Zim miners fret over new law that seems to give govt power to take control of mines

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  • New amendment gives the Zimbabwean government power to take over control of mines
  • Miners are hoping its just a poorly worded amendment
  • Expropriation of export earnings are also a major worry

Zimbabwean miners are fretting over amendments to ownership laws that seem to be reintroducing the country's controversial indigenisation laws on the mining sector.

The southern African country scrapped its controversial empowerment laws in 2018 and allowed foreigners to hold up to 100% ownership including in the mining sector.

Only platinum and diamond mining remained a preserve for locals with foreign ownership only allowed for a 41% stake. Promises were, however, made that the two sectors would also be opened for increased foreign ownership.

However, amendments brought through the Finance Act 2021 seem to have reintroduced indigenisation to the entire mining sector.

Section 3 (1) following the amendments in the Finance Act 2021 now reads:

"The State shall, by this Act, or through regulations under this Act or any other law secure that at least fifty-one per centum of the shares or other ownership interest of every designated extractive business, that is to say a company, entity or business involved in the extraction of such mineral as may be prescribed by the Minister in consultation with the Minister responsible for Mines and the Minister responsible for Finance shall be owned through an appropriate designated entity (with or without the participation of a community share ownership scheme or employee share ownership scheme or trust, or both)"

A potential threat

In a statement to its members, the Chamber of Mines of Zimbabwe (Mines Chamber), which represents mining houses in the country, said the resultant wording of the amendments as introduced leave room for government to prescribe minerals that shall be owned through appropriate designated entities.

The amendments, the Mines Chamber said, means the Indigenisation and Economic Empowerment Act is still a factor in play to be considered when assessing investments into Zimbabwe.

It said while on the surface it appears that no mineral is mentioned for compliance with the equity provision, all minerals are at risk of being prescribed for compliance.

"This appears to be a reversal of the policy position where the equity provision was removed in favour of empowerment requirements," the Mines Chamber said. 

A law firm, Manokore Attorneys, shared the same view and said section 36 opens the way for the wholesale indigenisation of the mining sector.

Veritas Zimbabwe, a group of lawyers that provide information on the Laws of Zimbabwe, weighed in and said the new amendment has "potential effect on the economy and also because of the surreptitious way it was enacted." 

"Foreigners will not get investment licenses to engage in mining operations unless controlling interests in their businesses are held by an appropriate designated entity," Veritas said. 

The Mines Chamber is however hoping that it is the wording that did not come out as intended something which was corroborated by a senior government official who said the interpretation by some was "completely wrong." He however could not be drawn into commenting further and said a public statement will be issued.

The Mines Chamber said it will seek an audience with government with these views to understand the government’s thinking on the matter. 

"If the position is not strong, the Chamber may need to engage behind the scenes to secure a more robust wording."

More woes for miners

The empowerment issues come at a time miners have also raised alarm over the Reserve Bank of Zimbabwe's (RBZ's) decision to increase export earnings that they compulsorily surrender to the central bank in exchange for the Zimbabwe dollar at the official exchange rate.

On the 8th of January this year, the RBZ announced exporters, including mining companies, must now surrender 40% of their foreign currency earnings, up from 30%.

The Chamber of Mines however warned that this may create a viability crisis in the sector where local spending is now largely in foreign currency.

On average, 60% of gross export proceeds are now taken by government departments and agencies, leaving inadequate forex resources for the mining firms to sustain operations, according to the Mines Chamber. 

Miners in Zimbabwe pay most of their costs including electricity in foreign currency.

Most service providers in the southern African country now demand payments in foreign currency as the Zimbabwe dollar, though stable on the official market at 83 to the US dollar, continues to weaken on the widely used parallel market where it's now trading at a 40% premium between 115 and 120 to the US dollar.

Last year, payment issues from the country's sole gold buyer and central bank-owned Fidelity Printers and Refiners (FPR) resulted in small scale miners diverting gold deliveries to the parallel market.

As a result, official gold deliveries in 2020 dropped by 31 percent to 19,052 tonnes due to a host of reasons including smuggling. 

According to the FPR, the small-scale mining sector, which had in recent years been producing the bulk of the gold, last year delivered 9,347 tonnes down from 17 478 tonnes in 2019. 

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