Miners in Zimbabwe must now pay royalties in minerals

The Zimbabwean government has introduced regulations mandating that mining companies pay a portion of their royalties in minerals rather than cash. The notice, served in November, stated that gold, diamond, lithium, and platinum group metal miners must tender 50% of their royalties in mineral form, 40% in local currency, and 10% in foreign cash.

When the policy was first proposed in October President Emmerson Mnangagwa indicated that miners present minerals in a refined state as part of their royalty payments to the government - even in cases when they are processed abroad. Justifying his decision President Mnangagwa claimed that the new measure will allow Zimbabwe to accumulate “national reserves” and achieve “inter-generational equity”. The government aims to use its mineral assets as collateral to secure future borrowings and improve creditworthiness. The policy also aims to help bolster Zimbabwe's gold reserves. Earlier this year, the government began issuing gold coins as an alternative for Zimbabweans who were buying US dollars to protect against triple-digit inflation. The skyrocketing inflation prompted people to exchange their Zimbabwean dollars for US dollars, leading to a shortage of US currency and higher exchange rates.

The new policy has been criticised for being unconstitutional and impractical. By early December, several mining companies were still unsure about how the royalties system would be implemented, indicating that the authorities may have rushed the process without giving adequate thought to how it is going to be implemented.

Isaac Kwesu, chief executive of the Zimbabwe Chamber of Mines, which represents major mining companies, earlier stated that the industry did not anticipate any significant impact from the new policy as it did not increase existing royalty rates. Impala Platinum spokesperson Johan Theron noted that "paying royalties in US dollars and/or partly paying in equivalent metal product, on face value, does not materially alter the cost burden in Zimbabwe". Similarly, Mark Learmonth, CEO of Caledonia Mining Corporation, one of the largest gold miners in Zimbabwe, commented that "we have not seen the detailed mechanisms whereby this proposal may be implemented, but I do not think it would have any financial or operational effect on our business".

Zimbabwe is home to the world's third largest reserves of platinum group metals, as well as significant deposits of gold, chrome, coal, and diamonds. It also has Africa's largest lithium deposits, which have attracted the attention of foreign investors, particularly from China. For example, in 2022, China-based Sinomine Resource Group acquired the Bikita Minerals lithium mine in the south for US$180m and announced plans to invest an additional US$200m to expand existing mining operations.

 

References

‘China's Sinomine invests $200 mln in Zimbabwe lithium project’, Reuters, 17 June 2022

‘Zimbabwe hails gold coin success and wants to issue more’, BBC, 12 August 2022

‘Zim is on the rise’, The Sunday Mail, 09 October 2022 

‘Zimbabwe demands some mining royalties in refined metal’, Reuters, 09 October 2022 

‘Zimbabwe to introduce new mining royalty rule in October’, Bloomberg, 09 October 2022 

‘Zimbabwe miners unfazed by new royalties proposal’, CNBC Africa, 10 October 2022

‘Zimbabwe's new mineral royalty policy comes into force’, Reuters, 08 November 2022 

‘Zimbabwe gives first details of new mining royalty policy’, Daily Maverick, 25 November 2022 

‘Zimbabwe new mining royalty policy unworkable - Eddie Cross’, Arise News, 26 November 2022

‘Mnangagwa accused of taking Zimbabwe back in time; move to demand mineral royalties in kind described as medieval and unconstitutional’, New Zimbabwe, 06 December 2022 

‘Miners unclear over new royalties regime’, Business Weekly, 09 December 2022