Harare, Zimbabwe —MININGREVIEW.COM — 31 January 2012 – The Chamber of Mines of Zimbabwe (CMZ) has warned the government against continuously hiking royalties, stressing that this could discourage investors and undermine the mining industry’s capacity to bankroll development projects.
“The Financial Gazette” explains that funding for government activities has remained far from adequate, and in order to open new avenues to bankroll its programmes, government has piled pressure on mines to remit more in taxes through multiple reforms, including increasing royalties.
In November, finance minister Tendai Biti said that starting in January 2012 the resource rent for gold would increase from 4.5% to 7% of gross revenue, while royalties for platinum would double to 10%.
But writing in the latest edition of the Chamber of Mines Journal, CMZ president Winston Chitando argued that while it was imperative for the industry to play a significant role in social development, it was important to strike a balance between ensuring that mines kept their operations afloat and that communities benefited from the industry’s operations.
“The mining industry is a price-taker," Chitando said. “It ensures profitability by restricting costs of production to a minimum. Over the last few years we have seen increases in royalties for precious metals, particularly gold and platinum,” he added.
“Royalties, being a levy charged on gross revenues, is the first deduction made before cost of extraction and payment of other statutory obligations such as corporate tax. If these upfront payments are allowed to continue to increase, very little will be left between the unit price and the cost of production for distribution between government, communities and investors,” Chitando pointed out.
“In other parts of the world where mining is a key contributor to economic development, focus is placed on maximising the difference between unit cost of production and unit price. This convergence of interests ensures that every stakeholder maximises his or her share of the mining business. We see this model as important as it allows all stakeholders to work towards increasing the rent arising from mineral exploitation,” he added.
The Chamber of Mines Journal said the new taxation system would add to the nightmares that the industry had already been going through. “The latest changes to the resource taxation regime will certainly add more nightmares to the pains gold and platinum miners already have with recapitalisation,” said CMZ.
“In aggregate, the two sectors (gold and platinum) require US$4.2 billion in new capital to fund working capital as well as build production capacities mauled by 10 years of recession, which led to the closure of all but one gold mine by December 2008,” it stated.
"Some of the gold mines are still under care and maintenance three years into dollarisation and economic stabilisation, while only two of those that have reopened have tasted profitability since the fight to recover began in 2009,” the report added.