By Mukasiri Sibanda
For over a decade, reforms to the Mines and Minerals Act (MMMA), deemed a colonial piece of legislation, have proved elusive. This time around, can the new Mines and Minerals Amendment Bill (MMAB) mature into law? More importantly, what does this Bill really mean for the mining industry?
The public hearings conducted by Parliament on the new MMAB have started. The Mines Committee has scheduled public hearings for the recently gazetted Mines and Mineral Amendment Bill for the week beginning the 27th of February, with multistakeholder consultations having been completed.
The formulation of an Artisanal and Small-Scale Gold Mining (ASGM) policy is a key target for NDS1. Indeed, weak mineral resource governance is cited by NDS1 as a barrier to the harnessing of the country’s vast mineral wealth for sustainable development. To close this loophole, the NDS1 prioritises the comprehensive reviews of the Gold Trade Act, the Precious Stones Act, and the amendment of the Mines and Minerals Actor plus the formulation and implementation of mineral-specific policy.
Even though the new MMAB shunned the word artisanal mining, the Bill robustly accommodates Small Scale Mining (SSM). The definition of SSM appears to be quite comprehensive. Parameters used cover the size of the hectarage, number of people employed, contractors included, and annual tonnage of ore. The previous MMAB vaguely defined SSM. Even though the definition of SSM appears extensive, the lack of an impact assessment of this proposed measure means that policymakers may be driving in a thick fog. A possible outcome may be the resistance of actors on the ground to comply, most probably fuelling illicit gold mining and trade.
Who is SSM?
Still, there are several positives from the parameters used to define SSM. Firstly, SSM is reserved for Zimbabwean citizens or permanent residents which resonates fairly with the empowerment objectives included in the Finance Act of 2018 after the scrapping of the indigenisation and economic empowerment requirements. We have seen an influx of foreigners, including the Chinese, operating in SSM, and hopefully, this move will help to sanitise the government’s empowerment drive in the mining sector. That said, the opening of doors to permanent residents creates a slippery slope for empowerment. Foreign nationals, for instance, the Chinese can find a backdoor to squeeze out the indigenous players. For this reason, only Zimbabwean citizens should be permitted to operate in SSM.
Reflecting on the tonnage parameter, looking back, the 2014 National Budget Statement used a monthly production threshold of half a kilogram of gold as a qualification for ASM to benefit from a preferential royalty rate. This qualification is problematic because some mining pits worked on in ASM can be very prolific, yet the methods of production are largely informal. Therefore, this makes tonnage a more relevant basis of measurement. The new MMAB sets a production threshold of 1,200 tonnes of ore per annum, translating to an average production of 100 tonnes per month.
By limiting the combined ownership of claims to forty hectares, the new MMAB sets the tone for graduating SMM to medium or large-scale mining. Currently, miners who may have outgrown SSM could be hiding under the veneer of informality to dodge compliance issues. Under the new MMB, if one owns more than forty hectares, they graduate to a mining lease. Last but least, the maximum number of 50 people including contractors being employed for not less than six months each year, whether continuous or not is another factor for defining ASM.
Through the issuance of a mineral right to a holder of a claim, that is one hectare, to a large extent, the new MMAB is accommodative of artisanal mining. There is room, however, for the new MMAB to have a distinct definition of a holder of a mining claim and a holder of a mining block or blocks to distinguish between artisanal and SSM. A mining block is equivalent to 10 hectares. In addition, the new MMB should reserve areas with alluvial or near-surface mineral deposits for ASM and SMM to create an enabling empowerment environment for Zimbabwean citizens. Lessons from the lithium rush in Mberengwa and Mutoko show that ASM and SMM can play a similar role to gold mining in absorbing the unemployment shock and providing a booster jab for community enterprise development.
What’s in it for the taxman?
At this point, it is vital to reflect on the impact of the proposed SSM definition from a taxation angle. Seeing that there is a preferential gold royalty rate for ASM, the incentive for SSM to disguise their real growth to continuously benefit from a lower royalty tax obligation is massive. ASM attracts a fixed 1% gold royalty rate based on the fair market value of gold as determined by Fidelity Gold Refiners (FGR) using the London Billion Market Exchange (LBME) as a benchmark. Large-scale gold producers attract variable royalty rates, 3% and 5% respectively if the international market price of gold is below or above US$1,200. Because of the clear-cut definition of SSM in the new MMAB, it is highly probable that a significant number of small-scale miners (SSMers) would be compelled to upgrade to mining leases and possibly lose the preferential treatment on gold royalties.
In turn, this move could result in more government revenue from gold mining and well-tailored gold delivery incentives that distinctly target SSM. As it is now, the same actors that might have outgrown SSM using the definition of the new MMAB could be the main beneficiaries of the ASM gold trade incentive scheme.
Indeed, some artisanal and small-scale miners raised red flags that they have been carved out of the ASM gold delivery incentive. Allegedly, the main beneficiaries are a few politically well-connected individuals.
Roughly US$84 million could have been paid as gold trade incentives in 2022, with Better Brands Jewellers (BBJ), FGR’s super gold buying agent getting probably over US$50 million windfall revenue from incentives. FGR pays 5% for every delivery of 20kgs of gold from ASM and the scheme was introduced in 2021. BBJ delivered 18,000kgs of gold to FGR in 2022, and slightly more than 7,000kgs in 2021.
Moving away from the implications of the definition of SSM, the new MMAB defines a strategic mineral as “any mineral deemed strategic by virtue of its importance to the economic, social, industrial or security interests of Zimbabwe.” Any mineral can be designated as strategic with the approval of the President after the recommendation of the Minister of Mines in consultation with the Mines Affairs Board (MAB). The requirements to get a mining title for a strategic mineral seem to be too steep for SSM. The implication is that SSM is carved out of strategic minerals, lithium, for example. In the past, we have seen SSM locked out of Marange alluvial diamond fields.
What of the environment?
By nature, mining is associated with red flags concerning environmental, safety, and health risks affecting within and surrounding mining communities. It is encouraging to note that the new MMAB extensively covers environmental managemental rehabilitation together with safety and health issues. Significantly, the MMMB seeks to establish the Environmental, Rehabilitation, and Occupational Health and Safety (EROHS) Trust Fund covering both large- and small-scale mining. And this appears to be an encroachment on the work of EMA. Environment management and compliance issues deserve EMA’s specialised focus and the MMMD can concentrate on other areas that deserve greater attention.
In acknowledgment of the outsized risks of mining to the environment, the Mines Affairs Board (MAB) should have a representation from EMA to make a political statement that environmental compliance is not an extra-time regulatory issue. A representative of the SSM is included in the MAB which is a major boost for SSM interests in the governance of minerals and mining.
An alternative funding model can be pursued in the new MMAB to cater to EROHS issues related to ASM. For instance, the ASM gold mining royalties could be raised to match large-scale mining. The subsequent increased government revenue from ASM could be ringfenced to fund EROHS Trust Fund for ASM. Taking into consideration that nearly US$1.7 billion was generated from ASM gold in 2022, charging royalties at par with large-scale mining could have generated additional royalty revenue of well over US$60 million for resourcing the EROHS Trust Fund for ASM. The government probably received around US$17 million in the form of ASM gold royalties in 2022.
On top of that, the additional revenue raised could be extended in its utility to support the Mining Industry Loan Fund giving preference to those paying royalties, and income taxes. Also, the additional revenue can be harnessed for ASM corporate social responsibility (CSR) activities that are required for both SMM and large-scale mining in the new MMAB. By forgoing the royalty preferential rate for ASM, the arbitrage opportunity for tax evasion through large-scale miners disposing of their gold as ASM to illegally dodge a high royalty obligation would be managed. The ringfencing of the extra royalty obligation for responsible growth of ASM and better management of the CSR required under the new MMB could prove to be a sweetener and easier way to achieve the intended objectives.
Who owns what?
The new MMAB provides legal backing to a publicly accessible online mining cadastre, a progressive move that enhances the transparency and accountability of the mining title administration. If well implemented, the computerised mining cadastre can go a long way to ameliorate the conflicts emanating from the claim ownership disputes and mitigate against corruption. Further, the new MMAB requires beneficial ownership disclosure to be part of the mining title approval, making it easier, for example, to enforce compliance issues.
For example, foreigners cannot operate under an ordinary mining lease except on special circumstances and ownership of more than forty hectares automatically graduates a holder of a mining title from SSM to, a mining lease holder. Beneficial ownership access and mining cadastre system may also result in increased revenue flows to the Central and local authorities. Local authorities have been crying over lack of mining title information for revenue mobilisation.
Progress, but room for more
All in all, the new MMAB might have failed to hit a bull’s eye on artisanal mining and SSM reforms, but substantial progressive measures are included that can make significant steps on for boosting the formalisation of the sector. The extensive definition of SSM is welcome. However, in line with the NDS1, ASM must be clearly accommodated in the MMAB. Environmental compliance issues should be left to EMA, an independent entity from MMD and a specialised agency too. Strategic minerals are vital for the country’s sustainable development agenda. However, SSM should not be quarantined from mining strategic minerals such as lithium as this defeats the Constitution. Equitable sharing of natural resources is one of the founding values on the Constitution.
There is room for innovation pertaining to the resourcing of the ERHS Trust and CSR for the SSM sector at the same time narrowing arbitrage opportunities from preferential gold royalty rate for ASM. This article is not exhaustive but hopefully, it will be a booster shot for the public debate on the new MMAB that commenced on Monday, 20 February 2023. – (NewZWire)