16 February 2014

Zimbabwe: Mining Sector Urged to Embrace Transparency

THE mining sector should have consistent and clear policies to eliminate corrupt tendencies, as well as ensuring that investors have less room to negotiate for special treatment, a parliamentary committee has said.

The recommendation comes at a time when the sector, which contributes substantially to Zimbabwe's gross domestic product (GDP), is expected to spearhead the country's economic growth.

It has effectively surpassed agriculture and has grown from an average of 10,2% in the 1990s to 19,9% from 2009 to 2013.

A recent Parliamentary Report on Mines and Mining Development, says that government needs to ensure there is transparency and increased surveillance in the mining sector, especially the diamond sector.

"Policies on value addition for all minerals; chrome, diamond, platinum and gold, should be pursued and implemented religiously," the report reads.

However, owing to increases in production costs, a contentious indigenisation policy and increases in royalties, the mining sector continues to face challenges.

Royalties ensure that the state always derives some revenue from the extraction of its minerals, irrespective of commodity prices.

They are relatively easy to calculate and to collect, typically as a fixed percentage of production value.

Experts contend that raising royalties increases operating costs and the cut-off grade of minerals, and can thus sterilise marginal mineral deposits.

Zimbabwe last year doubled platinum royalties to 10%.

According to an Afrasia Zimbabwe report, if US$5 billion was to be invested in the mining sector, platinum production would be expected to reach 21 000 kg in 2016 while gold would rise to 50 000 kg.

With regard to other minerals, the committee welcomed the government's decision to put timelines on the setting up of refineries and advised on the need to stick to the deadlines and penal provisions to allow for beneficiation of local resources.

This, the committee said, would have an effect on export value as well as on the current account.

"On chrome, the committee also welcomes the continued ban on export of unbeneficiated chrome as it ensures value addition by chrome miners and smelters for the benefit of the country. The committee, however, calls upon Treasury to provide financial allocation for smelters so that chrome ores are smelted," the report reads.

The committee also noted that nickel is exported as concentrate inspite of there being smelters and refineries in the country.

"Therefore, Treasury needs to provide funding for the resuscitation of the refinery and smelter," the committee said, adding that it also appreciated, the move to zero-rate local sales of diamonds to allow beneficiation before exportation.

The committee pointed out the importance of the Mining Promotion Corporation, as underscored in the 2014 national budget.

"The Portfolio Committee has been advised that the exploration company has been dormant since 1981. Therefore, the ministry made a request of US$ 7 793 148 and of this amount US$4 200 700 was earmarked for capital expenditure and US$3 592 488 for operational expenditure in 2014," the committee said.

Mining experts argue that the extent of Zimbabwe's mineral wealth is not known and that there is an urgent requirement to capacitate the exploration company to ascertain the country's wealth and make use of this for purposes of policy making and planning.

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