Mining & Economy: Mozambique Government expects capital gains tax on mining transactions

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Mozambique’s Tax Authority is still pursuing capital gains on the sale of the Benga project to Anglo-Australian mining major Rio Tinto. This was affirmed recently by Tax Authority president Rosário Fernandes at a press conference in Maputo. Strictly speaking, Australian junior mining company Riversdale, which owned 65% of Benga, a coking or metallurgical coal project in Tete province, was sold to Rio Tinto in 2011 for $4.1-billion. (The remaining 35% of the Benga operation belongs to Tata Steel of India.).

Mozambique believes that it is owed at least $200-million in tax on the sale. “The Riversdale operation is not an abandoned subject, because it never can be,” stated Fernandes. “The Riversdale/Rio Tinto transaction is in tax litigation and we expect to have results.

“Tax is an imperative of the law,” he pointed out. “Thus, the issue remains on the table and we are going to take it to the very end.”

(Since acquiring Benga, Rio Tinto has been forced to make massive write-downs on this project, which is now in operation. In January 2013, it announced an impairment of $3-billion on its Mozambique operation and, in January this year, a further write-down of $470-million.)

Overall sales of shares in coal mining and hydrocarbons projects by seven multinational groups in Mozambique are forecast by the Tax Authority to bring in $3-billion in capital gains taxes by the end of this year, assuming the value of the transactions reaches the level expected. Since 2012, Maputo has collected some $1.3-billion in capital gains tax from transactions undertaken by five multinational groups in the country. Examples cited involved US-based Anadarko Petroleum, the operator of Area 1 of the Rovuma Basin offshore gas fields, and Italian group ENI, operator of Rovuma Area 4.

Separately, Mozambique Mineral Resources Minister Esperança Bias has criticised Mozambique companies that acquire mining prospecting licences in the country with the intention of selling them to international investors. This behaviour displayed the lack of capacity of local companies to manage operations. It also damaged the credibility of the prospecting licence bidding process for Mozambican citizens.

“We have complaints from the private sector that the government only awards search licences to foreigners and that there are no opportunities for Mozambicans,” she reported. “We undertook a bidding process in the coal sector, specifically for citizens, but they offered to sell their share to foreigners, as soon as they won the bid.”

Independently, Rio Tinto Coal Mozambique (RTCM) has announced that the value of its purchases of goods and services from Mozambique vendors last year came to $295-million. These acquisitions included fuel, staff and coal transport services, catering, consultancy services and office materials, amongst other things. “The company is committed to the development of local business, one of the essential levers for the sustainable development of Mozambique,” affirmed RTCM external relations financial director Pedro Sacadura Botte. Despite its problems, Benga’s coal production rose by 230% last year.

Unrelated news is that UK-domiciled Beacon Hill Resources, owner and operator of Minas Moatize, also in Tete province, has reported that 90 railway wagons, for the transport of coal, have arrived in Mozambique (through the port of Beira) and are expected to enter service shortly. The wagons were manufactured by Transnet Engineering in South Africa. Further, five locomotives from Grindrod, also in South Africa, are expected to be delivered soon. These will be delivered along the South African, Zimbabwe and Mozambique railway networks.

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