HomeBusiness DigestDiamond producers press for royalty cuts

Diamond producers press for royalty cuts

BY MTHANDAZO NYONI

DIAMOND producers in Zimbabwe have requested the government to slash royalty rates for the precious stones to enhance viability in the sector.

Royalties for diamond producers are currently rated as 10% of gross revenue.

But players in the sector have said this rate is too high.

They have indicated that the rate has been undermining viability.

In its State of the Mining Industry report for 2021, the Chamber of Mines of Zimbabwe said the government must act to give players breathing space in a difficult environment.

“Diamond producer respondents indicated that the royalty for diamonds at 10% is still one of the highest in the world and is undermining the viability of diamond producers,” the Chamber of Mines said.

“They are expecting the government to review the royalty downwards in line with best practices.”

The Chamber said Botswana, one of the largest diamond producers in Africa, also receives 10% royalty on its diamonds.

Diamonds are expected to contribute US$1 billion annually to the US$12 billion mining economy that Zimbabwe is expecting to build from 2023.

Zimbabwe is also planning to more than triple its diamond output to 11 million carats by 2023 from 3,8 million carats projected this year.  Following the consolidation of seven diamond miners in 2015 into the Zimbabwe Consolidated Diamond Company (ZCDC), and two consecutive years of exclusively government-dominated diamond mining, the government completed a diamond mining policy in 2019 and re-opened the sector to private players.

The new policy streamlined the mining of diamonds to only four players, namely State-owned ZCDC, Russia outfit Alrosa, Chinese firm Anjin and the Zimbabwe Stock Exchange listed resources outfit, RioZim’s Murowa Diamonds.

“Survey findings show that most respondents are expecting the fiscal framework to remain suboptimal in 2022. Key fiscal issues highlighted by respondents as undermining viability prospects include high royalty beneficiation taxes, high environmental management levies and misaligned Rural District Council charges,” the report reads.

Mining executives said they were less confident about the prospects of a competitive investment environment in 2022, with 70% of respondents expecting the investment environment to remain depressed as in 2021.

In his 2020 budget statement Finance minister Mthuli Ncube announced that the Treasury had cut royalties for diamond mining from 15% to 10% of gross revenue, to reduce the cost of extracting deep-seated kimberlite gems.

Ncube said diamond miners were now exploiting deep-lying conglomerate deposits, with a higher cost of extraction, hence the need to revise downwards the diamond royalty.

The decision by the government to cut diamond royalties by 33%, however, did not go down well with mining rights groups, with Centre for Research and Development saying it would not result in improved production if diamond extraction remained shrouded in secrecy.

The Chamber said respondents in the PGMs and lithium sectors also bemoaned the current beneficiation tax framework, indicating that most potential investors view it as undermining projects net present value. Consequently, some investors have rejected potentially viable projects in the sectors, it said.

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