The industry’s contribution to the national economy currently stands at 3.7 per cent.
PricewaterhouseCoopers (PwC) says in a new report that big mining companies worldwide have this year decreased their capital expenditure by 21 per cent. This had led to projects being deferred or scaled back.
The top 40 mining companies by market capitalisation last year spent $140 billion on capital projects, but the figure has dropped to $110 billion this year.
Mr David Tarimo, PwC Partner, Tax Services, told The Citizen in an exclusive interview that Tanzania was likely to see few or no new projects in 2013, and existing ones could be scaled back or scrapped altogether, adding that this could have a great impact on the economy.
He said resource nationalism continues to pose a big threat to mining as governments seek greater shares of profits.
“Governments are now looking at different strategies to extract a greater share from mining operations. These strategies range from increasing taxes and royalties to restricting foreign ownership,” Mr Tarimo said.
This could increase the cost of minerals which could, in turn, reduce economic growth in the jurisdictions that are driving demand for minerals.
The impact of reduced spending had in recent months been seen through the industry’s value chain after many suppliers announced lower than expected profits, Mr Tarimo said.
The future is also not very rosy for smaller miners, who are struggling to raise capital. Even those who are prepared to pay high interest rates on loans cannot get credit.
“If funding does not improve soon, this will have a dramatic impact on new reserves,” Mr Tarimo said.
The PWC report titled Mine: A Confidence Crisis says being tough with mining companies might look good to stakeholders at home in the short run, but governments should consider a broader view of returns from natural resource development.
“Mining activities provide jobs, both direct and indirect, taxes, infrastructure and promote overall economic development,” the report says.
Continued resource nationalism by governments makes countries less attractive for mining investment, it warns.
“To attract mining investment governments, should provide long-term assurance to companies, for example through robust stability clauses in mining agreements.”
Regaining confidence depends on how the mining industry responds to its rising costs, increasingly volatile commodity prices and other challenges such as resource nationalism. Despite this drop in confidence, it’s not all bad news.
The report says production volumes and dividend yields are up and while prices have fallen, they have not crashed. China continues to be the industry’s most important customer.
While Chinese growth rates are slowing down, they are coming from a bigger base, so future demand for commodities still looks healthy.
Miners are trying to rebuild the market’s confidence - capital expenditures have been scaled back, hurdle rates are being increased and non-core assets are being disposed of.
Across the board, there is a shift from maximising value by increasing production volumes, to a renewed focus on maximising returns from existing operations through 
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