Golden Sibanda Senior Business Reporter
GOVERNMENT has slashed the rate of royalty for all platinum group mining companies to 2,5 percent from 10 percent, a move the Chamber of Mines of Zimbabwe says will go a long way in enhancing viability at a time prices are depressed.
This also comes as Government indicated it had deferred the 15 percent levy on raw platinum exports cognisant of progress towards implementation of an agreed road map to construct value addition plants. The levy has been deferred further for raw and semi-beneficiated platinum until January 1, 2019.
The decision to cut the platinum royalty was taken as part of measures to ensure equity and fairness in the taxation of PGM miners, with or special leases or special mining title. The royalty is charged on gross annual revenue.
The new framework is with effect from April 1, 2017, Finance and Economic Planning Minister Patrick Chinamasa announced in his 2018 National Budget last week. He said the provision will last until August 2019. Effectively, the development will enable all platinum group companies to reserve significant amounts of capital for reinvestment, since royalty charges are calculated on the mining companies’ gross annual revenues.
Government entered into Special Mining Lease Agreements with some platinum group mining companies, which provide for a specific royalty rate of 2,5 percent, but mining companies who do not have special mining leases continued to be levied at 10 percent. PGM mining is strategic to the domestic economy since platinum is Zimbabwe’s second biggest foreign currency earning mineral, after gold, and together the two minerals generate more than half the receipts from mining.
According to the 2018 National Budget, Zimbabwe projects 3,7 billion in export earnings next year from mining, from 3,4 billion in 2017.
“In line with the principles of equity and fairness in the taxation system, Government committed, in April 2017, to align the royalty rates to 2,5 percent as part of the 2018 Budget measures. The 2018 Budget, therefore, proposes to regularise royalty rates for platinum on all platinum group mining companies with effect from April 1, 2017, until August 2019,” Minister Chinamasa said last week.
Zimbabwe has three producing platinum mines, Zimplats, Unki and Mimosa Mining Company. Chamber of Mines of Zimbabwe chief executive Isaac Kwesu said the reduction of the rate of royalty was taken in the spirit of equity and fairness for all PGM mining firms, which must be treated in the same way.
“It (reduction) ensures fairness and equity. All platinum miners are faced with depressed prices; platinum prices are low. All miners are struggling for viability, so the cost are the same whether one holds a SML or not, all the companies need to survive,” Mr Kwesu said.
In Zimbabwe, SMLs are normally given to an investor who hold adjoined or contiguous mining claims they intend to develop and may result in investment of over $100 million. Zimbabwe’s platinum mining companies have in the past few years been battling to secure more favourable fiscal taxation regime amid claims the current framework means they lose half the revenue to taxes.
Most recently, they have been fighting to have the proposed 15 percent levy on unbeneficiated platinum exports, arguing the tax would render their operations unviable. The producers have already started on the beneficiation projects. However, only Zimplats is now smelting and exporting PGMs in matte form.
Unki expects to complete its smelter for matte in August next year while Mimosa Mining Company is on feasibility studies. According to Minister Chinamasa’s budget, all three still have base metal and precious metal refineries outstanding. Government had eventually agreed to suspend the levy this year, until January next year, on condition the miners demonstrated commitment to building beneficiation facilities to optimise returns from PGMs.
However, the tax was reduced through the 2018 Budget from a blanket 15 percent to 5 percent for concentrate exports, 2,5 percent for white matte, 1 percent for PGM and base metal stage and 0 percent for precious metal refinery.
While the Government noted the investment being put into beneficiation facilities, Minister Chinamasa said there was concern over the slow progress towards the agreed targets, which perpetuates export of raw and semi-processed PGMs.
Zimbabwe also has the world’s second biggest known platinum deposits after its neighbour South Africa. The southern African nation is the world’s third largest producer behind South Africa and Russia.