Business Development Mining

Prohibitive Mining licensing fees a “back-stab” to sustainable mining development

Mining

By Zimbabwe Environmental Law Association (ZELA)

Introduction and Background

The Minister of Mines and Mining Development has in terms of section 403 of the Mines and Minerals Act [Chapter 21:05] increased mining fees by over 800 percent quoting the fees in United States dollars[1] but payable at the prevailing exchange rate.  This is highlighted in the gazetted new mining fees[2]. An ordinary prospecting licence was previously capped at ZWL$1,000,00 and is now US$100,00 which is ZWL$8 300 at the prevailing auction rate. Registration as an approved prospector is now amended to US$ 4,000,00 from ZWL$ 20,000,00, with an application for revocation of forfeiture now US$1, 000,00 from ZWL$ 5,000,00, Application for a mining lease is now US$2 000,00 (from ZWL$ 10,000,00).  Application for a special mining lease is now pegged at US$5,000,00 (ZWL$ 50,000,00) while an application for protection against forfeiture is now US$100,00 from ZWL$500,00. The Minister also pegged an application for a special grant to mine at US$2 000,00 from ZWL$ 10,000,00. This increase also includes a custom milling licence of US$2000 from ZWL$25,000,00 per year and operating without custom milling licence fine now stands at US$5000 from ZWL$ 25,000,00.

These changes come at a time when the mining sector is expected to contribute immensely to the 12billion mining industry. Vision 2030 also highlights how it will leverage on the diversified mineral resource base to help grow the economy. However, these changes do not distinguish between the Large-scale miners and Artisanal Miners, foreign and domestic sector players. They are just cross cutting around all the different sectors which is a huge challenge in terms of affordability and inclusivity with the ASM sector likely going to be affected the most. Other regional countries such as Zambia have made this aspect quite clear. Zambia Mining licenses fees are distinguished between large scale, small scale and artisanal miners which is not the case for Zimbabwe. This article seeks to bring out the implications of the price increment on the mining sector productivity and growth of the Artisanal Mining Sector which has for the past few years been contributing immensely to gold deliveries. A quick assessment of the Artisanal Small-Scale Miners’ reaction to this development shows their disgruntlement, noting that this excludes them especially by giving them the same conditions as Large Scale Miners and Foreign Investors. This reflects one of the key challenges in Zimbabwe’s mining sector, the weak local content policies which tend to disadvantage the locals when it comes to participating in the mineral value chain.

Demystifying the Mining regulation No.24

Several artisanal and small-scale miners have expressed concern that the fees are too high considering that several of them could not afford the old mining license fees. Mine licencing ought to be a regulatory approach, however according to the Mines and Minerals Act, the “Minister may make such regulations as he may deem expedient to give force or effect to this Act or for its better administration[3] giving powers to the Minister to make such changes. The implication of the regulation is more on the downside for ASM and may have a toll on the mining industry development agenda.

Challenges of ASM growth and participation in the Mineral Value Chain

The recently announced changes will have implications on the participation of locals in the mineral value chain. Recently there have been efforts to revamp the industry to make sure that it contributes the expected US$12 billion to the economy. Some initiatives that were introduced include the ‘Use it or Lose it’ principle meant to improve the productivity of the mining sector by making sure that the potential is harnessed and utilised. The change in the licensing fees at a time when the ASM sector is in chaos due to inaccessibility of mining titles, the high prices is likely to make it unaffordable for some locals. Most of the locals who have been participating in the ASM sector are unemployed youths who have limited capital to increase their production or to participate fully in the mineral value chain. The high fees are now exclusionary and will force the local ASM to engage more in illegal lower tires of the value chain.  The advantage of having locals participate at the high stages of the value chain is that the economic benefits are most likely to benefit the nation and it also encourages them to operate in a formal way. It remains a challenge when the growth of ASM is not supported and promoted by favourable policies to encourage formalisation.

ASM sector- ‘the goose that lays the golden egg.’

The artisanal and small-scale mining sector is the source of livelihood for several mining communities. The sector has been producing more through gold deliveries to Fidelity Printers and Refiners[4]. There is a need to formalise the sector and create decent work for these communities in an effort to promote sustainable mining development and transform the economy into the upper middle-income economy as envisioned.

Consequences of the Mining Regulation

Increasing the licencing fees by 800% defies logic to formalise and promote business ventures in the artisanal and small-scale mining space. The move has potential to exacerbate corruption and illicit smuggling. The country is losing billions of dollars through illicit financial flows[5]. Licencing and regulating mining operations is urgently needed. The move to increase the licensing fees is generally counterproductive. Licencing is generally used as a regulatory tool, rather than a revenue generation tool. With licences being charged at an all-time high fee, this is more of a revenue collection scheme than servicing approach. Acquiring a mining claim is now exorbitant for the ordinary citizen.

The ministry has been attributing inefficiency and failure to inspect mines to inadequate resources. Some argue that this increase in licensing could be a move to generate revenue meant to improve service delivery. Although this argument may justify the increase, the benefit is on the downside. Revenue generation should contribute to better service delivery.

Implication on industry performance

With much of deliverable coming from the ASM sector, the move is being perceived as an approach to discourage small scale mining. The policies and regulations are not in favour of the mining ‘work horses’ but are in favour of already established mining players. Through the Mines bills there is a need to separate the large-scale and small-scale miners and come up with different licencing regimes that favour growth of the small-scale miners. The ministry needs to address challenges that are affecting artisanal and small-scale miners.

Tax collection is a major contributor of government funds and this has not been with the interests of the ASM sector in consideration. Recently the Ministry of Mines and Mining Development and the Ministry of Finance granted a five-year tax relief to Great Dyke Investments to promote rapid production. However, a growing sector still struggling to acquire mining licences is being charged fees they cannot afford. Several Civil Society Organisations (CSOs) such as the Zimbabwe Environmental Law Association have been advocating for a two-tier mining fees system, one for foreign owned companies and the other for the ASM sector. The CSOs have been advocating for a just access to land for vulnerable groups and these licencing fees shun the effort for an inclusive mining sector.

Inspection fees are high, and forfeiture of mining claims will be high. The cost of re-pegging or revocation of forecited claim will be high for small scale miners and this may not be supported by repegging by mining corporations since small scale miners work on marginal orebodies. Instead, the economy will be losing out to illegal mining activities and illicit trades.  This is all against the development agenda anchored on mining. Reports were recorded of miners who were holding mining claims for speculative purposes, this effort may drive through the use of it or lose it and include miners who have the capacity to mine to be fully involved in the sector. The question goes back to the livelihood that will be lost in poor mining communities.

Compulsory formalisation structures.

 The high fees are hardly affordable to artisanal and small-scale miners, this may compel miners to form groupings such as artisanal miners’ cooperatives, and associations to register mining claims and operate as organised mining groups. This may be a way to encourage small scale miners to consider mining as a business. Extreme requirements may cultivate a perception on how serious mining is. The pseudo formalisation structures in other areas have proven to be effective, delivering higher production and by employing good work ethics.

 Illicit Financial Flows, closing the loopholes.

 The Ministry of Mines and Mining Development (MMMD) must enhance transparency and accountability in the administration of mining titles through computerisation of the long overdue mining cadastre system so that it can restore people’s confidence in it. The price of compliance continues to go up. There is no Ease of doing business in ASM which encourages rent seeking behaviour and fosters illicit gold trade. Due to the high licensing fees the ASM will prefer to continue operating illegally which will increase illicit financial flows that have been robbing the country of the much-needed revenue to fund social service delivery. Gold deliveries have been dropping and this will affect revenue mobilisation, the doorway to mineral leakages and gold trade will continue as there are no incentives for the ASM sector or efforts to formalise and deal with the challenges being faced in the sector. Corruption will remain rife as the price of being formal continues to rise at a time when the sector is a key livelihood option for many who do not have capital. Recently a tax break was given to a foreign company and therefore several arguments emphasize that, priority and incentives must also be given to local citizens as well.

Comments and Concerns raised by Artisanal Miners.

“The fee increment will certainly boot out small fish from the field. With EPOs all over the country the big fish-Large Scale Mines are just finding a way of taking over from the small-scale mines because many will not be able to pay the fees. Amid the pandemic miners were not expecting this. Now that it will cost up to 2000 us to get a mining claim including peggers. Then for one to operate will need several licences EMA & Explosive permits, Personal Protective Equipment for workers then inputs and equipment if all added one would need at least $5000 as a small start-up. An indigenous miner in this economy. This will now increase corruption & gold illicit flows because people will start to mine without papers & sell to the black market more. The mines guys will come for inspections, find people without papers then deal corruptly and leave them, the flora & fauna will do the same.”

“I wonder if at times the ministry is not serious at addressing issues affecting us in this sector. How can Artisanal and Small-scale miners formalise their operations under such circumstances. Tax collection is a major contributor of government funds but not without considering the growing sector. Of late we heard of the ministry of mines and the ministry of finance giving a tax relief for 5 years to a mining company in the Great Dyke and coming to strangle us, does this make sense. We have always been advocating for a two-tier mining fees system, one for foreign owned companies and the other for the Artisanal and Small-scale mining sector. If these fees are anything to go by, then what it means is simply that the Artisanal and Small-scale mining sector will die a natural death”.

“Those increases on inspections, etc., are on the high side, higher than even when we were in a fully dollarized economy. Now a 10ha gold block is $400usd for an annual inspection! It was never that high even when the USD was reigning supreme. I remember figures of $100usd and $200usd. Why such a steep increase?”

“Hope if miners cry with one voice and ZMF as the advocate, the ministry will reverse because it’s too much. Amid the pandemic and the rain season miners are going through tough times, high cost of production, limited workers, renewing of several licences”.

Artisanal Miners Recommendations

1. Government must shift from the traditional economics of looking at Foreign Direct Investment, as it comes with conditions that are not favourable to growing the local industry.

2. History and economics share a common ground; there is a need to wake to reality and empower locals who will then reinvest in the economic development of this country. There is a need for think tanks who come up with homegrown solutions on how to grow this economy using locally available resources. We need to shift from a system of Treasury raising income by raising fees. There are other alternatives. A little funding for the small-scale mining sector will go a long way in bringing about the much-needed finance. Double standards will not benefit the government.

3. Zimbabwe Miners Federation should look at the fees and engage with the MMMD to adjust the fees for ASM.

ZELA Recommendations 

  1. The Ministry of Mines needs to prioritise the local mining investors and give them incentives to formalise mining operations while discouraging illicit trade. Licencing is meant for regulation and higher fees promote illegal mining.
  2. The government should distinguish the licensing fees for ASM sector and Large-Scale Sector, Locals and Foreigners like its regional peers such as Zambia.
  3. The ministry through the mines bill should consider formulating different registration regimes for artisanal and small-scale miners since the group is mainly characterised by vulnerable groups seeking a source of livelihood. Attention should be on developing the sector rather than formulating and manipulating regulations.
  4. Engagements and consultations are lacking between the government and the stakeholders in the mining sector. The Ministry should ensure broad consultations are undertaken before adopting and implementing any policy so that the interest of the miners is also reflected in the mining regulations.

[1] https://miningzimbabwe.com/breaking-mining-fees-up-by-more-than-800-per-cent/

[2] The Mining (General) (Amendment) Regulations, 2020 (No. 24)

[3] Mines and Minerals Act 403(1) [CHAPTER 21:05]

[4] http://www.zela.org/understanding-violence-in-artisanal-small-scale-mining-in-zimbabwe-drivers-implications-and-key-options/

[5] https://www.theindependent.co.zw/2020/08/07/illicit-financial-flows-zim-loses-us32bn/

About the author

Byron Adonis Mutingwende