25 July 2014

Zimbabwe: 'ZMDC Must Value Marange Diamond Reserves'

The Zimbabwe Mining Development Corporation (ZMDC) must value Marange diamond reserves to ensure the state is not prejudiced in joint venture deals, Zimbabwe Environment Law Association (Zela) has said.

An analysis of ZMDC's 2012 financial results, which were released recently, show that the mining group relies solely on diamond revenues for survival.

The report, pointed out that valuating the diamond reserves would help clear issues of opaqueness and gambling which can adversely prejudice benefits accruing to the fiscus.

Zela recommended that the ZMDC carry out an audit to verify the appropriate capital contributed by its joint venture partners.

Reads the report: "In light of the above analysis, this paper concludes by presenting the following recomendations: Government must adopt transparency and accountability initiatives such as the Extractive Industry Transparency Initiative (EITI).

Government must come up with clear statutory guidelines on the distribution and sharing of diamond revenue.

This is also one of the deliverables of the Staff Monitored Programme (2013) between Government and IMF."

"This is necessary so as to achieve revenue predictability. The guidelines can provide scope for managing conflict of interest between ZMDC and government on whether to re-invest diamond proceeds or to declare dividends and also providing a clear sharing mechanism. The 2012 fiscal stress suffered by failure of diamond dividend revenue to materialise could have been ameliorated had such dividend sharing mechanism been in place."

Zela also called on government to come clean on which department owns a 40% equity stake in Anjin.

Anjin is one of the companies operating in Marange diamond fields.

ZMDC must immediately release its 2013 audited financial statements in line with the best tenets for transparency and accountability, Zela said.

"ZMDC's 2012 audited financial statements revealed that its 10% share in Anjin investment was valued US$10 million. This can then be extrapolated to combined investment value of $100 million in Anjin," Zela noted.

"Given that government's contribution in the joint venture was in consideration of the transfer of diamond mining rights to Anjin, the 50% contribution is automatically valued at US$50 million in light of the other 40% shareholding held by GoZ (Government of Zimbabwe).

This implies a massive undervaluation of Marange diamond reserves which conspires against the quest to unlock socio economic development from the nation's minerals."

Most of the revenue from operating activities was generated from diamond sales proceeds.

For instance, in 2011 and 2012, Marange diamond revenue contributions to ZMDC were 90% and 89% respectively. This translated to US$252 063 707 in 2011 and US$272 259 401. Mbada Diamonds is the lead revenue stream for ZMDC.

The report also noted that diamond revenue contribution from Mbada diamonds to ZMDC stood at 58% and 57% in year 2011 and 2012 respectively. In monetary terms, Mbada contributed US$145 million and US$155,5 million to ZMDC revenues.

"This is so despite the fact that Mbada diamonds is a joint venture operation whereas government wholly owns the likes of Marange Resources (Pvt) Ltd," the report noted.

Zela said non-diamond joint ventures were a cause for concern.

Jena mines and Sabi gold the ZMBC gold mines, reported losses amounting to US$5 million.

Other units are not operational for one reason or the other.

Copyright © 2014 Zimbabwe Independent. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.