Indigenisation law fatal to diamond, platinum sectors

HARARE - RIOZIM believes lingering concerns over the indigenisation of diamond and platinum mines will be fatal to these respective sub-sectors.

Speaking during the tour of Murowa Diamond Mine by the parliamentary portfolio committee on Mines and Energy this week, RioZim chairperson Lovemore Chihota said government needs to be clear on the issue of indigenisation.

Following an outcry from investors, government has relaxed the indigenisation law in all other sectors, except platinum and diamonds, where foreigners are still not permitted to hold stakes in excess of 49 percent.

In his 2018 National Budget, Finance minister Patrick Chinamasa gave effect to the amendments through a Finance Bill, with the changes coming into effect from April 2018.

In terms of the amendments, diamonds and platinum are the only sub-sectors designated as extractive, which means that the indigenisation threshold will only apply to the two minerals.

RioZim chair said it is their humble belief that this plan will be highly disruptive and possibly fatal to the two highest revenue and foreign currency generating sectors of the economy.

“To extend the life of  the mine (Murowa diamonds) by further three years, RioZim is working on a plan to invest a further $125 million,” said Chihota.

“As you will appreciate, this is a massive sum of money for any Zimbabwean company. Without a firm direction on the indigenisation plan, financiers, lenders and equity holders alike, are highly unlikely to provide the much-needed funds.”

The indigenisation law, which requires 51 percent control by locals in the major sectors of the economy, has been blamed for Zimbabwe’s inability to attract significant foreign investment and create employment.

The country has an estimated 90 percent unemployment rate.

Meanwhile, RioZim — the owners of Murowa Diamonds —has bemoaned high royalty charges on rough diamonds, which are three times higher compared to other regional countries.

Chihota told Parliament’s Energy and Mines portfolio committee that government must reduce the royalty to develop the country’s diamond sector.

“Currently, we face some serious challenges which are affecting future viability of Murowa. The issues are: Extremely high rate of royalty of rough diamonds in Zimbabwe. The average rate of royalty on diamonds in the region (South Africa, Botswana, Namibia, Angola, Democratic Republic of Congo, and others) is 5,57 percent while the royalty on diamonds in Zimbabwe is circa three times more at 15 percent.

“By definition, diamond mining across the world is very capital intensive and this high rate of royalty has made the industry almost unviable in Zimbabwe.

“Royalty is a revenue share between the government and the miners.

When we checked more than 20 major mining countries around the world, they all allow as a tax deductible expense.

“In other words, suppose we sell our diamonds for $100 we give $15 from that to the government for royalty, we are left with an income of $85 and should pay income tax on this $85 but the Zimbabwe Revenue Authority insists that we pay tax even on the $15 we paid to the government. This effectively increases our rate of royalty to circa 20 percent.” Chihota added.

At least $125 million is required to extend the lifespan of Murowa Diamond by an additional three years, and to push output beyond one million carats per annum.

Murowa, owned by local resources company RioZim, is located about 60 kilometres south of the mining town of Zvishavane in the Midlands province.

RioZim is a listed local independent mining company with interests in gold, diamonds and coal.

RioZim chief executive officer Bheki Nkomo recently told the parliamentary committee that the expansion would be financed through a mixture of funding instruments.

He said since RioZim took over the mine from mining conglomerate, Rio Tinto in July 2015 Murowa had experienced a 300 percent growth in production.

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