What do you do when your company has claims of close to half a billion US dollars against it? Strip its assets and hide them under another company.
Internal documents reveal how the Zimbabwe government plans to strip assets from its state-owned mining company to stave off US$467 million in claims from creditors.
Through the Zimbabwe Mining Development Corporation (ZMDC), the government holds mining assets, from gold, to precious stones and lithium. But the government is shifting some of the company’s remaining assets into another vehicle, Defold Mine, hoping to escape legal trouble.
It’s a case that raises fresh questions over the government’s stewardship of the country’s mineral resources, and goes back to controversial decisions made by Zimbabwe years ago to take away assets from investors.
In 2016, Grandwell Holdings, registered in Mauritius, lost its 50% joint venture with ZMDC in Mbada Diamonds when government cancelled all licences in the Marange diamond fields. The company went to court for damages, and, according to correspondence, it is claiming US$378 million.
Another former diamond investor, Canadile, has also made a claim of US$3 million against the government.
Government also faces a US$12 million from ShinZim. This was a 2006 joint venture, called Global Platinum, between ZMDC and China’s Norinco, to mine platinum claims once held by Zimplats in Selous. The venture was also cancelled, resulting in the claim.
In 2011, Amari, a company registered in the British Virgin Islands, had its joint venture with ZMDC cancelled. The company lost its platinum and nickel claims in Selous. In 2019, Amari won the right to seize Zimbabwean assets worth US$65.9 million in compensation, in a ruling by the International Court of Arbitration in Lusaka. With interest, Amari is now owed US$73 million.
The claims were awarded to Bravura, a company owned by Nigerian billionaire Benedict Peters. Bravura has plans to develop a new platinum mine on the claims, and claims to have already raised US$1 billion for the initial phase to bring the site to production. But Bravura has had to delay the project because of the Amari lawsuit.
Under pressure from President Emmerson Mnangagwa to develop the claims or lose them, Peters initially negotiated with Amari to settle part of the debt. Ian Small-Smith, a lawyer acting for Amari, told Bloomberg in 2019 that Peters had approached Amari to thrash out a settlement. But, after initially agreeing to the deal and signing off on an escrow account to allow payment, the Zimbabwe government pulled out of the deal.
On January 17 this year, Treasury Secretary George Guvamatanga wrote to the Ministry of Mines, ordering the closure of the escrow account into which Amari’s payments would have been made. He also rejected a proposal by the Ministry of Mines for government to take over the debt, saying this would encourage more suits against the government.
“Transferring of this obligation will expose a wider array of government assets to additional litigation,” Guvamatanga wrote to Mines secretary Onesimo Moyo.
The asset transfer
Now, unable to hive off the debts to the taxpayer, the Ministry of Mines has hatched a new plan; Mines Minister Winston Chitando has ordered that ZMDC’s assets be spirited away into a new government company, Defold. This time, the Ministry got the support of Guvamatanga at Treasury.
Most of ZMDC’s projects are idle. This includes two that are subject of a letter by Guvamatanga, in a letter to the Ministry of Mines on April 14, which lifted the lid on the asset plan. These are the Kamativi tin mine in north-western Zimbabwe, and Todal-Bokai, which hosts platinum claims on the country’s mineral-rich Great Dyke.
Guvamatanga, in the letter, grants the Mines Ministry authority “for the transfer of Zimbabwe Mining Development Corporation’s effective 93% shareholding in Kamativi Tine Mines (Pvt) Ltd and 40% shareholding held in Todal (Pvt) Ltd to Defold Mine.”
Justifying this call, Guvamatanga says Cabinet had approved the transactions at a meeting in December. While Guvamatanga, in his letter, says the Cabinet decision was reached on December 21, the matter was discussed at Cabinet’s last meeting of 2021, held a week earlier.
Cabinet’s public statement after that meeting does not disclose the extent of the authorization given on the asset transfer.
On Kamativi, Cabinet said: “The Minister of Mines and Mining Development briefed Cabinet on the current state of the tailings dump and reopening of underground operations at Kamativi Tin Mines. Cabinet noted the need to ensure that these two projects get into production as soon as possible so that they contribute to the US$12 Billion Mining Industry milestone. The Minister of Mines and Mining Development was tasked to follow up on the issues accordingly.”
Cabinet made similar announcements on the Todal-Bokai Platinum Project: “Cabinet also considered the need to get the Todal-Bokai Platinum Project next to Unki Mine into production as soon as possible so that it contributes to the US$12 Billion Mining Industry milestone. The Minister of Mines and Mining Development was also tasked to follow up on the issue accordingly.”
The ZMDC sell-off
The government has been selling off parts of ZMDC, since 2018, when it first issued a tender for six mines held by the company.
In 2020, the government announced Landela Mining as the winning bidder for ZMDC’s gold assets and Sandawana Mine. Last year, the same ZMDC assets – including Jena and Sabi gold mines – were handed to another new company, Kuvimba Mining House, whose ownership has been controversial.
The shares in Todal, a long-delayed platinum project, and Kamativi, are now among ZMDC’s remaining investments.
At Kamativi, Canada-listed Chimata Gold’s local Zimbabwean partner, Jimbata, holds 60% of the Kamativi Tailings Company, which plans to treat the dumps at the old tin mine to recover lithium. The remaining 40% is held by Kamativi Tin Mines, a unit of ZMDC. It is that 40% that government now wants to move to Defold.
These would not be the first state assets to be put under Defold. The company already holds 100% of the Zimbabwe Diamond Consolidated company, the country’s biggest gem producer.
ZMDC: Not in our interest
An internal ZMDC assessment of the order to surrender assets to Defold says the move should be rejected. The ZMDC board, concerned that the asset transfer would be illegal and against its interest, in February asked its legal department to investigate.
“It is difficult to see how a disposal of assets that does not comply with the procurement laws of the country, gives no direct benefit to the corporation itself but to a different entity altogether, Defold Mining, and at the expense of ZMDC and or its subsidiaries can be said to be lawful or in the national interest,” the ZMDC cautions.
ZMDC lawyers say moving the assets will not solve the company’s debt fix.
“The fact that the government of Zimbabwe is the sole shareholder in Defold Mining makes no material difference as the corporation’s responsibility does not lie with the shareholders only but the other stakeholders, including employees,” the lawyers say.
Pushing the assets to another company may be illegal, and may incriminate company officials, the lawyers warned.
“The fact that the donation – for that is what it would be if there is no exchange in value – is meant to be in compliance with a ministerial directive does not exonerate the corporation’s directors or officers from wrongdoing if it is apparent that they did not act in the best interests of the corporation.”
The Minister’s order to transfer the assets was against the ZMDC Act, which demands that the board be consulted before directives are issued. “Therefore, the directive has to be lawful – in the sense of asking the corporation to do something that it is actually empowered by law to do – and in the national interest.”
The ZMDC advisory says: “It is highly unlikely that disposing of the corporation’s (or subsidiary’s) assets for no consideration and for the benefit of another company when it has debts of its own which have not been satisfied can be said to be in its best interests. In fact, the indications appear to be that the corporation’s liabilities actually exceed its assets. This simply means that the corporation is not in a financially viable enough position to make a donation of such magnitude.” – (NewZWire)