Govt, Miners on Royalties Collision Course

GOVERNMENT and mining companies are heading for a collision over a proposed economic policy to raise mining royalties in the next six years.

Economic Planning and Investment Promotion Minister Elton Mangoma on Monday presented a draft economic plan that recommended an increase in royalty fees charged to miners. Proceeds generated from the royalties would establish a sovereign fund to hedge future depletion of natural resources.

But the Chamber of Mines of Zimbabwe, which is today expected to meet officials from the ministry in the capital to debate the Mid-Term Policy (MTP) including the quantum of royalties, said raising royalties could have a “negative impact” on the industry given the need to recapitalise and the size and quality of ore bodies currently being mined. Government is currently levying 15% corporate tax on net profit generated by miners as well as royalties ranging from 2% for base metals to 10% for diamonds.

According to the draft MTP (2010-2015) — a policy document that is expected to succeed the Short Term Emergency Recovery Programme (Sterp) which expires next month — government intends to make a 10-fold increase in royalties charged on foreign-owned mining companies exploring base metals.

 

Zimbabwe has over 40 different minerals that include base metals such as chrome, copper, nickel and zinc.

Locally owned mines, the MTP proposed would be charged 6% of their gross sales for exploring the finite minerals.  The draft document also proposes to increase to 12% from 10% royalties on miners exploring precious minerals while slashing levies on joint ventures and locally-owned companies mining the same minerals.

“This is a specific fund (the proposed sovereign fund) that will be established to manage natural resource rents such as royalties,” reads the policy document.

“The fund will be created by transferring up to 75% of the royalties and other designated inflows. It will be used in developmental programmes in all provinces and surrounding communities where the mining companies are located and also in environmental protection in case of abandoned operations amongst other issues.

The fund will basically be storing and creating wealth for the country. The management of this fund is very critical. It will have overseers from government, the mining industry and civil society.”

Both government and the miners concur that setting up a fund could be noble in avoiding future creation of ghost towns such as Kamativi and Mhangura.

The Chamber of Mines said the royalties should be used to create new industries and skills rather than channel the funds towards recurrent consumption. “Part of the fund should be used to make Zimbabwe more prospective and this includes more mapping and detailed magnetic surveys which make exploration for minerals easier” said Chamber of Mines of Zimbabwe president Victor Gapare. “We are in disagreement with the proposed royalty levels as they will have a very negative impact on the development of the industry.”

He said in making a determination on royalty levels, government needed to take into consideration the overall tax burden imposed on the ore body and its impact on viability.”

 

Bernard Mpofu