in Tanzania, 2014 Prepared for Acacia Mining plc April 2015 - - PowerPoint PPT Presentation

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Prepared for Acacia Mining plc

April 2015

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Executive Summary

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EY updated its 2014 study of Acacia’s 2013 economic contributions to the Tanzanian economy to reflect the company’s 2014 operations in the country from their three gold mines in Tanzania

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In 2014, Acacia’s total direct, indirect, and induced economic contribution in Tanzania included:

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54,000 jobs;

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US$459 million of labour income;

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US$678 million of value added (GDP); and

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US$488 million of purchases from Tanzania suppliers

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In total, Acacia’s total tax contribution in 2014 was an estimated US$179 million

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Acacia is a high wage employer, paying an average annual wage of more than 11 times the national average

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For each direct Acacia employee, 11 additional jobs are supported in the broader Tanzanian economy

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

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Acacia produced half of Tanzanian gold exports from 2005 through 2014

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In 2014, mining directly comprised 3.3% of Tanzanian GDP and employed over 15,000 workers, supported by a gold mining sector that ranked fourth in Africa in terms of production volume

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Gold is the largest mineral commodity in Tanzania, with gold exports comprising 89% of the value of total mineral exports in 2014

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In 2014, Acacia produced 718,000 ounces from its mines in Tanzania—a significant increase from 2013, when production was 642,000 ounces

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This was in spite of the closure of the Tulawaka mine in July 2013

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Acacia and total Tanzanian gold production, 1998-2014

* 2014 total Tanzanian gold production data are not yet available. 2014 represents only Acacia gold production for the year. 49% represents Acacia’s average share of Tanzanian gold production from 2005-2013. Source: US Geological Survey; Acacia data. Data provided by Acacia management were not independently audited by EY.

2001-2004 Acacia avg. share: 23% 2005-2014* Acacia avg. share: 49%

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Millions of troy ounces Acacia gold production Non-Acacia gold production in Tanzania

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Acacia spent more than US$878 million in Tanzania in 2014

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Source: Acacia data. Data provided by Acacia management were not independently audited by EY.

Total $878mm

• Corp. income tax, royalties, net VAT payments,

and customs & excise taxes; US$49m (6%) Suppliers, contractors & communities; US$688m (78%) Employee payroll costs, incl. taxes; US$141m (16%)

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In 2014, Acacia spent more than US$878 million in Tanzania to operate its mines

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Expenditures included payments to employees as wages and benefits, to governments as taxes, and to communities as purchases from local suppliers and social investments

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Of Acacia’s US$688 million of supplier purchases, US$488 million (71%) of goods and services were purchased from suppliers in Tanzania

Composition of Acacia’s expenditures, 2014

Millions of 2014 US dollars

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Acacia’s total GDP contribution of US$678m comprised 2% of Tanzanian GDP

Induced (consumer-related)

US$198m

Indirect (supplier-related)

US$290m

Acacia

US$190m

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Total GDP contribution

US$678m

Note: 2014 Tanzanian GDP was approximately US$36.6 billion.

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Acacia is a high-wage employer

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Composition of Acacia’s employee compensation in Tanzania, 2014

Millions of 2014 US dollars

Note: Employee taxes include individual income tax withholding and social security contributions. Employer payroll taxes include employer social security contributions and skills and development levy payments. Source: Acacia data. Data provided by Acacia management were not independently audited by EY. .

Average annual gross wage for Tanzanian nationals employed by Acacia was

US$16,379 (26.7 million Tsh) US$1,525 (2.5 million Tsh)

for the Tanzanian economy overall versus

Employer payroll taxes, US$16mm Employee taxes, US$38mm Take-home salaries & wages, US$87mm

$141mm

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Acacia’s strong supply chain and high employee earnings support economic activity

Jobs, compensation, GDP, taxes paid by Acacia & employees

Acacia has a strong domestic supply chain, generating indirect economic activity

In 2014, Acacia purchased nearly 71% of operating inputs from other Tanzanian firms, totaling US$488mm in supplier purchases last year Of this amount, US$99mm (14% of total purchases) were from suppliers in the same regions as Acacia mines The indirect economic impact of Acacia’s operations supported an additional US$290mm of indirect GDP and 30,500 wage-earning jobs at suppliers

Consumer spending by Acacia and supplier employees supports induced economic activity

In 2014, Acacia employees earned a total of US$141mm of labour income, averaging nearly US$16,400 per worker – 11 times higher than the national average In 2014, households spent an estimated 87% of their income on goods and services, 71% of which was purchased from Tanzanian businesses. The induced economic impact of Acacia’s operations supported an additional US$198mm of induced GDP and 19,000 jobs at local businesses

Direct contribution Related indirect & induced economic contributions

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

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Acacia contributed to jobs throughout the Tanzanian economy

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Distribution of estimated direct, indirect, and induced wage employment, 2014

Note: Figures do not include the estimated number of proprietors in each industry. “Other services” includes personal services, recreation and entertainment, and hospitality and food service. “Trade & transport” includes retail and wholesale trade, transportation services, and communications services. Figures may not appear to sum due to rounding. Source: EY analysis based on Acacia data. Data provided by Acacia management were not independently audited by EY 10,480 10,260 8,260 7,360 6,100 4,320 2,290 1,920 1,600 1,340 total 2,000 4,000 6,000 8,000 10,000 12,000

Other Services Trade & transport Agriculture Financial services Mining Manufacturing Health, educ, & public admin

• Prof. & business services

Utilities Construction Direct employment, Acacia Indirect employment Induced employment

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Acacia’s total tax contribution was US$179 million

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Composition of Acacia’s total tax contribution from operations, 2014 Millions of 2014 US dollars

Note: Percentages shown are percentages of the total estimated tax impact of US$179 million. Figures may not appear to sum due to rounding. Source: EY analysis based on Acacia data and data published in Tanzania’s national accounts. Data provided by Acacia management were not independently audited by EY. ►

Acacia contributes approximately US$14,700 of direct taxes and royalties per employee

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This amount is approximately 21 times higher than the average Tanzanian worker

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Acacia’s employees paid an estimated US$53 million in taxes

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The majority of taxes paid by Acacia employees (72%) were individual income taxes and social security contributions

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The remainder includes estimated VAT, excise, and other taxes on consumption spending

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Taxes resulting from the indirect and induced activities of Acacia suppliers and their employees totaled more than US$61 million

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Acacia’s direct tax contribution includes 2014 VAT claims that are anticipated to be unrecoverable, totaling nearly US$930,000

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Payments anticipated to be refunded in the coming year are excluded from Acacia’s tax contribution Paid by Acacia US$65mm Paid by Acacia employees 53mm Indirect & induced tax 61mm Total tax US$179mm

Corporate income & royalties 23% Customs 4% Other taxes 10% Paid by Acacia employees 29% Indirect and induced tax 34% Acacia taxes 37%

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A portion of Acacia’s Tanzanian spending was investment in its local communities

Acacia social investment in Tanzania totaled US$10.9 million in 2014*

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Education: US$2.5mm

30% of Maendeleo Fund spending

During the year, Acacia supported infrastructure upgrades in schools within Bulyanhulu, North Mara, Buzwagi and Tulawaka. Acacia’s investments included construction and renovations of dormitories, classrooms, laboratories, kitchens, teacher houses and libraries. Acacia also participated regionally and nationally in the CAN EDUCATE program and supported scholarships and sponsorships in North Mara.

Water and Sanitation: US$1.3mm

15% of Maendeleo Fund spending

Acacia committed US$527,000 to the drilling of water wells for communities around Bulyanhulu and Acacia exploration

• properties. Other major commitments were in North Mara, where

Acacia committed US$730,000 for the community piped water supply project and boreholes program.

Health: US$0.8mm

9% of Maendeleo Fund spending

Acacia spent US$403,000 in 2014 on regional and national projects under the HIV/AIDS Program with the Benjamin William Mkapa HIV/AIDS foundation and community health programs with Africare and USAID. US$366,000 was committed towards community health awareness programs.

.

Infrastructure: US$2.6mm

31% of Maendeleo Fund spending

In 2014, Acacia supported the construction and renovation of police stations and road maintenance in 6 villages in North Mara. In the Buzwagi area, Acacia also carried out a Kahama roads project and invested in a community alternative road project.

Total Maendeleo Fund spending

US$8.5 million

*including Maendeleo Fund of US$8.5 million and US$2.4 million for site operation costs and unclassified projects.

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Concluding thoughts

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Acacia’s total economic contribution to the Tanzanian economy in 2014 included more than US$678 million of GDP

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US$459 million of this amount was labour income earned by an average

• f approximately 53,943 wage employees

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Acacia’s Tanzanian entities paid a total of US$65 million in Tanzanian taxes, with Acacia employees paying an additional US$53 million of tax

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Indirect and induced economic activity from Acacia’s operations resulted in an estimated US$51 million in taxes

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In 2014, Acacia’s social investments in Tanzania totaled US$10.9 million, supporting a variety of education, infrastructure and water and sanitation initiatives, primarily in the communities surrounding Acacia’s mines

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Acacia’s 2014 social investment spending was higher than that of any other gold miner operating in Tanzania

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

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Appendix

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

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Estimated economic and fiscal contributions

• f Acacia in Tanzania, 2014

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Estimated economic and fiscal contributions of Acacia in Tanzania, 2014

Millions of 2014 US dollars; total number of employees

Note: Figures may not sum due to rounding. Including self-employed proprietors, the estimated total employment impact is 76,943 workers. Source: EY analysis based on Acacia data and publicly available economic data for Tanzania. Data provided by Acacia management were not independently audited by EY. .

Direct Indirect/ induced Total Wage employment 4,443 49,500 53,943 Labour income $141 $319 $460 Value added (GDP) $190 $488 $678 Tanzania taxes $118 $61 $179

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Of Acacia’s total GDP contribution, US$459 million was due to labour income

Induced (consumer-related)

US$198m

Indirect (supplier-related)

US$290m

Acacia

US$190m

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Acacia labour income

US$141m

Indirect labour income

US$180m

Induced labour income

US$138m

Total US$459m

GDP Labour income

Total US$678m

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Indirect taxes paid by Acacia

► Indirect taxes paid in Tanzania include VAT, fuel levies,

environmental fees and charges, and import duties

► VAT payments included as Acacia direct tax contributions are VAT

claims anticipated to be unrecoverable

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Tanzania currently charges an 18% VAT for standard-rated supplies

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Exports of goods and services are subject to a 0% VAT

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All but US$927,689 of Acacia’s 2014 VAT claims are expected to be recovered

► Fuel levies are assessed at US$600,000 for Acacia properties ► The Energy and Water Utilities Regulatory Authority (EWURA) and

Rural Energy Agency (REA) environmental levies are assessed based on the total electricity usage

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

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Payroll taxes paid and collected by Acacia

► Acacia withheld US$38 million on behalf of its employees in 2014

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Estimated employee social security contributions totaled US$12 million

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The remaining US$25 million was individual income tax withholding

► Individual income taxes are assessed over five brackets, with a top

marginal rate of 30%

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Allowable deductions include social security contributions and certain health care costs

► At the average wage level earned by Acacia employees, the average

statutory individual income tax rate is 27%

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The estimated US$25 million of individual income taxes withheld by Acacia in 2014 represented 27% of employees’ total taxable income, in line with the average statutory individual income tax rate

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Based on average wages in the Tanzanian economy (US$1,525), the average nationwide effective tax rate on individual income is 4%

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

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Acacia’s operations in 2014, compared to the prior year

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

2013 2014 % change Average Acacia employment in Tanzania Tanzanian nationals 4,691 4,161

• 11%

Expatriate employees 393 282

• 28%

Total average Acacia employment in Tanzania 5,084 4,443

• 13%

Average annual wage, Acacia Tanzanian national employees $16,392 $16,379 0% Acacia purchases from Tanzanian suppliers (millions of nominal US dollars) Suppliers local to Acacia mines in Tanzania $112 $99

• 12%

Suppliers located elsewhere in Tanzania $336 $389 16% Total Acacia purchases from Tanzanian suppliers $448 $488 9% Contribution to Tanzanian GDP (millions of nominal US dollars) $855 $678

• 21%

Taxes (millions of nominal US dollars) Taxes and royalties paid by Acacia, assuming recovery of all allowable VAT claims $71 $65

• 8%

Taxes paid by Acacia employees $66 $53

• 20%

Acacia social investments (millions of nominal US dollars) $15 $11

• 30%

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Components of Acacia’s economic contribution

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

Purchases of goods and services from Tanzanian businesses Labour income earned by employees in Tanzania

Acacia’s

• perations in

Tanzania, including mines, administrative

• ffices, and

exploration

Indirect effect (supplier-related) Induced effect (consumption-related)

Acacia’s direct contribution Multiplier drivers Related economic activity

Acacia’s total economic contribution consists of three elements: direct, indirect, and induced economic activity, illustrated below.

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Analysis inputs, intermediate results, and

• utputs

Acacia Mining plc total economic and tax contributions in Tanzania, 2014

• J. 2014 ratios of taxes to economic activity

USD of tax collections per USD of economic activity (e.g. personal income)

• K. Total tax contribution

Total tax contribution = I + (G-F)*J

• F. Direct economic contribution

2014 Acacia data on direct impacts (employment,

employee compensation, sales, and input purchases)

• D. Derivation of Acacia indirect & induced

impacts

• E. Estimation of “total effects” multipliers

by industry, for gross value added (GDP), labour income, and employment

• C. 2014 Acacia supplier data

domestic and total supplier purchases by type of purchase

• A. National input-output (I-O) & statistical data

TZ National Bureau of Statistics and the Purdue University Global Trade Analysis Project (GTAP)

• B. National I-O table unadjusted multipliers

for each industry

• G. Total economic contribution

Total economic contribution = E * F

• I. Direct tax contribution
• H. 2014 Acacia tax data

Direct business taxes paid by Acacia & income taxes paid by Acacia employees

Multiplier derivation Contribution estimates

Key

Reported

• utput

Intermediate step Input