THE recently-concluded three-year parliamentary investigation on Marange diamonds mining has opened a Pandora’s Box.
Report by Gamma Mudarikiri
Among other misdeeds being suspected is the prejudice suffered by the government in joint venture investments, irregularities in the selection of investors and disparities in revenue inflows from the sector.
The Portfolio Committee on Mines and Energy — in its first report — said the government could have been prejudiced through the overstated amount of investments that were made by its joint venture partners.
The government through, its investment vehicle Zimbabwe Mining Development Corporation (ZMDC), is in partnership with four diamond mining companies, Mbada, Anjin, DMC and Marange Resources.
In its investigation, the parliamentary committee revealed that Mbada Diamonds and Marange Resources could have prejudiced the government in the agreement and of major concern is Clause of 25,1 of the agreement, which stipulates that a 5% management fee will be paid from the total turnover of company profits.
At the same time clause 25,5 provides a payment of 5% to Marange Resources in the form of a resource depletion fee.
“By equating the 5% management fee with 5% resource depletion (this) is fundamentally flawed, unjust and not in the best interests of the country,” the parliamentary committee said in a report. “The committee also noted with concern that the 5% management fee on gross turnover is unrealistically high taking into consideration the fact that the same shareholders are entitled to an equal share on dividends.”
The committee also said the selection of Reclaim and Core Mining to enter into joint venture partnerships with ZMDC was not done in accordance with any known precedents, procedures or with reference to any legislation in the country.
Cabinet minutes of July 22 and August 27 2008, simply encouraged ZMDC to enter into joint venture partnerships and did not specifically state that the investment vehicle should enter into joint ventures with Reclaim and Core Mining.
The committee said Mines minister Obert Mpofu failed to reveal who selected the two investors to partner with ZMDC, stating that in the period he was new in office and was working on an already standing agreement.
“The committee observed with dismay that the minister and his officials did not want to disclose who selected the joint venture partners,” the report continues.
“They created the impression that the selection process was done by an unknown person or body and this is clearly unacceptable.”
According to the report, there were a number of potential investors, during the period when Mbada Diamonds and Canadile Miners were chosen, who were willing to invest in Chiadzwa.
The committee said it was informed by former Mines minister Amos Midzi that during his tenure in office there were three companies that were willing to partner with ZMDC and that Reclaim and Core Mining were not among the three suitors.
A due diligence report by ZMDC revealed that the two investors were probably not the best suitors for the country.
The due diligence report highlighted that the investors “had no diamond mining as part of their vision and growth strategy”.
According to the report, the two investors were chosen mainly for their capacity to provide financial resources and state of the art security systems.
The committee said it observed with concern that from the time that the country was allowed to trade its diamonds on the world market, the government had not realised any meaningful contributions from the sector.
Mbada Diamonds claimed that it remitted a dividend of over $117 million, which is far above the $82 million received by Treasury for the combined period of 2011 and 2012.
“There are serious discrepancies between what the government receives from the sector and what the diamond mining companies claim to have remitted to Treasury,” the report reads.