GOVERNMENT last week kept its finger firmly pressed on the self-destruct button by announcing plans to amend mining laws to allow the state to take over mines, a plan experts say sounds the death knell for the sector.
If the plan is translated into action, analysts say, it will lead to the collapse of the mining industry with investors fleeing with their investment capital.
They say the proposal aggravates Zimbabwe’s battered reputation wrought by its chaotic land reform, lawlessness and attack on the opposition and independent media.
Analysts said the move would worsen Zimbabwe’s tumbling ranking as an investment destination and prolong its isolation from the rest of the world.
In what experts liken to nationalisation of the sector, Mines minister Amos Midzi said the amendment would allow government to take a 51% shareholding in strategic foreign-owned mines.
He said mining companies would cede 25% to the state for free and give the other 26% to empowerment groups that would pay for the stake over a five-year period.
Midzi told the Chamber of Mines on the amendments: “Government has made two giant steps: to be an active player in the mining business and to indigenise 51% in some instances of all foreign owned companies.”
He said government would hold controlling shares in companies mining energy minerals like coal, uranium and methane gas. Government will have 51% in platinum, diamond and gold mines “In gold government shall participate in big mines,” Midzi said.
The announcement immediately made a negative impact on the international scene with sources saying the issue could have played a major part in scuttling Zimbabwe’s attempt to get the International Monetary Fund (IMF)’s executive board to re-open financial assistance lines.
The board made a big issue out of the proposal that was a clear departure from the government’s promises to protect private investment, property rights and fair business dealings.
The IMF has told Harare since 1999 to respect property rights and come up with a clear investment policy that ensures confidence and security.
At national level the impact of the proposal was dramatic with foreign mining companies openly expressing their fear and reservations about the plan.
Implats, a major shareholder which owns 86,7% stake in Zimplats, which operates Zimbabwe’s biggest platinum mine in the Selous area, said the proposal would affect its operations.
Chief executive officer David Brown was cautious but warned that the plan would render expansion at existing mines “uneconomic”.
The world’s biggest platinum miner, South Africa’s Anglo Platinum, currently developing Unki platinum project, said it was concerned with Zimbabwe’s proposal.
Other players were “disturbed” by the proposal which they say smacks of an attempt to nationalise mines the same way it nationalised land.
Midzi for his part did not explain why government would need to grab mines save to say “there was need to benefit the majority of the disadvantaged people”.
Analysts believe the move would sink the industry which, ironically, is the only sector registering some modest growth.
The mining sector grew by 7% last year making it the only industry to register growth over the past three years.
It contributes 4% to GDP and 25% to the country’s foreign currency earnings.
With agriculture having collapsed and other industries in dire straits, the mining sector has become one of the biggest employers in the country.
The proposal therefore poses a serious threat to foreign mining companies that are already hard pressed because of Zimbabwe’s heavy handed foreign currency regime.
Economic consultant Daniel Ndlela said if government carries out its threats the sector would follow agriculture.
“It’s a greed policy that will bring the mining sector to a halt just like what happened to agriculture when they invaded farms and nationalised land,” Ndlela warned.
He said the nationalisation of companies was a 1970s policy that is no longer fashionable in the new global village.
“That policy ceased to be fashionable more than 30 year ago,” Ndlela said.
“What’s fashionable now is sustained growth, reduction of poverty and partnership with investors and the private sector.”
The proposal could cause massive capital flight as investors fear losing their property, he said.
Analysts say it would also strangle the little capital that has been trickling into Zimbabwe. Zimbabwe is in its ninth year of disinvestment.
Analysts wonder why government wants to grab more mines when it has not been able to run its owns.
State mining concern Zimbabwe Mining Development Corporation (ZMDC) has failed to resuscitate closed mines.
It has a trail of collapsed ventures since 1980. It closed its biggest gold producer, Sabi, in 2002. ZMDC also left thousands of people jobless when it closed its copper smelter in Mhangura. Mhangura is now a ghost town.
While government has made public commitments to reopen the mines, there has been very little progress on the ground.
According to unconfirmed reports, more than 4 000 small mining companies have closed down since Zimbabwe’s financial crisis started in 1999. More than 10 other big mines have been shut down since 2000.
Falcon Gold, owners of Dalny (Chakari) and Venice Mines, both near Kadoma, is threatening to shut down because of huge losses caused by the foreign currency problems.
Experts also warn that the plan could degenerate into a diplomatic crisis with South Africa.
Harare’s attempt to muscle into South African companies is bound to irk Pretoria, they said.
Over the past five years South African companies have invested heavily in Zimbabwean mines on the basis of protection offers under the Bilateral Investment and Property Protection Agreements (Bippas).
Midzi’s proposal would affect two SA companies, Shaft Sinkers and Mmakau Mining, that recently opened Eureka Mine which had been closed for the past five years.
The move is likely to affect SA’s Metallon Gold Mine that operates five local mines and produces more than a third of Zimbabwe’s gold.
Owned by black entrepreneur, Mzi Khumalo, Metallon is currently embroiled in a fight with indigenous empowerment groups over a 30% stake which was initially reserved for local business people.
Stanmarker, led by Lloyd Hove, is suing Metallon for breach of contract while the Manyame Consortium which includes John Mkushi, Albert Nhau and banker Mthuli Ncube is yet to pay for its stake.
If the government becomes a shareholder it would need to pump out huge amounts of foreign currency for expansion programmes.
“Government does not have local money, worse still hard currency,” said an independent economist, Blessing Sakupwanya.
Armed with the new law, government is likely to muscle into Metallon which owns Arcturus Mines, Shamva Mine, Mazowe, How Mines and Penalonga.
The five mines have an annual gold production of 180 000 ounces, employs 10 000 people and sustains 500 000 more.
“The closure of such mines would affect thousands of people in both the sector and supporting industries,” Sakupwanya said.
Implats’ Mimosa Mines will also be affected.
Other analysts detect a measure of guilt atonement in Midzi’s proposal saying it could have been triggered by President Mugabe’s criticism of non-performing ministers during his birthday interview.
They say he is trying to over-compensate for his inadequacies and the policy risks dying a natural death.