16 February 2012

Zimbabwe: What's Behind New Mining Fees?


Government's indigenisation and economic empowerment programme is a welcome development for Zimbabweans. It has provided the platform for those with an insatiable appetite to grow both in business and develop the country.

The indigenisation programme has become an avenue for development for Zimbabweans who believe in contributing to economic development.

And many Zimbabweans have found hope in owning a manufacturing industry that made white people so rich. Some of them have toiled for so many years only to see mining firms shipping off huge amounts of money to their native countries.

The same Zimbabweans have experienced sleepless nights hoping to one day becoming owners of mining firms. That dream seems shattered as Government has announced hefty increases in mining fees.

It started with Mines and Mining Development secretary Mr Prince Mupazviriho announcing the new charges. This was despite an earlier warning from the African Development Bank of the adverse effects of an upward review of mining royalties on low-grade claims.

Government had last year proposed to increase royalties for gold and platinum to seven percent from 4,5 percent and 10 percent from five percent respectively.

The beginning of this month confirmed each prospective miner's worst fears when Government announced fees for the mining sector ranging from US$3 000 and US$5 million.

The increments range from 500 to 5 000 percent. Government justified the increases as a measure to curb speculative activities in the mining sector. Statutory Instrument 11 of 2012 has an increment of US$5 million from US$1 million registration fees for diamond claims. A new ground rental fee of US$3 000 per hectare per year will be charged.

Application fee for prospective coal investors went to US$100 000 from US$5 000. Registration and renewal fees went up to US$500 000. A licence to deal in precious minerals needs US$100 000 while a gold buying licence attracts a US$20 000 fee.

The increases have left the mining sector in quandary. There is a plethora of issues raised against the increases. The new fess will promote corruption, reduce competitiveness of the minerals and reduces and risks the forfeiture of some claims owned by indigenous people.

The new fees are not viable for the local people and they risk losing their investments and claims falling into multi-national companies' hands. Is this not a case of robbing the poor for the rich? Branding claim holders as speculators is unfortunate. Government can start creating a database for all claim holders to assist them with the necessary requirements. That is total empowerment. For instance, Government could assist claim holders hook up with investment partners.

It would then facilitate negotiations, assess contributions especially by foreigners against over-valued investments and any form of support required by local claim holders.

The cost of registering reduces mining viability as the costs affect operations. There are no foreign exchange benefits since the introduction of the multi-currency system making mining operation costly. Mining costs in Zimbabwe are in United States dollars competing with countries trading in their own currencies.

Zimbabwean minerals cannot compete on the international markets where there are fixed charges that are independent of output. This has a serious bearing on indigenous miners as opposed to multi-national companies who produce in large volumes. A black granite miner would need a US$10 000 export licence for an export of any value for three months, which makes not viable in relation to productivity and profitability.

The new fees would contribute to the high level of unemployment, as many companies become unprofitable. Self-employed people, employees from multi-nationals, consultants and contract workers have increasingly dominated the mining industry.

About 15 000 workers have lost their jobs because of the export bans on chrome and the new charges would increase this number especially along the Great Dyke.

Government income is also set to fall. Some claims have been pegged with payments for inspections but have not been explored due to financial constraints.

People will be forced into illegal operations as they fail to raise registration and permit fees. The minerals are also traded with illegal buyers who take the minerals out of Zimbabwe leaving Government with no benefits nor statistical information.

New charges will contribute to increased company costs leading to losses and exporters who cannot push for price increases. Zimbabwe has suddenly become one of the most expensive countries in mining.

Pegging of most areas in Zimbabwe was done by locals who identified the minerals. The locals have interests in exploring these minerals but it is difficult to get funding from financial institutions that require security in fixed assets.

The mining rights to the claims cannot be used as security hence reliance on foreign investors. Visible minerals that have indicators, black granite, gold, diamonds, among others can only be identified by locals. The locals are an important source of information for Government officials pegging the claims.

When they cannot afford to explore these claims, they resort to illegal mining. A classic example is the Chiadzwa diamond fields and the various areas that have produced alluvial gold reserves.

Locals should be given an opportunity to peg the claims on reasonable charge and assisted to get technical partners where necessary.

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