Mining sector appeals to Mujuru for sanity

According to a government gazette extraordinary dated March 25 announcing the requirements for the mining sector to comply with the indigenization law, all foreign owned mining firms with a net asset value of more than US$1 shall dispose of 51 percent of the shares to indigenous Zimbabweans.

The gazette says the disposal of the shares to indigenous Zimbabweans must be completed within a period of six months or by September 25 2011. Previously, a compliance period of five years had been given in Statutory Instrument 21 of 2010.

The Chamber of Mines president Victor Gapare appealed in his letter to the VP – an amenable and powerful reformist Zanu PF politician – that government extend the period of snapping up the shares given the cash shortages currently plaguing the market. He said it will require US$5billion to US$7b in fresh capital to revive the sector.

We would respectfully suggest that given the current liquidity problems, the compliance period should be left at five years or extended to ten years, as it will be hard for indigenous players to raise cash in a very short space of time, Gapare said in his letter to the VP.

The concern is that buyers of the equity may not be able to put together financing packages for the purchase of shares given the liquidity constraints in the market. Gapare said as is currently structured, the regulations would not benefit ordinary Zimbabweans.

In our meeting with Mines and Mining Development minister Obert Mpofu, he advised that in reality the shareholding will pass on to the ZMDC and that if non-indigenous investors want to offer shares to their employees or other parties, they should do it out of their proposed 49 percent share, said Gapare.

This effectively means individuals, communities and employees will not be allowed to buy or get shareholding from existing non-indigenous companies. We would suggest that mining companies be allowed to choose their own partners in line with the Indigenisation and Empowerment Act.

Gapare again warned that the regulations as currently structured places “undue burden” on the investor and this threatens the revival of the entire sector, one of the crucial sectors hard hit by a decade of economic meltdown. All foreign owned companies must submit indigenization plans within 45 days of the date of publication of the General Notice SI 34 of 2011 or by May 9 2011.

If as a nation we want to earn more out of our minerals, the simple solution is to allow the development of bigger mines which will earn bigger revenues and enjoy economies of scale. The quality of jobs and contribution to the community development is always better in bigger enterprises that in small enterprises.

Zimbabwe has a lot of marginal mines and ore bodies which will not be developed if the indigenisation process places undue burden on the capital required to develop them. In this regard, the Chamber of Mines urges the government to be sensitive to the need of investors, whether domestic or foreign, if mines are to be viable. The Chamber of Mines has said it would be comfortable selling stakes of 26 percent to local owners, divided as 26 percent direct equity and 25 percent being met through corporate social investment credits.

Gapare said the chamber and government should agree on a shareholding that would result in projects being able to raise debt and equity finance with the balance to make up to 51 percent local ownership being sold to indigenous Zimbabweans at market value or listed on the Zimbabwe Stock Exchange. Analysts said cash-strapped Zimbabwe does not have the money to buy controlling stakes through the investment vehicles.