US$1,2m spent on suspended bosses
THE State-controlled diamond outfit, Marange Resources spent US$1,2 million in salaries for seven suspended executives during the 11 months to December 31, 2014 due to delays in concluding investigations into their cases, an audit report has disclosed.
The executives were suspended in February last year after allegations of misconduct and abuse.
It was not clear if the investigations into the suspended executives had been concluded after release of the audit report; but if these investigations have not yet been finalised, the executives would still be on Marange Resources’ payroll.
Official documents revealed that while it was splurging millions in taxpayers’ funds to pay the idle executives, Marange was slowly gravitating towards insolvency, with enraged creditors piling interest on overdue accounts.
At the rate of US$1,2 million in 11 months, Marange Resources may have gobbled a further US$720 000 during the first half of this year, extending the salary bill to suspended bosses to about US$1,9 million.
The shocking payments to a few executives comes as the country battles to pool resources to import over 700 000 tonnes of maize to feed millions of peasants facing starvation countrywide following a disappointing agricultural season.
Normally State firms are established to provide such resources, through dividends, during times of crisis.
In Zimbabwe, these State firms have evolved into dark centres of corruption and self interest.
Government controls 100 percent shareholding in Marange Resources through its wholly- owned but ailing resources giant, Zimbabwe Mining Development Corporation, whose interests span from diamonds to gold and asbestos extraction.
In reports lodged with the Ministry of Finance and Economic Development two weeks ago, auditor-general, Mildred Chiri, called for the immediate conclusion of investigations to save the needless wastage of public funds by Marange, constitute a new substantive board and reposition the firm to stability.
“In February 2014, seven of the company’s senior managers were sent on special leave to pave way for an investigation instituted by the government,” Chiri wrote to Finance Minister Patrick Chinamasa following her annual audit into the operations of parastatals.
“As at December 31, 2014 and subsequent to the year end the results of the investigation were still pending and management was still on leave. Full salaries were being paid to these managers and as at December 31, 2014, a total of (US$)1, 166 472 gross earnings had been recognised in respect of salaries and wages relating to management on special leave,” she said, warning of “financial losses due to payment of salaries to non-productive employees”.
“Management should consult the Ministry of Mines and Mining Development regarding the status of the investigation and the action to be taken thereof,” she wrote to Chinamasa.
Marange was incorporated as Blockwood Mining (Private) Limited in November 2005 before switching names in November 2007, as government moved to clean up the controversial Chiadzwa diamond fields to pave way for formal extraction.
In a cleanup that had kicked off with the dismissal of an entire board in December 2013, the Ministry of Mines and Mining Development took the exercise a step further by suspending the seven bosses.
It has so far taken Mines and Mining Development Minister, Walter Chidhakwa and his team close to 18 months conducting the investigations, compromising the quality of decisions at the firm that has also been starved of sound board oversight for one and half years.
The permanent secretary in the Ministry of Mines and Mining Development assumed the powers of the full board with full oversight of the entire operation, even as it is clear that boards of directors require multi-skilled members to complement each other.
Until June 17, Chidhakwa had not appointed a new board.
Marange is among the seven diamond mines that have hemorrhaged under the weight of heavy debts and have failed to pay workers after being confronted by a ruthless cash flow crisis that has thrown the sub-sector into turmoil.
In fact, Marange was insolvent during the year ended December 31, 2014, based on its financial statement submitted to government, although management said if certain factors were considered, the firm would still be in a sound footing.
Chiri’s report was released as Marange’s financial accounts revealed a rapid deterioration of the firm’s health; this was in sharp contrast the fortunes of the diamond firms when they first scooped easy to-mine alluvial gems in the concessions ranked among the world’s richest.
But as alluvial gems reserves depleted, paving way for full scale kimberlite extraction that requires huge capital expenditure outlays, the diamond mining sub-sector has been badly exposed for its lack of strategy and forward planning, as very little had been saved in preparation for proper mining.
They have been turned upside down.
The extravagancy and flamboyance that became the hallmark of these firms’ operations has faltered, with Marange sliding to a staggering US$30,5 million loss during the full-year to December 31, 2013, before extending the losses further by US$1,5 million last year.
Marange had suffered US$25 million in net losses during the year to December 31, 3012, taking cumulative net losses to about US$57 million in three years.
Yet as Marange battled to shake off the effects of the stubborn operating environment in Zimbabwe, directors paid themselves US$27 450 each to spend on luxurious holidays in 2013, according to Chiri’s reports to the Minister of Finance.
They received 2 940 litres of fuel.
The chief executive officer and non-executive directors received a combined US$758 000 as “extra security” fees, which are now being queried by the chief State auditor.
“Had these payments been directors’ remuneration, they should have been approved by the company shareholders in a general meeting,” Chiri wrote to Chinamasa.
She said four Ford Ranger 2,54x4D/Cabs were disposed to managers before reaching 150 000 kilometres as per company policy in 2013, while three other vehicles were also disposed of in the same way.
“After completion of the inventory country, I noted that the system figure for diamond stocks differed from the physical count and paper trails by 11 486,02 carats,” Chiri said in the audit for 2013.
In a crackdown, government dismissed the Marange board in December 2013, but created conditions for a far worse governance crisis.
The company was slapped with a US$1,6 million interest bill after failing to pay creditors in time, with debts due to 15 of its creditors shooting from US$5,6 million to US$7,3 million after penalties were factored.
During the review period, Marange’s current liabilities exceeded current assets by US$75 million, while total assets were US$55 million lower than total liabilities.
Based on the available numbers, Marange was technically insolvent at the end of 2014, but Chiri said the asset figure excluded mineral reserves.
“These conditions along with other matters disclosed in note 29 (of the financial statements) indicate the existence of a material uncertainty that may cast doubt about the company’s ability to continue as a going concern,” Chiri said in her report to government dated June 17, 2015.
Marange is one of the seven diamond extraction firms operating in the country that are due to be consolidated into two enterprises in which the State will have a big say, as Zimbabwe moves to plug leakages that have seen the country in perpetual crisis in spite of its huge endowment of vast diamond resources.
But it is not clear if the major announced last year, will result in the improvement of operations of the Chiadzwa diamond mines, which have recently been in the news for failing to pay workers.