By Mukasiri Sibanda
Zimbabwe’s quest to harness mining for transformative development is well enunciated in the National Development Strategy (NDS1) 2021-2025. Aware of the challenges to harnessing the country’s mineral wealth for the benefit of the nation, the NDS1 identifies weak governance as a major risk.
To partly manage this risk, the long overdue reform of the Mines and Minerals Act, the principal legislation governing the mining sector, is ongoing. While the public consultations on the Mines and Minerals Amendment Bill (MMAB) are on, another pertinent mineral resource governance issue has cropped up.
Nearly half a billion dollars, US$400 million to be exact, is the value of the 33% in the Great Dyke Investment (GDI) that the Zimbabwe Consolidated Diamond Company (ZCDC) is on the verge of acquiring.
Without depreciating the public focus on the MMAB, it is equally important for the public to simultaneously focus on the potential acquisition of a stake in GDI by ZCDC. The ownership of GDI is shrouded in secrecy but the government insists that it is the majority shareholder through Kuvimba, with other private investors like Fossil Mines.
There are two main issues are that the public should be seized with on this matter. Firstly, what can we do with nearly half a billion dollars from Marange? What are our public expenditure priorities as a nation? This is a fundamental matter of maximising public value from the management of our diamond wealth.
Marange: not learning from history
It is hard to ignore the deep scars from the alleged “missing US$15 billion” from Marange diamonds that are so fresh and highly visible. Three years ago, travelling from Harare to Kariba, I saw a sign that road rehabilitation is funded by the 2% Intermediated Money Transfer Tax (IMTT). The IMTT was introduced in October 2018 to shore up government revenue, by extension public expenditure in basic service provision and public infrastructure. Immediately I wondered, with all our mineral wealth, if it is easy to put a finger on the benefits the citizens have reaped from mining.
Similar to the level of transparency with the IMTT-funded project, the government must consider replicating the same move with mineral revenue. In its 2021 fiscal year, Zimplats earned a record-breaking revenue of US$1.4 billion and consequently contributed taxes and royalties amounting to US$404.6 million, according to its integrated annual report.
From the famed largest alluvial diamond find of the century, Marange diamonds, the only noticeable public infrastructure project was the US$100 million defense college in Harare. The public was never afforded the opportunity to debate and influence through the national budget what investment options to prioritise. It is not difficult to see that investment in health and education was going to top the priority list.
My heart bleeds seeing Zimbabweans being humiliated across the border in South Africa, mainly seeking accessible and affordable medical services that are hardly available at home.
To borrow a quote from Victory City by Salman Rushdie, “History is the consequence not only of people’s actions but also of their forgetfulness.” This is the situation around the proposed US$400 million share purchase transaction to be sponsored by revenue from Marange.
It is worth remembering why ZCDC was formed. Delivering transparency and accountability in the management of Marange diamonds was one of the main factors behind ZCDC’s birth in 2016.
News that ZCDC is about to pump in nearly half a billion from diamond revenue into GDI, sidelining the public and Parliamentary scrutiny, signals that we are not learning from history. The government is supposed to use diamond revenue to bridge the public trust deficit that was caused by its handling of Marange diamonds. Without that, it feels like jumping out of the frying pan into the fire.
What’s the real value?
The second issue that the public must hold a magnifying lens to is the valuation of GDI. NewZWire rightly questioned the valuation of GDI using the previous transaction of a 4.4% stake in GDI acquired by Fossil Mines in December 2020, a transaction valued at US$30 million. Impliedly, the full valuation of GDI at that time was US$680 million. Two years later, the same project that has struggled to take off has nearly doubled its valuation to US$1.341 billion, a 97% increase that benefits shareholders.
For instance, Fossil Mines’ $30 million investment in GDI will have an additional cream of US$29.1 million. The math is not making sense unless the shares that ZCDC is acquiring are at a discount. A 33% stake for an entity valued at US$1.341 billion is equivalent to US$442,530,000 giving rise to a roughly US$42 million discrepancy considering the US$400 million share purchase price.
The Minister of Finance and the Minister of Mines have approved ZCDC’s purchase of a 33% stake in GDI subject to due diligence and compliance with the Public Financial Management Act.
Instead of focusing on ZCDC, GDI should explore other options like taking inspiration from a similar platinum project led by Karo Mining. Although it started later than GDI, Karo is making significant progress through financing its capital expenditure from a bond issued via Victoria Fall Stock Exchange.
If the project the GDI project is lucrative, given its valuation by shareholders, let the market decide. The government should use revenue from Marange diamonds for the distribution of dividends to Zimbabweans through investment in health and education. Let the sparkle of our diamonds be seen in our clinics, hospitals, schools, and colleges.
Mukasiri is a Tax and Natural Resource Governance Advisor and coordinator of the Stop The Bleeding campaign, a consortium of organisations fighting illicit financial flows from Africa