Murowa Diamonds shuts down
MUROWA Diamonds, the troubled junior resources outfit that is under pressure from government to participate in a forced merger of diamond companies, has been mothballed in a dramatic turn of events.
Mines and Mining Development Minister, Walter Chidhakwa, has said seven diamond mines operating in Zimbabwe would be consolidated into one mining outfit to improve transparency and efficiency.
The mine employed about 220 workers in 2013
RioZim Limited, which controls a 22 percent shareholding in the Midlands-based Murowa, made the shock announcement last week in a note to shareholders contained in the group’s results for the half year ended June 30, 2015.
It said while no official announcement was made, Murowa was technically grounded in the first quarter of this year, but would be brought back online in the last quarter of 2015, although it would continue to be dogged by losses.
The diamond mining firm in which the international resources group Rio Tinto PLC sold its 78 percent shareholding to new investors mid-year, had been crippled by hostile government policies and was battling to remain afloat.
Amid pressure from softening international mineral prices that has rocked the market this year, Murowa had pleaded with government to review a range of taxes and fees charged on mines to give the industry breathing space.
Instead, government responded by hiking royalty rates for chrome miners, demonstrating that it was not prepared to give concessions to an industry long suspected of externalising its income, although government has failed to back its accusations with evidence.
“The associate, Murowa Diamonds (Private) Limited in which RioZim has a 22 percent interest, incurred a loss,” RioZim announced in a note to shareholders and other stakeholders for the review period.
“The group recorded a share of the loss of US$573 000 (June 2014; US$414 000 profit). There is no significant mining that was done in the first half of the year at this operation. Murowa Diamonds (Private) Limited finalised its mine plan subsequent to the reporting period and operations will commence in the fourth quarter after nine months of stoppage, but losses are expected to continue into 2016,” RioZim said.
In February, Murowa warned that fees and tax hikes slapped on the mining industry in the past few years would have serious implications on its going concern status.
Murowa said it had its best production in 2014, with total material mined, at 5,1 metric tonnes, setting a new record and “demonstrating our capacity to deliver on our promise”.
But in an address to staff on January 26, chief executive officer, Zebra Kasete, said the mine, based in Zvishavane, faced a gloomy future as taxes continued to pile pressure on revenues and profitability.
“The business is facing formidable challenges, which could have serious implications for our operation,” Kasete said.
“The government has slated a regime of taxes that include ground rental fees, which are weighing down the business,” he told workers.
“The management team is continuously engaging government and hope for some positive outcome from this process; else the viability of Murowa Diamonds as a going concern will be impacted. Employees will continuously be updated on any changes resulting from this outcome,” said Kasete.
Subsequently, Rio Tinto Plc, the world’s second largest resources firm which held a controlling stake in the diamond operation, announced its exit after selling its shareholding in diamond and coal assets.
Indian investors were reported to have taken over control of Murowa.
Rio Tinto also controlled half the shares in the Sengwa Colliery near Gokwe in the Midlands province. The colliery is expected to support a multi-billion dollar thermal power project, which has failed to take off because of government policy inconsistencies unsettling international funders.
The value of the transaction involving Rio Tinto’s exit was not disclosed, but in 2013, Deutsche Bank AG valued Murowa at US$279 million.
In the January letter to workers, Rio Tinto said the high government taxes were “weighing down on the business” to the extent that it was considering shutting down the diamond firm.
The turn of events at Murowa demonstrate the crisis that has hit mines after the combined effects of a slowdown in mineral prices and a difficult operating environment in Zimbabwe affected operations.
Zimbabwe continues to rank lowly in terms of doing business benchmarks, and authorities have been moving at a snail’s pace to deal with the problem.
In the meantime, there has been an exodus of capital into favourable markets such as Mozambique.
It was not immediately clear how the developments at Murowa would affect the planned merger of diamond interests in the country.
The plan was announced by government earlier in the year, and would force all diamond miners, including Murowa, into one company in which the State would take 50 percent shareholding as part of its controversial indigenisation programme.
The bulk of the companies coming into this merger have operations in Marange’s alluvial diamond fields, and have been rundown due to mismanagement and corruption.
Reports indicate that the alluvial diamonds have run out, and there is need for funding to explore the mining of kimberlites, which requires more capital.
The diamond mining firms operating in Marange neither have the financial capacity, after plundering all earnings made from less-expensive-to-mine alluvial diamonds, nor the expertise to search for new deposits underground.
But there are reports the country still holds vast diamond deposits in Marange, enough to meet 25 percent of global demand.