Source: Minister under fire for mining chaos – The Zimbabwe Independent May 20, 2016
MINES Minister Walter Chidhakwa has been blamed for the chaos in the diamond mining consolidation process after he rejected proposals to use global audit and advisory firms, leading to messy lawsuits. This has forced government back to the negotiating table with some of the companies that were forced to shut down.
Government in February forcibly closed all diamond mining companies to form the Zimbabwe Consolidated Mining Company (ZCDC) in which the state acquired a 50% stake.
Industry sources say miners requested a business plan and consolidation model from Chidhakwa since the strategy was mooted in 2014, but the minister only furnished them with a letter of intent which barely answered investors’ questions.
Chidhakwa, according to a top official with one of the closed companies, refused to rope in globally-acclaimed audit and advisory firms such as Ernst & Young (EY) and PricewaterhouseCoopers (PWC) which have a presence in Zimbabwe to draw a professional and water-tight model that would take into consideration all the parties’ interests and secure investment for the new company.
“He refused to consult and went ahead with a flawed plan and that’s why we have these lawsuits now,” the source said.
“As a minister, I am sure he was under pressure to deliver to (President Robert) Mugabe given that he was assuring the President everything was in order. Unfortunately, he will be remembered more for closing working diamond companies than anything else because this new thing is only going one way — southwards.”
Mbada Diamonds and Anjin Investments are challenging the legality of the consolidation process and the cancellation of their operating licenses by government in court.
Another source said the consolidation exercise is marred by lack of exploration data.
“Investors generally want to make money that’s why they sunk their millions in Marange. If there was a proper exploration, government would say we have a resource worth US$200 billion and one investor gets 10%, so the investor will support it because they get US$20 billion, but we were exploring as we mine. Government just said we own the resource so we are the major shareholder, take it or leave it.”
A source in the Ministry of Mines said government had been forced to relook its decision to boot out all miners from their operations, and was now open to negotiations, a proper valuation of their assets and payment plan.
The source said government was currently in negotiations with DTZ-OZGEO with a view to pay for the company’s assets over a period of time after using a similar model with Diamond Mining Corporation.
“They simply want to agree on a value and start paying. This is what happened behind-the-scenes with DMC,” said the source without giving specific details of the agreement that he said runs into tens of millions.
Chidhakwa in April announced DMC had resumed operations after signing a new deal with government and agreeing to give 50% shareholding to the state. The minister refused to share details of the new agreement.
A source close to the ZCDC told the Zimbabwe Independent the Mines Ministry is under pressure to deliver and is currently holding a series of board meetings to finalise a grand plan for the company and its operations, including fundraising.
He said government had assisted ZCDC to acquire equipment worth millions from Belarus.
“The ZCDC expects to receive equipment from Belarus very soon as part of the plan and secure funding to operationalise the company because a lot of things need to be done,” he said.
ZCDC has been operational since 1 March 2016.
Chidhakwa in February gave diamond miners a 90-day ultimatum to remove their equipment after ordering them to stop operations with immediate effect for rejecting his proposal to amalgamate the sector.
He said companies in Marange had been operating illegally after their special grants expired and had not been renewed for the past four to five years.
The new entity has been dogged by various problems that include corporate governance violations.
ZCDC acting CEO, Mark Mabhudu, was also acting CEO of Marange Resources. He was never given the job on a full time basis. As a result the company’s continues to run under a make-shift framework shrouded in uncertainty.
There are also corporate concerns at ZCDC.
Mines permanent secretary Francis Gudyanga not only supervises the ZCDC, but is also its acting chairman as well, which means that he literally supervises himself.
He is also acting chairman of the Mineral Marketing Corporation of Zimbabwe and briefly held the same capacity at the Zimbabwe Mining Development Corporation, a gross violation of the principles of good corporate governance.
Mabhudu, who is a former student of Gudyanga, has allegedly stuffed the state entity with his cronies from Manicaland and as far afield as Australia and De Beers in South Africa.
There are also allegations of some executives receiving housing allowances despite staying in guest houses rented by the company such as sacked human resources director Desire Jam.
Jam stayed in a guest house rented by the company even if he got housing allowance. ZCDC paid US$1 400 a month in rentals for Jam on top of a housing allowance.
The company is also involved in controversial mining arrangements where some of the contractors are paid in diamonds.
Takawira Zhou (mineral and exploration manager), Stewart Musekiwa (finance director) and Jam were sacked last for failing polygraph tests, showing ZCDC is in turmoil.