Mines Minister Walter Chidhakwa
… as govt targets ZimAlloys claims
GOVERNMENT this week moved to confiscate half of the mining claims held by one of the country’s largest chrome miners, Zimbabwe Alloys Limited (ZimAlloys), triggering fears of a wave of expropriations targeted at the mining sector.
The move follows an impasse with government over a proposal for the mining company to cede at least 50 percent of its mining claims to the State, which has now formally written to ZimAlloys indicating that the claims would now be acquired at the Ministry of Mines and Mining Development’s “discretion and without notice”.
ZimAlloys had been given until Tuesday this week to surrender 50 percent of its mining claims, according to information obtained by the Financial Gazette.
Another mining concern, the Zimbabwe Iron and Smelting Company (Zimasco), owned by China’s Sinosteel Corp, had also been requested to surrender half of its mining claims to government. It ceded the claims to government over a month ago.
Zimasco and ZimAlloys — both once owned by Anglo American — control about 80 percent of all chrome mining claims in the country.
They had been asked by government to release ground for distribution to new investors last year.
A letter to the ZimAlloys’ acting managing director, Kuda Mahobele, by the permanent secretary in the Ministry of Mines, Francis Gudyanga, reiterated government’s position that it would be acquiring 50 percent of all mining claims held by the company “in line with government policy to increase the number of players in the chrome mining industry”.
The letter, dated May 30, 2016, said: “Despite repeated efforts to have a common understanding, you have remained evasive with regards to this matter. Therefore, we will be giving you up to the 7th of June 2016 to present the claims to be handed over to the Ministry or risk the claims being acquired at our discretion and without notice.”
The threat has unnerved markets, as it suggests that having failed to achieve what it wanted through negotiations, government was gravitating towards expropriation of assets in violation of property rights.
This might sound a death knell on the country’s efforts to scout new investment to escape the prevailing illiquid market conditions.
But its very nature, capital is shy, and tends to run-away from establishments that violate property rights and rule of law.
In the mining sector, claims owned by other renowned resource giants have previously been targeted for seizure by government.
Fears are that these have been awarded to investors fronting for the elite in the ruling ZANU-PF government, such as platinum claims taken from ZimPlats a few years ago.
ZimAlloys, which is currently under judicial management, is said to be arguing that there is no relationship between the land area and the distribution of the chrome ore resource and that letting go of half their claims will affect the going concern of the company and may result in its liquidation.
The threats might also result in potential investors in ZimAlloys turning their backs on the Midlands miner.
Having received the letter from Gudyanga, ZimAlloys is expected to convene a creditors and members meeting to appraise them while at the same time fulfilling other legal requirements such as informing the Master of the High Court and High Court of Zimbabwe.
Gudyanga told the Financial Gazette yesterday that the planned seizure of the mining claims did not amount to expropriation but was part of government policy to broaden ownership of chrome mining and allow for beneficiation of the mineral in the country.
“We want to bring other players; we want ZimAlloys to release the ground to our people and other companies that can do the beneficiation of chrome,” said Gudyanga, who indicated that ZimAlloys was currently not mining due to funding problems.
“The large claims held by these companies (Zimasco and ZimAlloys) are too big and are blocking other investors interested in chrome mining,” said Gudyanga.
He indicated that Zimasco held 2 530 claims covering 68 655 hectares, while ZimAlloys held 1 052 claims covering 39 175 hectares.
“ZimAlloys will take a very long time to fully utilise the 50 percent that they will remain with at the rate at which they are exploiting the resources. Right now they are not mining. They have failed to finance the operations hence the need for other investors,” said Gudyanga.
Asked if the move against ZimAlloys would not affect foreign investment in the mining sector, Gudyanga said: “This should not be cause for concern. Zimbabwe has the best grade of chrome. This will open ground for more investors, more so those who want to go further in value addition of chrome.”
In an earlier offer to government made to Mines and Mining Development Minister Walter Chidhakwa in September, ZimAlloys said it could release blocks measuring 5 285 hactares to government, and wanted to be allowed to retain the claims targeted for use in future ferrochrome production as indicated in its 50 year mine plan.
It also proposed that government should compensate it for the ground released.
This, the company reasoned, was for capital compensation for developmental work and other commitments made anticipating recoupment through future production and trade; compensation for claims with immovable equipment particularly designed for underground mining; mining rights which formed part of the equity price on the sale of ZimAlloys by Anglo to indigenous shareholders; and use of the precedence set on similar transactions for platinum claims held by foreign owned companies.
ZimAlloys argued that the resource measure from its latest competent persons report indicated “a largely depleted lumpy surface resource of 2,5 million tonnes out of a combined lumpy resource of 42,3 million tonnes”.
“The bulk of the remaining resource is accessible through underground mining. The currently depressed market conditions do not support underground mining operation and reliance will have to be placed on open cast resource. It is ZAL’s (ZimAlloys) intention to utilise surface resources as furnace feed to a point where either the market price supports underground operations and/or upon commissioning a sintering plant to process concentrates into competence furnace feed,” said the report.
It added: “It is imperative to note that most chrome ore reserves indications for the country are conceptual evaluations based on inferences which may not relate to actual resource available. Reliance on such information can only be improved by further exploration work. ZAL has therefore relied on numerous exploration work done to date on claims held.”
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