via Lack of clarity stymies diamond merger. 18 March 2015
The government’s plan to merge diamond mining companies at the Marange fields lacks clarity and could prove to be unviable, economic analysts say.
Mines Minister Walter Chidhakwa told Parliament last week that government would compel the seven mines that have been exploiting diamonds in Marange to collapse their shares and merge into one company that would own a combined 50 percent of a single entity. The individual stakes would vary according to the assets they bring in.
Government will own the other 50 percent, even though it is not putting in any capital – as it argues that the diamonds are owned by the state. Chidhakwa says the merger will bring sanity and efficiency to diamond mining. The existing companies have been negatively affected by the depletion of surface alluvial gems after years of voracious extraction that has largely by-passed the fiscus.
Economist Vince Musewe said the merger lacked clarity and transparency. “It is not clear who owns what in which company so far. We have heard that the police, CIO (Central Intelligence Organisation), army and prison services have stakes in these companies alongside the Chinese and other shady investors.
“Are these security services going to retain their shares? If so, are they doing it on behalf of government or they are separate entities? Is it proper for them to be involved in the first place? If they are coming in independent of government, what does that say about overall shareholding?” said Musewe. He described the merger as a “funny model” even though he agreed that lessening the number of companies in Marange was better than the multiple investors that have been operating there all along.
Musewe wondered how the companies would agree on original company liabilities and which assets to bring into the new company, saying there was bound to be disagreement on the value of capitalisation and shareholding.
The mining companies are all facing viability problems and many owe millions of dollars to their employees, banks and service providers – with workers threatening to take them to court. They are dragging their feet over the merger – largely because of the lack of clarity on the terms.
Economic analyst John Robertson said government’s involvement in the merger without forking out money would affect the viability of the company in the long run. “Government is not investing money in this yet mining is expensive. This dampens the other companies’ investment spirit and is likely to affect operations and viability,” he said.
He added that investor confidence would suffer because of the ad hoc merger.
“Zanu (PF), in reality, is trying to smuggle itself into the conglomerate as government, yet we all know that it is not the government that has been mining diamonds in Marange. This is not good for business because the Zanu (PF) proxies think they cannot be bound by any law or company regulations as they are the ruling party,” said Robertson.
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