Hefty royalties threaten mining
THE Chamber of Mines of Zimbabwe has warned that the country’s high royalties will threaten the survival of mining companies currently operating at break-even-point or those in the red.
Experts say Zimbabwe has one of the highest royalties in the world, a development which may constrain investment in the capital intensive extractive sector. A mining royalty is a sovereign right to receive payment based on a percentage of the value of the mineral exported.
Mining royalties are deducted as a percentage of the gross value of minerals shipped. In Zimbabwe, royalty is calculated as a percentage of the gross fair market value of minerals produced and sold. Zimbabwe and Mozambique levy up to 10% in royalties while Angola has up to five percent.
Local diamond miners pay 10% in royalties, while large-scale gold producers are levied at 3% for prices below US$1 200 per ounce and 5% for prices above US$1 200. The royalty for small-scale miners is 1% while platinum is levied at 3%.
Coal miners and lithium miners have to remit and 5% respectively. Current government policy also provides for payment of 50% of gold and diamond in actual commodity. Pardon Chitsuro, chief economist at the Chamber of Mines, told delegates attending an annual tax review symposium that Zimbabwe should urgently review the current tax regime to attract more investment in the mining sector.
Mining is the country’s top foreign currency earner, generating more than 50% of export shipments.
“High royalties are sterilising the country’s mineral ground. Effectively, the nation’s collective national mineral wealth is reduced and in certain instances can never be monetised,” the Chamber says.
“Royalties also have a direct impact on marginal mines which are operating at breakeven levels, by reducing their revenues upfront. Such mines are reducing exploration or mine development expenses to remain viable, potentially reducing the life of the mine. At these very high royalty rates, we are most likely to witness marginal mines closing down operations.”
The optimal royalty improves investment competitiveness and promotes capital inflows into the mining sector.
“All mining jurisdictions compete for the same capital. Capital is timid, flows to softer environments. There is need for benchmarking the country’s royalty structure in line with regional and international best practice,” the Chamber says.