Tanzanian Royalty And The 'New Frontier' Of Mining

| About: Tanzanian Royalty (TRX)

On October 25th, 2011 a number of news services ran a story related to Tanzanian Royalty (NYSEMKT:TRX) and its agreement with STAMICO, The State Mining Corporation of Tanzania, regarding the signing of a joint venture agreement to redevelop the Buckreef Gold Mine. The intent of this deal was made clear in a news release by Tanzanian Royalty December 21, 2010, but this signing concludes the agreement and further solidifies the relationship between the two entities.

Buckreef was previously a producing underground gold mine, which was closed in 1994 due to what Minerals Commissioner Ally Samaje stated was “poor management.” The final agreement as previously stated provides Tanzanian Royalty with a 55% ownership stake in the Buckreef Mine, which hosts National Instrument 43-101 gold resources of 1,535,000 ounces at a 1 g/t cut-off grade or 2,100,000 ounces at a 0.5 g/t cut-off grade. The remaining 45% of the Buckreef Mine is owned by the state run State Mining Corporation of Tanzania (STAMICO).

(Click charts to expand)

Summary NI 43-101 Compliant Mineral Resources of the Buckreef Project (0.5g/t Au Cut-off) -- June 2011

There has been significant discussion both within Tanzania and other mineral producing nations to raise the royalties on gold producing companies. Within Tanzania it has been proposed that the royalty be increased from the current 3% to 4%. Despite a proposed 33% increase in the royalty, Tanzania has consulted with the mining entities doing business within the nation and it is understood that most are very comfortable with this proposal.

Importantly Tanzanian Royalty appears to be at the forefront of a new wave of joint ventures aimed at providing nations that hold vast mineral resources with the ability to garner significant mining-related revenue by joint venturing with corporate entities. This model appears favorable to both the nation and the corporate entity.

Tanzania's Energy and Minerals Minister is William Ngeleja and a number of his comments regarding the signing of the joint venture agreement between the two parties were extremely favorable. Ngeleja stated “The agreement signed today is in line with expectations of the new Mineral Policy. It is the beginning of fulfillment of aspirations envisaged by the government.” This suggests that the Tanzanian government and STAMICO are quite pleased with this business model and the fact that they have awarded and concluded this agreement with Tanzanian Royalty is highly favorable to Tanzanian Royalty and suggests that STAMICO is confident in the ability of the two entities to bring this project back into production. Ngeleja went on to say "This project is a role model, which must receive our utmost cooperation and attention.”

The Minister also instructed the Countries Commissioner for Minerals, Ally Samaje, to speed up processing a request from a subsidiary of Tanzanian Royalty to increase the size of the mining area. Samaje told Reuters, "The mine project currently covers an area of around four square kilometres, so the developers of the project are keen to enlarge that area to around 20 square kilometres to build a full-fledged mine.” This would represent a 500% increase in the size of the Buckreef project and offer the potential for a great deal of exploration and an increased resource base.

Somewhat overlooked in the news was the fact that Tanzania’s Energy and Minerals Minister, Ngeleja, stated that “Tanzanian Royalty had offered STAMICO a 15 percent stake in a separate gold exploration project at Kigosi in the northwestern Tanzanian region of Shinyanga.” It is not known whether an agreement was concluded regarding Kigosi. Although Ngeleja declined comment regarding Kigosi, the possibility of a deal seemed significant.

Phased Drill Programs on Kigosi Project

It is well known that Kigosi is a major project for Tanzanian Royalty. Previously bulk sampling was performed at the site and according to company management there has been a delay in obtaining the proper permits for mining. A joint venture with STAMICO on the Kigosi project could open the door to rapid project development as the government will acquire significant revenue if the project reaches production. The company has explored Kigosi since 2005 with strong results and the project boasts existing facilities that could fast-track development.

Tanzanian Royalty’s Jim Sinclair has an extensive and favorable history within Tanzania. He has often noted the importance of responsible negotiation and partnership between mining companies and the host nation of mineral resources. Tanzanian Royalty and STAMICO appear poised to create a model for the future that will pave the way for a “New Frontier of Mining” where corporate and state owned entities co-exist and enter joint ventures for the benefits of both the nation itself and the shareholders of the corporate entity.

Disclosure: I am long TRX.