Relations between the sector and government had been soured by unfounded suspicions.
FORMER Chamber of Mines of Zimbabwe (CoMZ) president, Alex Mhembere last week dismissed allegations by government of minerals plunder by the country’s mining sector, saying relations between the sector and government had been soured by unfounded suspicions.
Mhembere, who spoke after handing over the CoMZ presidency to Toendepi Muganyi, the Freda Rebecca boss, came to the defence of the sector at a nearly-tense annual general meeting (AGM) of miners held in the resort town of Victoria Falls at which Finance Minister Patrick Chinamasa, accused black executives at foreign-owned mines of being unpatriotic and abetting “transfer pricing and illicit financial flows” that benefitted foreign shareholders and not the country..
The country’s mining companies are battling a government indigenisation drive as well as a desperate bid by Treasury to extract as much revenue as possible from the resources sector.
Several reports, including data from the Zimbabwe Revenue Authority, Parliament and the Ministry of Finance, have alleged that Western-owned mining companies were draining billions of cash from the collapsing Zimbabwean economy, resulting in a worsening liquidity crunch and consequently dwindling government revenue.
“Eighty percent of minerals come from big mines and these protect their licences through giving information,” Mhembere said, apparently answering charges of externalisation and transfer pricing.
“A number of gold and chrome companies continue to face viability challenges while key minerals such as platinum and diamonds continue to record a decline in output. The total value of minerals fell from a peak US$2,2 billion in 2012 to U$1,9 billion 2014…. the share of mining to total exports fell from 57 percent in 2012…to 53 percent in…2014,” he said.
He acknowledged relations between government and the mining sector were not rosy, but blamed this on government
He said government did not trust miners and had the perception that miners did not believe in government as “a good regulator for us”.
“The private sector gives more information than government,” Mhembere said.
His remarks sparked an avalanche information releases by government, which insisted mining companies were extensively plundering resources.
Chinamasa said: “Minerals are being exploited but there is nothing coming into the fiscus.”
Out of US$13 billion revenue that streamed into State coffers between 2009 and 2013, US$797 million, or six percent, was generated from mines, he said.
Government alleged that for 125 years, the mining industry had siphoned rare earth minerals worth billions of dollars.
“I am not exaggerating,” said the permanent secretary in the Ministry of Mines, Francis Gudyanga. “These are figures that I have researched.”
In the case of platinum mines, rare earths, palladium, rhodium, cobalt and gold – by-products of refinery – had not been fully and transparently accounted for after final processing at the Rand Refinery in South Africa, he said.
A gold sector crackdown that saw government deploying 82 monitors exposed shocking evidence that 218 gold firms were avoiding Fidelity Printers and Refiners and feeding the black market, depriving government of revenues in the form of royalties and levies.
After the crackdown, gold inflows to Fidelity climbed to 400kg in April, from 100kg in January, according to Mines Minister Walter Chidhakwa.
Big chrome producers, which are dominated by Chinese resources groups, were accessing chrome ore at US$250 per tonne and generating up to US$4 000 per tonne after adding value and exporting to advanced economies, authorities told the charged AGM.
Government revealed it had flexed its muscle again, in the latest of a string of policy flip flops that have turned Zimbabwe into an unfavourable destination for mining capital, by banning semi-processed platinum exports from Angloplat’s Unki Mines for seven weeks recently.
The ban was caused by deadlocks over a 15 percent export tax and failure to produce a road map for assembling a multi-billion dollar platinum refinery.
Amid the shocking evidence of government’s inability to effectively police the mines, Chinamasa hit at Zimbabwean CEOs running foreign mines for lacking patriotism.
“I have high expectations for this industry,” he told about 200 sector captains at the AGM.
“It is an industry that is fighting below its weight. We must bring it to the heavy weight.
“There is a need to address transfer pricing and illicit financial flows that seem to benefit foreign companies rather than host countries,” said Chinamasa.
Massive profits were being declared to parent firms domiciled in tax havens, it was alleged.
These taxes were under declared in Zimbabwe through related party transactions between holding companies and subsidiaries in Zimbabwe, government feared.
Added to capital inflows now coming in as loans instead of equity, Zimbabwe was losing big time, according to Chinamasa, who also warned the industry against transfer pricing.
“Please stop it,” he warned.
“This will have serious consequences if we catch you.”
But much will depend on whether government will be able to provide concrete and reliable data tying down the multinationals to looting and pillage. Then the country would be able to punish the looters and diverters of mining revenues and taxes.
So, who is feasting on mineral dollars?
Big mines are saying the Zimbabwean market is not for the faint hearted. It is riddled with losses.
Small scale gold producers claim there is no information directing them to Fidelity, and platinum miners say there are no backdoor dealings at the massive Rand Refinery.
In fact, the overbearing message from mines last week was that the Zimbabwean market was a bottomless pit chewing capital, rights offers and private placements with little or no return to investors.
And so the big question would be: Where are the mineral dollars going?
Government says there is downright theft by multinationals which has left impoverished owners of the resource, the public, enduring the debilitating effects of a deadly economic downturn.
“My company came here 20 years ago,” said Ian Saunders, president and chief executive of the gold outfit, New Dawn Mining Corporation.
During that period we have raised capital six times, but dividend payout to our shareholders is zero. In 20 years, there is no single dividend paid to New Dawn shareholders. The question is do we have an environment that allows that capital to expand, to make investors confident to bring in that capital? There are various needs for too little a cake.”
Is the piling of seven tax heads on mines right?
This surely is the question for President Robert Mugabe’s government to explain.
But the mines face many hurdles that government has been too reluctant or unable to deal with, among them worsening blanket power cuts that have roiled the markets in the past two months.
Power from State-run ZESA Holdings costs between US$0,10 and US$0,15 per kilowatt hour.
Chidhakwa admits that to operate viably, industry must access electricity at about US$0,07 per kilowatt hour.
Mines lost a combined 10 percent of their production in the first quarter due to crippling load-shedding.
That is why Saunders felt government was not prepared to invest, but to bulldoze its way and demand a big share of a small cake.
It is a tragedy.
“Other stakeholders are not thinking about creating (value); they are thinking about sharing,” Saunders said.
“The first step for a miner is creating value,” he argued.
Chinamasa was convinced that foreign mining groups like Mwana Africa, Metallon Gold Zimbabwe, Impala Platinum, Aquarius, Anglo-American, New Dawn Mining Corporation, Duration Gold and others had turned Zimbabwe into a ground for extensive mineral plunder.
“We have been talking to the Norwegians’ to review our mining fiscal regime. They told me that our mining sector is opaque, there is no transparency. They asked me what are the mines hiding? I said maybe they are hiding transfer pricing. As we speak we only have data from gold mines,” he said.
Ministry of Finance statistics indicate that at least US$1 billion in potential revenue from diamond mines due to the State was being salted away every year because those entrusted to manage the gems had either failed in their stewardship role, or were colluding with shadowy dealers to dodge paying taxes.
In 2012, mismatches between government’s revenue projections from diamond mines and actual remittances hit US$555 million, while in 2013 Treasury received nothing out of the US$61 million originally earmarked from Marange diamond fields.
The leakages, which were a result of the emergence of secretive enclaves within government and the mines licensed to operate in Marange, were taking place when mines had ramped up output.
The seven mines operating in Marange are being disbanded and nationalised into a single outfit with significant State control.
“A few years ago, 35 000 people were picking diamonds from Marange,” said Chidhakwa.
“They began to form groups to fight each other. Soon we would see war lords coming up, political lords coming up, military lords coming up. We took action and we now have seven companies mining there. We are told in this country 159 concessions of kimberlites are found. So in line with global trends, we formed one company. They are saying you are nationalising but we have no intention to nationalise. It is an opportunity to run Zimbabwe’s diamonds,” he said.
A Ministry of Finance report says output from diamond mines rose by over 500 percent to over 12 million carats in 2012, from about 1,3 million carats in 2009.
This increase is quite pertinent when attempting to juxtapose production trends and revenue inflows into Treasury.
Revenues from the sector were expected to track the robustly growing output, but they have headed southwards.
The data indicates that royalties from diamonds retreated by US$12 million to US$22,5 million in 2011, from US$34 million in 2010.
About US$37 million in corporate tax was collected by Treasury in 2010, but the figure plunged 10 fold to US$3,8 million in 2013, chipping off US$33,2 million in 12 months. Withholding tax remittances from diamond mines plummeted to US$3,8 million in 2012, from US$5,8 million in 2011.
Resource watchdogs are warning against the dangers of over exploitation of gems by a clique of few, politically connected individuals and the multinationals when the rest of the country was drifting further into hardships.
“There has been a steady decrease in terms of non tax revenue contribution by mining companies from 2010 to 2013,” a report by the Zimbabwe Environmental Law Association (ZELA) said.
ZELA’s report, titled: “Tracking the Trends – An assessment of diamond mining sector tax contributions to Treasury with particular reference to Marange diamond fields,” warned of extensive pillage of diamonds through the manipulation of taxes and related fees.
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