$32m tax company shattering?

Australia-based gold miner Resolute Mining Ltd. (RSG.AU) has said that an unexpected US$32 million tax bill handed to it by Tanzanian authorities recently is an arbitrary revenue raising exercise which the company is confident of contesting.

Resolute's share price tumbled to A$0.86 at Wednesday's close from A$1.15 on Tuesday when it disclosed the tax charge as part of its annual earnings report.

The assessment rejected deductions for 60% of capital expenditure and 40% of operating expenditure at the company's Golden Pride mine, Tanzania's fourth biggest gold producer, between mid 1998 and mid 2004.

Chief Executive Peter Sullivan said other mining companies operating in Tanzania had apparently received similar tax assessments at the same time.

"It does seem to be part of an effort to raise some revenue," Sullivan told Dow Jones Newswires in a telephone interview from the company's Perth headquarters.

Sullivan expressed confidence in quashing the assessment but said in the unlikely event it is enforced "it does start to bring into question the whole sovereign risk of Tanzania if that's the way they are going to administer their tax act."

"But from past experiences, we would expect we could deal with this sensibly rather than take the view that this is major change in approach in Tanzania in mining," he said.

The company has 30 days to lodge its objection. It plans to request a waiver of the requirement to lodge a third of the assessment as a deposit.

"Hopefully in the next week or so, we can work out where it's headed," Sullivan said.

Resolute also operates the Ravenswood gold mine in Australia's Queensland state and plans to develop the Syama gold project in Mali.


Assessment "Material" to Company


"The issue with this one is that it is a size that is material to the company," Sullivan said.

At June 30, 2005 Resolute reported cash, bullion and liquid investments of A$47.8 million, or some US$35.7 million, technically giving it the ability to pay up.

But a Sydney-based global mining analyst said the issue is potentially a threat to the company, given Resolute's high leverage to Tanzania.

Much depends on whether the assessment is the result of a disgruntled bureaucrat or a serious government-backed initiative, said the analyst, who preferred not to be named.

Resolute claims a carry forward loss position and estimates zero tax obligations for the period in question. It is preparing to lodge an objection based on the assessment's apparent arbitrary nature, breach of due process and even arithmetic errors.

"It's not like we've been in discussion with the tax office for months or weeks even, it's an assessment that has appeared out of nowhere," Sullivan said.

Resolute, which depends on Golden Pride for about half of its total gold output, has experience in dealing with similar tax issues in Tanzania and elsewhere in Africa, but never on this magnitude.