ...................................................................................... 32

Table 6: Tanzania Mineral Reserves (Selected Minerals and Projects) .......................... 34

Table 7: Key financial audit queries communicated to mining companies for response ................................................................................................................. 37

Table 8: Key common environmental shortfalls noted during the audits ..................... 38

Table 9: Planned Audit Activities for 2011 ........................................................................... 40

List of Figures

Figure 1: Mineral Occurrence in Tanzania ......................................................................... 13

Figure 2: TMAA Organization Structure ............................................................................... 15

Figure 3: Total Gold Exports Contribution by Mine, 2010 ................................................... 19

Figure 4: Monthly Actual Provisional Royalty Payments by Six Major Gold Mines – 2010 ......................................................................................................................... 20

Figure 5: Calculated Provisional Royalty by Mine – 2010 .................................................. 21

Figure 6: Africa’s Top Four Gold Producing Countries (2007 – 2010) ............................... 22

Figure 7: Actual Vs Projected Gold Production by Major Gold Mines (2001 – 2010) ... 23

Figure 8: Historical Gold Export Quantity Vs Value (2001 - 2010) ..................................... 25

Figure 9: Historical Copper Export Quantity Vs Value (2001 - 2010) ................................ 26

vii

Figure 10: Gold Price Trends (2001 - 2010) ........................................................................... 27

Figure 11: Silver Price Trends (2001 - 2010) ........................................................................... 28

Figure 12: Copper Price Trends (2001 - 2010) ...................................................................... 28

Figure 13: Diamonds Price Trends (2002 - 2010) .................................................................. 29

Figure 14: Provisional Royalties Paid by Major Gold Mines (2001 - 2010) ........................ 30

Figure 15: Historical Taxes Paid by Large Scale Mining Entities (1999 - 2008) ................. 31

Figure 16: Composition of Taxes Paid by Large Scale Mining Entities for the Year 2008 ................................................................................................................ 31

Figure 17: Historical Foreign Direct Investment Flows into Tanzania - Mining (1997 – 2009) .......................................................................................................... 32

Figure 18: Procurement of Goods and Services by Large Scale Miners (2001 – 2009) .......................................................................................................... 34

viii

GLOSSARY OF TERMS

ARD Acid Rock Drainage BGM Bulyanhulu Gold Mine BZGM Buzwagi Gold Mine Cap. Chapter EMP Environmental Management Plan FDI Foreign Direct Investment GGM Geita Gold Mine GGML Geita Gold Mine Limited GPM Golden Pride Mine lb Pound ISO International Organization of Standardization LME London Metal Exchange NEMC National Environment Management Council NMGM North Mara Gold Mine MP Member of Parliament PAYE Pay As You Earn PML Pangea Minerals Limited RTL Resolute Tanzania Limited SDL Skills Development Levy TGM Tulawaka Gold Mine TMAA Tanzania Minerals Audit Agency TOML TanzaniteOne Mining Limited TOL Tanzania Oxygen Limited toz Troy Ounce TRA Tanzania Revenue Authority TTM TanzaniteOne Tanzanite Mine TZS Tanzanian Shilling USD United States Dollars VAT Value Added Tax Vs Versus WDL Williamson Diamonds Limited

MINISTRY OF ENERGY AND MINERALS TANZANIA MINERALS AUDIT AGENCY Page 9

EXECUTIVE SUMMARY

This report covers the auditing activities performed by Tanzania Minerals Audit Agency in 2010. The report addresses the status of implementation of the audit program and highlights key findings.

The task of auditing quality and quantity of mineral products from the major mines was comprehensively undertaken by TMAA in 2010. Gold production from the major gold mines (from gold bars and Copper Concentrate products) increased by 9.7% from 1,111,888 troy ounces in 2009 to 1,220,111 troy ounces in 2010. The increase was mainly contributed by improved gold output at GGM and commencement of Copper Concentrate production at BZGM. GGM was the leading gold producer in 2010, which contributed 29.6% of total production, while TGM was the least gold producer with 5.3% of total production.

The total mineral exports in 2010 from gold bars and Copper Concentrate produced by the six major gold mines were: 1.2 million troy ounces of gold worth USD 1.48 billion; 10.8 million pounds of copper worth USD 36.4 million; and 406,200 troy ounces of silver worth USD 8.2 million.

Mineral royalty payable by the six major gold mines to the Government during the year rose by 36.9% to USD 41.29 million compared to USD 30.17 million realized in 2009 as final royalty.

Tanzanite output at TTM reached 2.2 million carats in 2010, up 15.8% compared to 1.9 million carats produced in 2009. Tanzanite exports worth USD 15.8 million were made in 2010, up from USD 12.5 million realized in 2009.

Diamonds output at WDL during the year amounted to 43,264 carats, down 67.6% compared to 133,526 carats produced in 2009. The mine sold 50,740 carats of diamonds worth USD 9.5 million in 2010, compared to 123,928 carats worth USD 16.3 million sold in 2009.


Auditing of capital investment and operating expenditure during the year 2010 was conducted on GGML, TOML, BGML, PML (BZGM and TGM), NMGML, RTL (GPM), WDL, TOL Gases Ltd, El-Hillal Minerals Ltd., Mbeya Cement Company Limited Tazara Kongoro Quarry and one holder of Dealers Licence.

Monitoring and auditing of environmental compliance, budget and expenditure was conducted for the following mines: GGM, TTM, BGM, BZGM, TGM, NMGM, GPM, WDL, and El-Hillal Minerals Ltd.

Key achievements during the year 2010 include:

1. The Government collected TZS 21.4 billion from Resolute Tanzania Limited (RTL) as Corporate Tax as a result of financial audits on RTL conducted by TMAA in collaboration with TRA.

2. The Government recovered uncollected royalty of USD 475,840 from the major gold mines following royalty reconciliation done by TMAA.

3. TMAA has managed to increase its scope of audit by auditing large, medium and small scale mines at a minimum operating expenditure as compared to previous audits. The Agency incurred only 30% of operating costs previously incurred by former auditor, with increased scope of audit.

4. Financial audit conducted by TMAA on a holder of Dealers Licence identified underpayment of royalty amounting to TZS 248,845,227 for the year 2007 through 2009. The holder admitted to have underpaid royalty amounting to TZS 89,601,824.98 plus a penalty of 5% of the unpaid amount.

5. TMAA audited and analyzed minerals produced and exported by GGM, GPM, BGM, BZGM, NMGM and TGM. This ensured availability of accurate and reliable data on minerals produced and exported by major gold miners. TMAA also comprehensively


monitored production and export of diamonds and Tanzanite at WDL and TTM respectively.

6. TMAA has embarked in the process of registering its Laboratory under ISO 17025 for the purpose of ensuring delivery of accurate and timely assay results of mineral samples.

7. TMAA in collaboration with the Minerals Department began publishing local indicative mineral prices on weekly basis through local newspapers for the purpose of assessment and valuation of minerals; informing the general public on the prevailing mineral prices in Tanzanian market; helping local miners bargain reasonable and fair prices for their minerals; and increasing Government revenues through enhanced mineral price knowledge.

8. TMAA’s Scheme of Service and Salary Structure was approved by the President’s Office – Public Service Management.

9. TMAA prepared its Client Service Charter in consultation with key stakeholders. The Charter creates awareness among TMAA clients and stakeholders on the commitment of the Agency with regard to the standards of service delivery; and on the clients’ rights and obligations.

10. TMAA provided considerable inputs in the course of preparing the new Mining Act, 2010.

11. The Minister for Energy and Minerals has directed major gold miners to post rehabilitation bonds for mine closure. The instructions were made based on TMAA’s recommendations on forms and rates of rehabilitation bonds.

12. Enhanced financial record keeping by major mining companies as well as self-compliance resulting from regular financial audits conducted by TMAA.


13. Signed Memorandum of Understanding with Tanzania Revenue Authority (TRA) to enhance efficiency and effectiveness in auditing financial records of mining companies and to speed-up implementation of TMAA’s audit findings.

14. Signed Memorandum of Understanding with the National Environmental Management Council (NEMC) to enhance efficiency and effectiveness in monitoring and auditing of environmental management activities in mining areas.

15. Opened a Branch Office in Mwanza to minimize operating costs. The decision was made based on the fact that large scale mining activities are concentrated in the Lake Zone. Existence of this branch office will improve productivity and minimize operating costs.


1.0 BACKGROUND INFORMATION

Tanzania is known to have a conducive and prospective geological environment with abundant potential of economic mineral deposits (Figure 1).

Figure 1: Mineral Occurrence in Tanzania

From 1979 to 1997, the mineral sector was administered under the Mining Act of 1979. The Act provided insufficient incentives to attract foreign and local investment.

In the 1990s, the Government opened doors to foreign investment in the mineral sector to attract investors to bring into the country capital, technology and expertise. Measures taken included the following:

• formulation of the Mineral Policy of 1997;


• enactment of the Mining Act of 1998 which repealed and replaced the Mining Act of 1979; and

• establishment of fiscal incentives aimed at attracting both local and foreign investors.

These measures resulted into increased large scale exploration and mining activities, including the opening of 6 large scale gold mines (1998 – 2005). However, the public was not satisfied with the contribution of the sector to the economy. They were of the opinion that the sector was inadequately monitored by the Government.

In an effort to address the public outcry, the Government initiated a number of measures, including strengthening monitoring and auditing of minerals produced and exported by major gold mines.

In July 2009, the Government approved the Mineral Policy of 2009 which stipulates, among other things, the establishment of the minerals auditing institution. The proposed institution would take over the functions previously undertaken by the Minerals Auditing Section with increased scope to cover large, medium and small scale mines for all minerals so as to maximize the benefits from the mining industry, thereby enhancing socio-economic development.

On 2nd November, 2009 the Government through the Ministry of Energy and Minerals, established the Tanzania Minerals Audit Agency (TMAA), which is a semi-autonomous institution established under the Executive Agencies Act, Cap. 245. The Establishment Order was published on 6th November, 2009 under Government Notice No. 362.

TMAA took over the functions previously undertaken by the Minerals Auditing Section in the Minerals Department under the Ministry of Energy and Minerals.

Currently, TMAA has a total number of 64 employees, which includes 54 professionals and 10 supporting staff. Additional 8 professional staff


and 5 supporting staff are expected to be recruited in 2011. Figure 2 presents the Agency’s organization structure.

Figure 2: TMAA Organization Structure

LEGAL UNIT

CHIEF EXECUTIVE OFFICER

PROCUREMENT UNIT INTERNAL AUDIT UNIT

FINANCE & ACCOUNTS (MANAGER)

HUMAN RESOURCE &

ADMINISTRATION(MANAGER)

PLANNING AND RESEARCH

DEVELOPMENT (MANAGER)

MINERALS VALUATION (MANAGER)

LABORATORY SERVICE

(MANAGER)

ENVIRONMENTAL MONITORING & AUDITING OF

LARGE & MEDIUM SCALE MINES (MANAGER)

ENVIRONMENTAL MONITORING & AUDITING OF SMALL SCALE

MINES (MANAGER)

MINERALS PRODUCTION &

EXPORT MONITORING OF

LARGE SCALE MINES

(MANAGER)

MINERALS PRODUCTION

& EXPORT MONITORING OF MEDIUM & SMALL SCALE

MINES (MANAGER)

DATA MANAGEMENT AND ANALYSIS

(MANAGER)

INFORMATION COMMUNICATION TECHNOLOGY

(MANAGER)

FINANCIAL AUDITING &

ANALYSIS FOR LARGE & MEDIUM

SCALE MINING (MANAGER)

FINANCIAL AUDITING &

ANALYSIS FOR SMALL SCALE

MINING (MANAGER)

TAX AUDIT & REVIEW

(MANAGER)

MINERALS VALUATION & LABORATORY

SERVICES (DIRECTOR)

BUSINESS SUPPORT

(DIRECTOR)

ENVIRONMENTAL MONITORING &

AUDITING (DIRECTOR)

MINERALS PRODUCTION &

EXPORTS MONITORING (DIRECTOR)

FINANCIAL AUDITING & ANALYSIS

(DIRECTOR)

INFORMATION & COMMUNICATION

TECHNOLOGY (DIRECTOR)


2.0 PLANNED AUDIT ACTIVITIES FOR 2010

Table 1 summarizes the auditing activities that were planned to be undertaken by TMAA in 2010.

Table 1: Planned Audit Activities for 2010 Function Key Activities

To monitor and audit quality and quantity of minerals produced and exported by large, medium and small scale miners.

Stationing full time Auditors at all major mines to witness and record daily production, weighing, packaging and sealing of minerals.

Taking mineral samples where necessary and performing logistics of shipment of collected samples from the mine sites to the Agency laboratory in Dar es Salaam for assaying.

Determining quantity and provisional value of minerals produced using Agency’s laboratory results and market prices.

Conducting royalty reconciliation by comparing mines vs. TMAA assay results.

To audit capital investment and operating expenditure of the large and medium scale mines for the purpose of gathering taxable information and providing the same to the TRA and other relevant authorities.

Verifying the authenticity of capital investment and operating expenditure incurred by the mining companies in the course of mineral production and other supportive operations.

Examining tax accounting of mining companies in order to determine whether accounting methods used were appropriate and in compliance with statutory provisions.

Consolidating annual financial projections based on future projections received from the large and medium scale miners.

Reviewing annual costs incurred by the mining companies and performing cost–benefit analysis of the activities undertaken by the mines in particular year of expenditure.

To monitor and audit environmental management, environmental budget and expenditure for progressive rehabilitation and mine closure.

Reviewing Environmental Management Plans (EMPs), rehabilitation programs and reports from mining companies submitted to the relevant Government Institutions.

Conducting physical inspection at the mine site on environmental management activities.

Assessing adequacy of funds allocated for environmental management and progress on the implementation of the environmental programs.

Compiling environmental audit queries (compliance and financial) and outstanding issues (if any) and communicating the same to the client for response and action.


3.0 AUDIT RESULTS AND PERFORMANCE FOR 2010

3.1 AUDITING OF MINERALS PRODUCED AND EXPORTED

The auditing of minerals produced and exported by major gold mines conducted by TMAA in 2010 was aimed at ascertaining the quantity and quality of gold, silver and copper production and exports by each mine. This audit is vital so as to provide the Government with a precise account of exportable gold-containing products, for the purpose of confirming the amount of revenue generated from the exported mineral products and royalty due.

TMAA Auditors witnessed each and every smelting session performed during the year 2010 in their respective gold rooms. This includes the pouring, marking, weighing, and sampling of ingots. The Auditors also witnessed the weighing and loading of the copper concentrates in containers for export and took samples of the material. All samples were transported by secure means to the TMAA laboratory in Dar es Salaam where they were analyzed to determine the amount of fine gold, silver and copper contained.

In January 2010, TMAA started auditing production and export of diamonds at WDL and Tanzanite at TTM. One TMAA Auditor is stationed at each mine to witness, record and report on a daily basis mineral production and exports activities undertaken by the mine.

3.2 MINERALS PRODUCED BY LARGE AND MEDIUM SCALE MINES IN 2010

Table 2 summarizes the quantity of gold bars and Copper Concentrate produced by major gold mines in 2010 as audited by TMAA. A total of 2,814 mineral samples were collected from the major gold mines for laboratory analysis of which 803 were from gold bars and 2,011 were from Copper Concentrate.


Table 2: Mineral Production Quantity Comparison (2010 Vs 2009)

Summary for

Year 2010 Summary for

Year 2009

Number of Gold Bars Produced 2,086 2,170

Number of Copper Concentrate Containers Loaded 2,151 1,168

Gold Quantity (toz) 1,220,111 1,111,888

Silver Quantity (toz) 406,051 391,713

Copper Quantity (lb) 11,471,477 6,964,845

Basic Facts from Table 2

• Gold production increased by 9.7% from 1.1 million troy ounces in 2009 to 1.2 million troy ounces in 2010, mainly due to increased output at GGM and commencement of Copper Concentrate production at BZGM in January, 2010.

• Copper production has increased significantly to 11.47 million pounds in 2010, compared to 6.96 million pounds in 2009 following commencement of Copper Concentrate production at BZGM in January, 2010.

3.2.1 Minerals Exported by Major Gold Mines in 2010

Table 3 summarizes the quantity and value of minerals exported by major gold mines in 2010 as audited by TMAA. The prices applied in the computation of values of gold, silver and copper exports are as quoted from the London Metal Exchange (LME).


Table 3: Mineral Export Quantity and Value Comparison (2010 Vs 2009) Summary for

Year 2010 Summary for

Year 2009 Number of Gold Bars Exported 2,104 2,154 Number of Copper Concentrate Containers Exported 1,992 1,167 Gold Quantity (toz) 1,214,594 1,108,474 Silver Quantity (toz) 406,235 392,884 Copper Quantity (lb) 10,806,687 6,904,228 Gold Gross Value (USD) 1,484,735,450 1,087,809,429 Silver Gross Value (USD) 8,234,030 5,714,577 Copper Gross Value (USD) 36,374,430 16,030,102

Figure 3: Total Gold Exports Contribution by Mine, 2010


3.2.2 Mineral Royalty Payments for 2010

Total calculated provisional royalty1 for 2010 from the major gold mines increased by 36% from USD 30.36 million in 2009 to USD 41.29 million in 2010. Actual provisional royalty paid during the period amounted to USD 40.45 million, averaging at USD 3.4 million per month.

Figure 4: Monthly Actual Provisional Royalty Payments by Six Major Gold Mines – 2010

1 Calculations of Provisional Royalty is based on 3% of 90% of Gross Value of gold, silver and copper exported by major gold mines in 2010.


Figure 5: Calculated Provisional Royalty by Mine – 2010

3.2.3 Gold Production Performance Snapshot

• GGM was the leading gold producer in 2010, which contributed 29.9% of total production, while TGM was the least gold producer with 5% of total production.

• Tanzania is one of the fastest-emerging gold producers in Africa, and it was the continent's fourth-largest gold-producing country in 2010, after South Africa, Ghana and Mali with total annual gold production of 1.22 million troy ounces (Figure 6). Tanzania was the third-largest gold producer in Africa from year 2000 through 2006. The drop to fourth position in the ranks from 2007 was not a result of lower gold production, but rather higher gold production by Mali.


Figure 6: Africa’s Top Four Gold Producing Countries (2007 – 2010)

Source: World Gold Council (www.gold.org)

3.2.4 Historical Data on Mining and Financial Performance

3.2.4.1 Historical Production and Export Quantity of Minerals (2001 – 2010)

Figure 7 and Table 4 summarize historical gold production by major gold mines from 2001 to 2010.


Figure 7: Actual Vs Projected Gold Production by Major Gold Mines (2001 – 2010)

Table 4: Historical Mineral Production and Exports by Tanzanian Major

Miners (2005 - 2010)

Mineral 2005 2006 2007 2008 2009 2010

Gold (toz) 1,170,500 1,308,600 1,127,700 1,020,200 1,114,775 1,214,594

Silver (toz) 381,688 541,488 431,124 343,499 399,178 406,235

Copper (lb) 7,618,921 8,631,835 5,548,485 5,388,703 7,093,375 10,806,687

Tanzanite (carat) 1,460,075 1,230,600 1,700,134 2,203,162 1,910,000 2,200,000

Diamonds (carat) 190,384 189,396 220,209 134,000 133,526 43,264


Basic Facts from Figure 6 and Table 4

• Gold output increased gradually from year 2001 through 2004 when it reached its peak production of 1,443,426 troy ounces and started to decrease thereafter to as low as 1,000,594 troy ounces in 2008. The decrease was mainly due to declining of ore grade and the collapse of part of the Nyankanga pit sidewall at GGM (the largest producer) during the first quarter of 2007.

• Actual gold production for 2010 was significantly below projections due to low production at BGM and BZGM, which was a result of low grade ore and frequent plant shut downs.

• Diamonds output at WDL reached 220,209 carats in 2007. However, it significantly slumped to 43,264 carats in 2010 due to suspension of production at WDL pit from April, 2010 to allow for pit expansion and plant refurbishment.

• After declining in 2009 due to economic crunch, Tanzanite output at TTM increased to 2.2 million carats in 2010.

Figure 8 summarizes historical gold production and export value (from 2001 to 2010) by the six major gold mines. It can be observed that gold export quantity and export value have been increasing gradually over the last three years.


Figure 8: Historical Gold Export Quantity Vs Value (2001 - 2010)

Figure 9 summarizes historical copper production and export value (from 2001 to 2010) by BGM and BZGM. Copper export value rose sharply from USD 16 million in 2009 to USD 36.4 million in 2010 largely due to increased industrial demand for copper which triggered sharp commodity price increase in the world market.


Figure 9: Historical Copper Export Quantity Vs Value (2001 - 2010)

3.2.5 Historical Prices of Gold, Silver, Copper and Diamond (2001 - 2010)

Annual average price of gold increased by 25.8% from USD 972.868 per troy ounce for 2009 to USD 1,223.974 per troy ounce for 2010 (Figure 10) as a result of the dollar's broad decline against a basket of major currencies, coupled with global economic uncertainty.


Figure 10: Gold Price Trends (2001 - 2010)

Source: LME Official Gold Prices in USD/troy oz. Average price of silver increased by 37.2% from USD 14.674 per troy ounce for 2009 to USD 20.138 per troy ounce for 2010 (Figure 11). Reasons for this increase are:

• the declining and very small supply of silver; • significant industrial demand; and • significant and increasing investment demand coupled with the

continuing and increasing global macroeconomic, currency and geopolitical risks.


Figure 11: Silver Price Trends (2001 - 2010)

Source: LME Official Silver Prices in USD/troy oz.

Average copper prices increased by 46.1% from USD 2.342 per pound in 2009 to USD 3.42 per pound in 2010 (Figure 12) due to increased industrial and construction demand, mainly in China. Figure 12: Copper Price Trends (2001 - 2010)

Source: LME Official Copper Prices in USD/LB (Cash Seller)


Average diamond price stabilized in 2010 due to improved consumer demand for diamond jewellery, especially in India and China (Figure 13). Figure 13: Diamonds Price Trends (2002 - 2010)

Source: WWW International Diamonds Consultants Ltd.

3.2.6 Historical Royalty Payments by Major Gold Mines (2001 - 2010)

Figure 14 shows actual provisional royalties paid by the major gold mines to the Government from year 2001 to 2010.


Figure 14: Provisional Royalties Paid by Major Gold Mines (2001 - 2010)

Basic Facts from Figure 14

• Actual royalties paid to the Government by the major gold mines have been increasing from year 2001 through 2010 mainly due to the increase of mineral prices.


Figure 15: Historical Taxes Paid by Large Scale Mining Entities (1999 - 2008)

NB: Tax collections include: Corporate Tax, Value Added Tax, Pay As You Earn, Skills Development Levy and Withholding Tax.

Figure 16: Composition of Taxes Paid by Large Scale Mining Entities for the Year 2008


Figure 17: Historical Foreign Direct Investment Flows into Tanzania - Mining (1997 – 2009)

Source: Tanzania Investment Centre

Table 5: Status of Employment in the Major Gold Mines – Number of


Locals Vs Expatriates (2005 – 2010)

Year Type of Employee

Name of Mine Grand Total BGM BZGM GGM GPM NMGM TGM TTM WDL

2005

Expat - - 108 16 - - 21 12 N/A Locals - - 1,801 276 - - 612 671 N/A Total - - 1,909 292 - - 633 683 N/A

2006

Expat 177 - 116 15 - 51 24 12 N/A Locals 2,042 - 1,985 282 - 248 694 725 N/A Total 2,219 - 2,101 297 - 299 718 737 N/A

2007

Expat 180 - 114 15 83 32 25 11 460 Locals 1,787 - 2,338 302 928 283 644 717 6,999 Total 1,967 - 2,452 317 1,011 315 669 728 7,459

2008

Expat 140 58 129 34 129 41 26 10 567 Locals 1,687 569 1,964 225 978 325 714 677 7,139 Total 1,827 627 2,093 259 1,107 366 740 687 7,706

2009

Expat 185 49 121 27 127 41 29 4 583 Locals 2,012 671 1,814 238 621 338 613 610 6,917 Total 2,197 720 1,935 265 748 379 642 614 7,500

2010

Expat 181 105 86 34 138 65 33 8 650 Local 2,266 746 1,792 266 703 356 648 584 7,361 Total 2,447 851 1,878 300 841 421 681 592 8,011


Figure 18: Procurement of Goods and Services by Large Scale Miners (2001 – 2009)

Table 6: Tanzania Mineral Reserves (Selected Minerals and Projects)

Name of Mine/ Project Owner Location

Type of Mineral (UOM)

Reserve Quantity Remarks

Bulyanhulu Gold Mine

African Barrick Gold (100%)

Kahama Gold 10.3 million troy ounces

Proven & Probable

Buzwagi Gold Mine


Kahama Gold 3.4 million troy ounces

Proven & Probable

Geita Gold Mine Ashanti Gold Geita Gold

8.48 million troy ounces

Proven & Probable

Golden Pride Mine

Resolute Mining Limited

Nzega Gold 0.16 million troy ounces

Proven & Probable

North Mara Gold Mine


Tarime Gold 2.9 million troy ounces

Proven & Probable

Tulawaka Gold Mine

African Barrick Gold (70%) & Northern Mining Exploration Ltd (30%)

Biharamulo Gold 0.13 million troy ounces

Proven & Probable


Name of Mine/ Project Owner Location

Type of Mineral (UOM)

Reserve Quantity Remarks

Nyanzaga Gold Project

Indago Resources Ltd. (100%)

Sengerema Gold 4.2 million troy ounces

Declared & Inferred

Handeni Gold Project

Canaco Resources Inc. (100%)

Handeni Gold 3.94 million ounces

Measured & Indicated

TanzaniteOne Mine

TanzaniteOne Ltd. (100%)

Simanjiro Tanzanite

63 – 83 million carats

Indicated

Williamson Diamond Mine

Petra Diamonds (75%) & Tanzania Govt. (25%)

Kishapu Diamonds

39.96 million carats

Indicated & Inferred

Kabanga Nickel Project

Barrick Gold Corp. (50%) & Xstrata Plc (50%)

Ngara Nickel 1.16 billion pounds

Inferred

Dutwa Nickel Project

African Eagle Resources Plc. (90%)

Mwanza Nickel

751.8 million pounds

Inferred

Cobalt 23.2 million pounds

Inferred

Mkuju River Project

Mantra Resources Ltd (100%)

Namtumbo Uranium 28.5 million pounds

Indicated

Manyoni Uranium Project

Uranex (100%) Bahi/ Manyoni

Uranium 17.67 million pounds

Inferred

Mchuchuma Coal Mine

National Development Corporation

Ludewa Coal 125.3 million tons

Proven

Mbalawala Coal Project/ Ngaka Basin

Atomic Resources Ltd. (85%) & Tancoal Energy (15%)

Ruvuma Coal 40.2 million tons

Proven

Liganga Iron Ore Project

National Development Corporation

Ludewa Iron Ore 45 million tons

Proven

Songo Songo Orca Exploration Group Inc. (100%)

Kilwa Natural Gas

850 billion cubic feet

Proven

Mnazi Bay Gas Project

Artumas Group Inc. (100%)

Mtwara Natural Gas

242 billion cubic feet

Proven


3.3 FINANCIAL AUDIT AND TAX REVIEW

One of the essential functions of TMAA is to audit capital investment and operating expenditure of the large and medium scale mines for the purpose of gathering taxable information and providing the same to the Tanzania Revenue Authority (TRA) and other relevant authorities.

3.3.1 Financial Audit and Tax Review Results for 2010

Audit of capital investment and operating expenditure during the year 2010 was conducted for GGML, TOML, BGML, PML (BZGM and TGM), NMGML, RTL (GPM), WDL, TOL Gases Ltd, El-Hillal Minerals Ltd., Mbeya Cement Company Limited, Tazara Kongoro Quarry, and one holder of Dealers Licence. A number of queries were raised during the audit and communicated to the respective mining companies for responses. TMAA received responses from some mining companies, reviewed and discussed them with the respective mining companies’ management.

Unresolved queries emanated from the discussions were forwarded to TRA for further scrutiny and action. Most of the queries were common from one mine to another and are summarized in a combined form in Sections 3.2.1.1 and 3.2.1.2.

3.3.1.1 Key unresolved queries communicated to TRA

• Wrongly claimed capital and operating expenditure for tax purposes amounting to USD 119,155,675.50;

• Wrongly claimed hedge financial liability and losses amounting to USD 75,294,572;

• Disallowable items claimed as allowable expenses amounting to USD 53,269,789;

• Over-claimed wear and tear deductions amounting to USD 3,281,772.88


3.3.1.2 Key audit queries communicated to mining companies for response

Table 7: Key financial audit queries communicated to mining companies for response

S/N Common Audit Query Total Amount

1. Wrongly claimed hedge financial liability and losses USD 183,645,187

2. Over-claimed capital allowance USD 179,304,109.43

3. Unsupported capital and operating expenditure USD 141,253,370.23

4. Disallowable items USD 53,776,029.65 and TZS 1,729,200,800

5. Wrongly claimed and premature capital deduction USD 44,453,468

6. Understated minerals sales USD 12,446,991.13 and TZS 3,001,291,703.81

7. Payments for technical services of which Withholding Tax was not withheld

USD 50,874,325.99 and TZS 1,515,475,586

8. Management fees for which Withholding Tax was not withheld USD 23,097,348

9. Overstated payroll costs USD 9,853,941

10. Underpayment of Skills Development Levy USD 1,690,875.67

11. Unpaid royalties USD 159,853.19 and TZS 466,275,308.13

12. Unpaid PAYE TZS 910,983,900

13. Unpaid annual rent for granted mineral rights USD 475,519.30


3.4 Environmental Monitoring And Auditing

TMAA also monitors and audits environmental management, environmental budget and expenditure for progressive rehabilitation and mine closure.

3.4.1 Environmental Monitoring and Auditing Results for 2010

Monitoring and auditing of environmental management, environmental budget and expenditure was conducted at GGM, GPM, BGM, BZGM, TGM, NMGM, TTM, WDL and El-Hillal Minerals Ltd. A total of 105 environmental queries were raised and communicated to the respective mines for consideration and corrective action. Most of the shortfalls were common from one mine to another and were addressed as per TMAA’s recommendations (Table 8).

Table 8: Key common environmental shortfalls noted during the audits

S/N Common Noted Shortfall Status

1 Unsecured financial provisions for mine closure liabilities for seven major mines amounting to USD 180,055,184.61.

Negotiations are ongoing with regard to forms of rehabilitation bonds to be posted

2 Inadequate waste management and environmental monitoring.

Corrective actions in progress

3 Outdated and unapproved Environmental Management Plans (EMPs).


4 Pollution from waste rock dumps, tailings storage facilities, and ARD generated from ore stock piles.


5 Underestimation of mine closure liabilities by omitting some facilities which require rehabilitation during and after mine closure



S/N Common Noted Shortfall Status

6 Inadequate or absence of environmental experts to oversee environmental matters



4.0 PLANNED AUDIT ACTIVITIES FOR 2011

Table 9 summarizes the auditing activities planned to be undertaken by TMAA in 2011.

Table 9: Planned Audit Activities for 2011

Function Key Activities

Auditing of quality and quantity of produced and exported minerals for the purpose of determining its values and royalty due.

To witness and record production of all minerals at Geita Gold Mine (Geita), Bulyanhulu Gold Mine (Kahama), North Mara Gold Mine (Tarime), Tulawaka Gold Mine (Biharamulo), Golden Pride Mine (Nzega), Buzwagi Gold Mine (Kahama), Williamson Diamonds Mine (Kishapu) and TanzaniteOne Tanzanite Mine (Simanjiro).

To undertake strategic auditing of minerals produced by medium and small scale miners.

To collect samples of gold bearing materials produced by the six major gold mines and ship the same to the TMAA Laboratory in Dar es Salaam for analysis.

To witness boxing, sealing and shipment for export of all minerals produced by major mines.

To analyze mineral samples collected from the major gold mines so as to be able to accurately determine the quantity of gold, silver and copper contained.

To return the analyzed samples to the respective mines.

To dispose laboratory wastes in a sound environmental manner.

• To store the collected data on production and exports of minerals in the TMAA database to ensure its correctness, security and easy access.

• To analyze the collected data to determine values



and payable royalties of the minerals produced and exported.

• To disseminate minerals production and exports data for projecting Government revenue, planning purposes and decision making in the administration of the mining industry.

Auditing of capital investment and operating expenditure of the large and medium mining companies for the purpose of tax assessments.

To verify correctness of quantities and value of each shipment of minerals produced by large and medium scale mines (BGM, NMGM, BZGM, TGM, GGM, WDL, TTM, EL-Hillal Minerals, Nyanza Salt Mine, TOL-Kyejo Project, Tazara Kongoro Quarry, Mbeya Cement Quarry, Kilimanjaro Mines, and Tanzanite Africa) for the purpose of determining the amount of royalties due.

To review financial statements, accounts, vouchers and other supporting records of large and medium scale mining companies (BGML, NMGML, PML (BZGM and TGM), GGML, WDL, TOML, Tanga Cement Quarry, El-Hillal Minerals Ltd., Nyanza Salt (T) Ltd., Marmo Granito (T) Ltd., Autrad, Garand, Kilimanjaro Mines, Minjingu Phosphate and Tanzanite Africa) for the purpose of verifying capital investments and operating costs incurred by the mines in the course of minerals production.

To review tax accounting of large and medium scale mines (BGML, NMGML, PML (BZGM and TGM), GGML, WDL, TOML, Tanga Cement Quarry, El-Hillal Minerals Ltd., Nyanza Salt (T) Ltd., Marmo Granito (T) Ltd., Autrad, Garand, Kilimanjaro Mines, Minjingu Phosphate and Tanzanite Africa) based on revenues and allowable expenses for the purpose of giving assurance to the Government on fairness of taxable income or declared losses.

To review financial projections and budgets on



revenues, capital and operating expenditure of the major mining companies for the purpose of forecasting potential Government revenues from major mines in form of taxes and royalties.

Monitoring and auditing of environmental management, environmental budget and expenditure for the purpose of assessment of compliance to the Environmental Management Plan (EMP).

To monitor and audit environmental management activities in large and medium scale mines (BGM, GPM, BZGM, TGM, GGM, NMGM, TTM, WDL, El-Hillal Minerals, Mbeya Cement Quarry, Tanga Cement Quarry, Kilimanjaro Mines, Tanzanite Africa, Minjingu Phosphate and Nyanza Salt Mines) so as to ensure compliance as per the Environmental Management Act, Cap.191 and the Mining Act, Cap.123

To review budgets and actual expenditure of large and medium scale mines (BGM, GPM, BZGM, TGM, GGM, NMGM, TTM, WDL, El-Hillal Minerals, Mbeya Cement Quarry, Tanga Cement Quarry, Kilimanjaro Mines, Tanzanite Africa, Minjingu Phosphate and Nyanza Salt Mines) incurred on environmental conservation at different phases of mining operations and provisions for restoration of disturbed land upon mine closure.

To verify on site the significant environmental expenditure incurred by large and medium scale mines (BGM, GPM, BZGM, TGM, GGM, NMGM, TTM, WDL, El-Hillal Minerals, Mbeya Cement Quarry, Tanga Cement Quarry, Kilimanjaro Mines, Tanzanite Africa, Minjingu Phosphate and Nyanza Salt Mines).

To determine the extent to which the mines’ rehabilitation programs have been implemented.

To assess whether enough funds have been set aside by large and medium scale mines (BGM, GPM, BZGM, TGM, GGM, NMGM, TTM, WDL, El-Hillal Minerals, Mbeya Cement Quarry, Tanga Cement Quarry, Kilimanjaro Mines, Tanzanite Africa, Minjingu



Phosphate and Nyanza Salt Mines) to ensure best practice environmental protection and management to minimize impacts to the environment.

To assess whether large and medium scale mines (BGM, GPM, BZGM, TGM, GGM, NMGM, TTM, WDL, El-Hillal Minerals, Mbeya Cement Quarry, Tanga Cement Quarry, Kilimanjaro Mines, Tanzanite Africa, Minjingu Phosphate and Nyanza Salt Mines) have given to the Government adequate financial assurance to guarantee the costs of reclamation (including shut-down, closure and post closure) so as to ensure that the costs of reclamation are covered by the mine operator and not the Government.


5.0 CONCLUSION

• Gold production from the major gold mines increased by 9.7% from 1.1 million troy ounces in 2009 to 1.2 million troy ounces in 2010. This increase was mainly contributed by improved output at Geita Gold Mine and commencement of Copper Concentrate production at Buzwagi Gold Mine.

• Tanzanite output at TanzaniteOne Tanzanite Mine reached 2.2 million carats in 2010, up 15.8% compared to 1.9 million carats produced in 2009. Tanzanite exports worth USD 15.8 million were made in 2010, up from USD 12.5 million realized in 2009.

• Diamonds output at Williamson Diamonds Mine during the year amounted to 43,264 carats, down 67.6% compared to 133,526 carats produced in 2009. The decrease was due to suspension of production at the main pit from April, 2010 to allow for pit expansion and plant refurbishment. The mine sold 50,740 carats of diamonds worth USD 9.5 million in 2010, compared to 123,928 carats worth USD 16.3 million sold in 2009.

• Provisional royalty payable by the six major gold mines to the Government during the year rose by 36.9% to USD 41.29 million compared to USD 30.17 million realized in 2009, mainly due to soaring gold prices and increased mineral exports by Geita Gold Mine and Buzwagi Gold Mine.

• The Government collected TZS 21.4 billion from Resolute Tanzania Limited as Corporate Tax as a result of financial audits conducted by TMAA in collaboration with Tanzania Revenue Authority (TRA). Other substantial unresolved queries have been forwarded to TRA for consideration and action as summarized in Section 3.2.1.1, which could result into more revenue collections to the Government.

• Environmental monitoring and auditing conducted by TMAA in 2010 revealed a number of shortfalls, some of which have been fully or partially addressed by mining companies, hence minimizing environmental impacts thereof (Table 9).


Annex A: Implementation Status of Planned Audit Activities for 2010

Function Key Activities Weight Score

To monitor and audit quality and quantity of mineral produced and exported by large, medium and small scale miners.

Stationing full time Auditors at all major mines to witness and record daily production, weighing, packaging and sealing of minerals.

1 1

Taking mineral samples where necessary and performing logistics of shipment of collected samples from the mine sites to the Agency laboratory in Dar es Salaam for assaying.

1 1

Determining quantity and provisional value of minerals produced using Agency’s laboratory results and market prices.

1 1

Conducting royalty reconciliation by comparing mines vs. TMAA assay results. 1 0.5

To audit capital investment and operating expenditure of the large and medium scale mines for the purpose of gathering taxable information and providing the same to the Tanzania Revenue Authority (TRA) and other relevant authorities.

Verifying the authenticity of capital investment and operating expenditure incurred by the mining companies in the course of mineral production and other supportive operations.

1 1

Examining tax accounting of mining companies in order to determine whether accounting methods used were appropriate and in compliance with statutory provisions.

1 1

To Consolidate annual financial projections based on future projections received from the large and medium scale miners.

1 0.5

Reviewing annual costs incurred by the mining companies and performing cost–benefit analysis of the activities undertaken by the mines in particular year of expenditure.

1 0.5

To monitor and audit environmental management, environmental budget and expenditure for progressive rehabilitation and mine closure.

Reviewing Environmental Management Plans (EMP), rehabilitation programs and reports from mining companies submitted to the relevant Government Institutions.

1 1

Conducting physical inspection at the mine site on environmental management activities. 1 1

Assessing adequacy of funds allocated for environmental management and progress on the implementation of the environmental programs.

1 1

Compiling environmental audit queries (compliance and financial) and outstanding issues (if any) and communicating the same to the client for response.

1 1

Total 12 10.5

Percentage 100% 88%

STATEMENT FROM THE CHIEF EXECUTIVE OFFICER Table of Contents STATEMENT FROM THE CHIEF EXECUTIVE OFFICER i ABOUT TMAA i i GLOSSARY OF TERMS ...

Documents