MAC: Mines and Communities

Zimbabwe: Controversy continues around diamond revenues

Published by MAC on 2013-11-27
Source: News Day, New Zimbabwe, Bloomberg, statement

'Diamond revenue can jumpstart economy'

Dumisani Sibanda, Assignments Editor

News Day (Zimbabwe)

25 November 2013

ZIMBABWE can easily raise about $5 billion and jumpstart the economy if it converts its large stockpiles of diamonds from Marange which have been accumulating since 2006 before the country got the Kimberley Process Certification (KPCS) to formally market its gems, a World Bank report has revealed.

Marange diamonds were discovered in 2006, but the international clearance to sell the gems on the world market came in 2011.

KPCS is a system meant to ensure that "conflict diamonds" do not enter the rough diamonds market.

"It must be noted that before being certified by the Kimberly Process, the government of Zimbabwe through ZMDC (Zimbabwe Mining Development Corporation) built up a large stockpile of diamonds, with various reports valuing the stock at well over $1 billion and some as high as $5 billion," states the World Bank report for 2012 titled Zimbabwe Growth Recovery. "These will be sold off in the coming years, significantly enhancing fiscal revenues on a fiscal basis."

The report said alluvial diamond production at the four ZMDC-controlled mines at Marange in 2011 was nine million carats and the figure was expected to rise to 11 million carats last year.

"Production is expected to peak at 12 million carats over the next five years although it is estimated that an investment of $150 million could increase production to 15,2 million carats per year by 2018," states the report.

"Employment in the Marange area is about 1 000 persons and expected to remain at that level.

"It must be stressed that given the controversy surrounding the Marange area and the manner in which the government took control of the area, information is highly secretive and there is the possibility that the amounts are much higher than reported here.

"Nevertheless, figures released by the Ministry of Finance on the export values of diamonds in the first eight months of 2012 corroborate the projections used in this analysis."

The World Bank report says the production of diamonds at the traditional kimberlite underground mine at Murowa was 367 000 carats in 2011 and this was expected to rise to 565 000 carats last year.

"With no major investment, production is expected to remain at the level of 565 000 carats by 2018. In more favourable policy conditions, an investment of
$100 million could result in production of one million carats per year. Employment would then increase from 433 to 800 persons. Investment in the sector is expected to reduce operating costs from about $100 per carat to $60 per carat."

The European Union recently lifted a ban on the trade of the Marange diamonds opening the way for the gems to be sold in Belgium, the centre for international diamond trade. However, the United States has warned that if proceeds of the sale of those diamonds go through its financial system they will be frozen.

Marange diamond revenues falling, minister

Staff Reporter

New Zimbabwe

24 November 2013

THE Government will summon companies operating in Marange to explain the dip in diamond revenues, a government minister has revealed.

Deputy mines minister, Fred Moyo, said production targets were not being met in the diamond-rich region where the government-run ZMDC partners a number of private companies in 50-50 joint ventures.

The government has usually blamed sanctions imposed by the West for the poor revenues from Marange but Moyo's comments suggest the authorities may be taking a different view.

"We are worried that the diamond sector announces forecasts that they are unable to meet. It is clear that we are not producing efficiently. So, our board members whom we put in there should be liable," Moyo told the Sunday Mail.

"The production targets are not being met and there is the issue of capital, mine planning and geological matters. Some things are not being done right. There seems to be a tendency there to explore as they mine."

"We have therefore asked them to give us forecasts in line with Zim Asset. We expect to get concrete figures. We are expecting the figures by the end of the month and we hope that this time the figures will be sound and achievable.

"If there are challenges, whether to do with equipment or otherwise we want them to spell out clearly how we can address these."

Moyo also said the management teams at the companies would also be reconstituted.

"The Boards for ZMDC and MMCZ are not fully balanced and they will be revamped soon in line with our vision. The mandate of the board to support Zim Asset is more demanding. So we need to make sure that we have got robust skills there," he said.

Zimbabwe Wealth Fund to Get Share of State Mining Revenue

By Godfrey Marawanyika & Franz Wild


25 November 2013

Zimbabwe's planned sovereign wealth fund may get as much as a quarter of mining royalties and the same share of "special dividends" on state mineral and metal sales. Parliament will also be able to appropriate money to benefit the fund.

A 16-member board will decide on the fund's activities, allowing it to make withdrawals, primarily to pay for infrastructure developments, according to a draft of the Sovereign Wealth Fund of Zimbabwe Act obtained by Bloomberg News.

"That document will be taken to parliament sometime early next year," Fred Moyo, the country's deputy mines minister, said in a Nov. 22 interview by phone. "It's critical for us to have a sovereign wealth fund, and that's what every nation should do to address vulnerable situations."

President Robert Mugabe, who extended his 33-year rule in July elections, is considering a range of options to finance the recovery of Zimbabwe's economy, which shrank by 40 percent between 2000 and 2008. The country suffered from inflation estimated at 500 billion percent by the International Monetary Fund after the seizure of white-owned commercial farms slashed exports of crops including tobacco and roses.

As well as the sovereign wealth fund, the government is considering the sale of bonds, securitization of remittances, re-engagement with international finance institutions and the creation of special economic zones, according to a separate document signed by Mugabe and obtained from the Ministry of Finance on Nov. 15.
Platinum, Chrome

Zimbabwe has the world's second-largest deposits of platinum and chrome and reserves of minerals ranging from coal and iron ore to gold and diamonds. Investment has been held back by a law compelling foreign and white-owned companies to sell or cede 51 percent of their local assets to black Zimbabweans or the government. Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. (IMP) and Rio Tinto Plc (RIO) are among companies that operate in the country.

The fund's income will come from no more than a quarter of all mining royalties as well as the equivalent from 'special dividends' on sales by the Minerals Marketing Corp. of Zimbabwe, which sells minerals on behalf of the state. The law defines special dividends as 50 percent of the gross value of any sales made by the state-owned Zimbabwe Mining Development Corp. from any project it's involved in.

The ZMDC has joint ventures with a number of companies on the Marange diamond field in the east of the country.

Parliamentary Discretion

A 10 percent royalty is currently levied on platinum miners' revenue while diamond production attracts a 15 percent charge. Other precious stones have a 10 percent royalty levied on them while the charge for gold is 7 percent and other precious metals face a 4 percent charge. A 2 percent charge is levied on base and industrial metals as well as coal-bed methane. The royalty on coal production is 1 percent.

If the endowment needs more money to "help promote the object of the fund" or doesn't have enough cash to pay staff, parliament can legislate to appropriate more money as an advance or as a grant, according to the bill, which doesn't set out where this money would be taken from.

The law also amends the legislation governing the ZMDC, allowing the accountant-general to set the period of time between any sale of diamonds and the payment.

The fund will function under the September 2008 Santiago Principles, which set out measures for better disclosure and regulating risk management, according to the bill.

The fund will operate under the oversight of the Reserve Bank of Zimbabwe.

A False Dawn for Transparency and Accountability in Zimbabwe's Mining Sector

PWYP Zimbabwe Chapter

21 November 2013

It is largely uncontested that there is opacity in Zimbabwe's mining sector. In the previous Government of National Unity, there was finger-pointing between the Ministry of Finance, the diamond mining companies and the Ministry of Mines and Mining Development with respect to the receipt of diamond mining revenues. The Ministry of Finance from the 2010 to the 2013 National Budget Statements has been on record stating that there have been leakages in the flow of diamond mining revenues. Meanwhile, the Ministry of Mines and Mining Development has openly stated that it solely concerns itself with mineral production and not mining revenues. This finger-pointing and blame shifting has clearly shown that the details surrounding diamond mining revenues are murky and shrouded in secrecy.

The controversy surrounding diamond mining has not been restricted to revenues accruing from the diamond mines but extends to the contracts entered into by the government and private investors in Marange. The finer details surrounding the engagement of Core Mining have not been made public and are the subject of a court case that has been raging since 2010. Core Mining was engaged by government to establish a joint venture with the Zimbabwe Mining Development Corporation. However, it is alleged that the company misrepresented its financial position and may have prejudiced the State of over US$2 billion. The contract details of Core Mining and or Canadile have remained secret.

Yet the government has proceeded to engage additional investors under a veil of secrecy. The government has since courted a relatively unknown investor, Gye Nyame Resources, on terms that are not known by the general public. The situation is the same in other mineral sectors. The much vaunted ZISCO-ESSAR deal which was slated to restore ZISCO Steel has been in limbo since it was signed in August 2011. The details of the contract have not been made public save for the fact that the source of inertia has been the valuation of iron ore assets central to the deal. It is important to note that while Zimbabwe appears unwilling to open up the mining sector to public scrutiny, the continental trend has been to open the process of granting mining claims to public participation. Countries such as Guinea and Liberia have taken steps to ensure that mining contracts are available to the public online, while Zambia, Ghana, Tanzania and Mozambique, among others, are actively implementing the Extractive Industries Transparency Initiative (EITI) all in an effort to ensure that public assets or resources held in trust by the government are exploited for the full benefit of all citizens.

Given this background of secrecy and mistrust, it was with relief that the public received news that one particular incident of corruption in the diamond mining sector would be dealt with. The President on 17 September 2013 intimated that the engagement of Gye Nyame was marred by bribery. In particular, it was reported that Mr Godwills Masimirembwa, the former Zimbabwe Mining Development Corporation (ZMDC) Chairperson, allegedly demanded and extorted US$6 million from Gye Nyame to facilitate the company's investment in Marange diamonds. In the aftermath of the announcement, the police indicated that it was investigating the matter. To date, there has seemingly been no progress with the police stating that the case has stalled as the complainant has not availed himself. The fact that the President of the Republic had gone on record demanding accountability and zero tolerance of corruption with respect to that deal had been taken as indicative of the government's intention to root out corruption in the mining sector. That this high profile case, ‘reported' by the President himself has gone cold is a harbinger for persistent, if not increased, corruption in the sector. In this case, making noise about potential cases of corruption becomes mere blowing of hot air.

The case of Marange diamonds stands out. The late Hon. Chindori-Chininga had led the Parliamentary Portfolio Committee on Mines and Energy into being one of the most fearsome Committees as it ‘held no punches' in demanding transparency and accountability. What became one of his last enduring acts was compiling a report that showed serious discrepancies between what the diamond mining companies reported to have paid to Treasury and what the Treasury itself received. The report was released in June 2013. It is now November 2013 and there has been no action whatsoever to investigate the very damning details of the report.

Similarly, there has been no accountability with respect to deals sealed as part of Indigenisation Programme in the mining sector. In particular, the investigative reporting by the Daily News in February 2013 of the scandal surrounding Zimplats' indigenisation deal had brought hope that the veil of secrecy in the mining sector had been lifted. It was reported that the deal was irregularly struck with the National Indigenisation and Economic Empowerment Board (NIEEB) arm-twisting Zimplats to pay hefty sums to a consulting outfit, Brainworks Capital, which had been engaged by NIEEB. The Zimbabwe Anti Corruption Commission's efforts to investigate the case were thwarted after the Ministry of Youth Development, Indigenisation and Empowerment sought a court order to block a search of the Ministry offices. What was reported as the biggest corruption scandal in post independent Zimbabwe has been swept under the carpet with no one being held to account. Despite raising a lot of dust and a lot of air it seems the scandal represented another false dawn for Zimbabwe to strike out on a definitive path of transparent and accountable governance of its mineral resources.

The challenges with ushering in a new era of transparent and accountable governance in the extractive sector stem from the fact transparency and accountability is not instituted. Cases of potential corruption are, therefore, dealt with ad hoc, if at all; and the mechanisms to address these cases are non-functioning or subject to political interference. As the Publish What You Pay Campaign in Zimbabwe, we call on government to review the Mines and Minerals Act to ensure that it has clear provisions for public participation; and transparency and accountability as provided for in the new constitution. The new constitution clearly states that ‘ Act of Parliament must provide for the negotiation and performance of State contracts including joint venture contracts, contracts on construction and operation of infrastructure and facilities; and mineral rights concessions.' It is now a constitutional requirement that mining contracts be transparent, fair honest, cost effective and competitive. In addition, we repeat calls to implement the EITI as a mechanism or initiative to publicly reconcile payments made by mining companies and those receipted by government. The government should provide resources and be seen not to interfere with the work of the Zimbabwe Anti Corruption Commission. Indeed, cases of corruption must be investigated and followed through to completion in the public interest.

Publish What You Pay Campaign (PWYPC- Zimbabwe)

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