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Legislative Environment
Legislation expected to cause unintended consequences
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2nd September 2011
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Advisor in mineral valuation and statu- tory compliance Venmyn says the controversial Indigenisation and Economic Empowerment Act, No 14 of 2007, promulgated by the Zimbabwe government, contradicts accepted mineral resource reporting practices.

“The legislation will result in many unintended consequences, which the Zimbabwe authorities have perhaps not considered.

“The law creates challenges for companies with listing jurisdictions outside the borders of Zimbabwe, as they have to comply with the listed jurisdiction rules,” said Venmyn MD Andy Clay, a presenter, this year, on Zimbabwe and indigenisation for a Pretoria University course on compliance and reporting rules in the minerals industry.

He says compliance becomes chal- lenging where indigenisation practice incorporates processes that contradict these rules.

Currently, all the offences created by the indigenisation regulations, such as the failure to submit a plan or respond to notices, are punishable by either a fine or up to five years imprisonment.

In June, the Zimbabwe Parliamentary Legal Committee released a report that stated the hefty penalties proposed for noncompliance were grossly disproportionate with these offences and were in violation of the country’s Constitution.

The committee pointed out that no consideration was given to the nature and quality of the offence.

“Although this penalty is permissible under Section 21 of the Indigenisation Act, it is permissible as the maximum punishment applicable. It should not be taken as a one-size-fits-all prescription. Regard must be given to the nature and quality of the offence,” states the report.

Meanwhile, the government expects companies to part with a 51% share of their Zimbabwe operations to ensure the involvement of indigenous Zimbab- weans in the economic activities of the country, as well as the equitable ownership of the nation’s resources.

“No one, besides the Zimbabwe gov- ernment, is comfortable with the 51% share.

“Over time, through processes, the South African government and companies have agreed that a 26% equity share for black economic-empowerment should be reached. “Jumping straight to a 51% equity share will result in a company automatically relinquishing control of its assets,” Clay points out.

He says that this significant change in a company’s equity structure will have profound consequences for the way in which capital is raised and secured to develop new projects, as a move to gov- ernment owning 51% is an effective change of control and the value of the mineral asset does not comply with accounting standards.

The new 51% shareholder must demonstrate its ability to meet its funding obligations otherwise the business may not be considered a “going concern” – a company that will operate indefinitely.

Further, Clay says determining the worth of a company’s shares is a challenging and ongoing process but the value to the 49% shareholder could be reduced to zero, destroying the company’s balance sheet.

“When dealing with a situation where a government is trying to provide addi- tional equality, the share price depends on the status of the equity, trading on an open market through a stock exchange.”

Edited by: Henry Lazenby


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Venmyn MD Andy Clay discussing indigenisation. Camerawork. Nicholas Boyd. Editing: Darlene Creamer.
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