A government gazette extraordinary dated March 25 announced that all foreign-owned mining firms with a net asset value of more than US$1 must dispose of 51 percent of the shares to designated entities.
“This effectively means every business will be affected,” says Victor Gapare, president of the Chamber of Mines. “The exemption of those below a net asset value of $500,000 has been removed. The notice is silent on the 100 percent ownership of alluvial minerals as had been announced by the Minister through the Herald on February 2, 2011.”
The entities for acquisition of shares include the National Indigenization and Economic Empowerment Fund, the Zimbabwe Mining Development Corporation, any entity formed by the Zimbabwe Mining Development Corporation, a statutory sovereign fund and an employee share ownership scheme, or trust, or community share ownership scheme
The Chamber of Mines has said it would be preferable to sell stakes of 26 percent to local owners, divided as 26 percent direct equity and 25 percent being met through corporate social investment credits.
“It is not clear whether the state has a plan for warehousing these shares for future distribution to the broad majority of the population,” Gapare said. “Not distributing these shares to the public equates to nationalization.
“The valuation of the shares shall be agreed with the minister and take into account the States sovereign ownership of the mineral or minerals to be to be exploited. Effectively, proven reserves can no longer be included in determining value of the business, which runs contrary to standard practice in the mining world. This is seen to be nationalization of all mining assets, and the end result will be killing the incentive for any exploration. Listed companies have effectively had their value taken away.”
Gapare said there was silence on the commitment of designated entities to pay for the shares by September 25, yet the shares must be transferred by that date.
“A normal transaction would require that shares change hands only after payment has been done,” Gapare said. Failure to comply will constitute a level 12 offence attracting a fine or a five-year jail term, or both.
The Minister of Indigenisation, Saviour Kasukuwere, who drafted the regulations, also disregarded recommendations of the Mining Sector Committee on Indigenization, which recommended 26 percent direct equity, 10 percent to communities in the form of a tax on gross profit and 15 percent through social credits.
There is no mention of the fate of the business in such circumstances, Gapare says.
Like many other economic observers, Gapare said the move was likely to discourage foreign investment.
“The Minister has decided to fast track indigenization without taking into consideration the negative consequences on investment and growth. If a mining company cannot lay claim on the reserves or other inferred resource, it is not possible to raise capital,” Gapare said.
“For the benefit of the industry and the economy at large, the mining industry must continue to lobby government to see sense in the recommendations of the mining sector committee.”
Analysts said impoverished Zimbabwe does not have the money to buy controlling stakes through the investment vehicles.
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