Report of the Portfolio Committee on Mines and Energy on the State of Affairs at Shabani-mashava...

7/29/2019 Report of the Portfolio Committee on Mines and Energy on the State of Affairs at Shabani-mashava Mines

1/16

Distributed by Parliamentary Monitoring Trust Zimbabwe

(www.pmt.org/[email protected]/[email protected]/twitter@pmtzimbabwe)

_________________________ REPORT

_________________________ OF THE PORTFOLIO COMMITTEE ON MINES AND ENERGY ONTHE STATE OF AFFAIRS AT SHABANI-MASHAVA MINES

_________________________________________________________

THIRD SESSION SEVENTH PARLIAMENT _____________________________________

Presented To Parl iament in Ju ly , 20 11

[S.C, 10 2011]ANNOUNCED 13th July 2011

That the Committee cons ists of the following;

Hon. Chindori-Chininga, Hon. Chinomona, Hon. Dzingirayi, Hon. Kagurabadza, Hon. Katsande, Hon.

Kay, Hon. Haritatos , Hon. Makamure, Hon. Maposhere, Hon. Mare, Hon. Marima, Hon.

Mudarikwa, Hon. Mudiwa, Hon. Mudzuri. E, Hon. Mungofa, Hon. Munjeyi, Hon Munengami,

Hon. Musvaire, Hon. Muza, Hon. Navaya, Hon. Nemadziva, Hon. Shoko H.

Hon. Chindori-Chininga to be Chairperson

ORDERED In Terms Of Standing Order No.159

(a) At the commencement of every session, there shall be as many committees to be designated according to

government portfolios as the Standing Rules and Orders Committee may deem fit.

(b) It shall be the function of such committees to examine expenditure administration and policy

of government departments and other matters falling under their jurisdictions as Parliament

may, by resolution determine.

(c) The members of such committees shall be appointed by the Standing Rules and Orders

Committee, from one or both Houses of Parliament, and such appointments shall take into


2/16

account the expressed interests or expertise of the Members and Senators and the political

and gender composition of Parliament.

(4) Each select committee shall be known by the portfolio determined for it by the Standing

rules and Orders Committee.

Terms of reference of Portfolio Committees

Standing Order No.160

Subject to these Standing Orders a Portfolio Committee shall:

a) consider and deal with all bills and s tatutory instruments or other matters which are referred to

it by or under a resolution of the House or by the Speaker;

(b) cons ider or deal with an appropriation or money bill or any aspect of an appropriation or money

bill referred to it by these Standing Orders or by or under resolution of this House; and

(c) monitor, investigate, enquire into and make recommendations relating to any aspect of the legislative programme,

budget, policy or any other matter it may consider relevant to the government department falling within the

category of affairs ass igned to it, and may for that purpose consult and liaise with such department;

(d) Consider or deal with all international treaties, conventions and agreements relevant to it, which are from time to

time negotiated, entered into or agreed upon

1. IntroductionThe Portfolio Committee on Mines and Energy, in accordance with Standing Order Number

160, has conducted a thorough inquiry into the challenges bedeviling Shabani-Mashava

Mines (SMM); the only sole producer of chrysolite fibre in Africa. The enquiry led to stark

revelations of a sudden slump in production of asbestos since the placement of SMM under

reconstruction on 6 September 2004 as well as tragic stories of poverty stricken workers

struggling to survive from the crisis created by the non-performance of the mines. The

Committee observed that at the center of this quagmire are allegations of externalization that

were leveled against the controlling shareholder of SMM and related companies, Mr.

Mutumwa Mawere, which then led the government to take certain measures including

specifying Mr. Mawere, SMM and related companies in terms of Section 6(1) of the

Prevention of Corruption Act (PCA)in July and August 2004, respectively. Pursuant to

allegations that Mr. Mawere had played a hand in the non-remittance of foreign currency

proceeds to SMM, a reconstruction order was promulgated in terms of Presidential Powers

(Temporary Measures) against SMM and related companies on the premise that the

companies were indebted to the state. The administration of both the Prevention of

Corruption Act (PCA) and the Reconstruction of State Indebted and Insolvent Companies Act


3/16

(Reconstruction Laws) and regulations was under the control of the Minister of Justice, Legal

and Parliamentary Affairs.

An application for Mr. Maweres extradition was made in South Africa in May 2004. The

application was dismissed by South African magistrate court in June 2004.

Mr. Mawere was specified on 9 July 2004. The Minister of Justice, Legal and Parliamentary

Affairs appointed Assistant Commissioner S. Mangoma, on 13 August 2004 as Investigator

into the affairs of Mr. Mawere.

On 26 August 2004, SMM and related companies deemed to be under the control of Mr.

Mawere were specified. Mr. Francis Reginald Saruchera was appointed investigator of SMM

and related companies on the same day by the Minister.

On 3 September 2004, the Minister of Justice, Legal and Parliamentary Affairs, Hon.

Chinamasa, gazetted a s tatutory instrument permitting the placement of SMM underreconstruction without the involvement of the courts.

On 6 September 2004, the Minister appointed Mr. Gwaradzimba as Administrator and he

proceeded to dissolve the board of SMM and assume control and management of SMM.

In terms of the operation of the Prevention of Corruption Act (PCA), Mr. Mawere was legally

disabled from assuming the control and management of SMM without the permission of the

Investigator. In addition, the control of Mr. Maweres companies was then placed under the

control of an Administrator in terms of the operation of the Reconstruction Laws without the

involvement of the investigators.

Before Mr. Saruchera could begin his work, SMM was placed under reconstruction. There is

no indication of coordination between the investigators under the Prevention of Corruption

Act and the Administrator under the Reconstruction of State Indebted and Insolvent

Companies Act (Reconstruction Laws) during the time they were both administered by the

Minister of Justice, Legal and Parliamentary Affairs and more serious when the Prevention of

Corruption Act was re-ass igned to the co-Minister of Home Affairs.

Mr. Mawere was de-specified on 19 May 2010 only when the responsibility for administering

the PCA was changed to the Ministry of Home Affairs.

2. Background InformationShabani and Gaths mines are part of SMM Holdings and during their heydays were ranked the

6th

largest producer of Chrysolite fibre in the world. At full capacity the mines can

contribute about 10% of the country's foreign currency revenues, employing about 4 000

people and it is estimated that about 60 000 people in and around Mashava and Zvishavane

towns benefit directly or indirectly from the 2 mines. Gaths mine started operating in 1908,

followed by Shabani mine in 1914 and currently the mines have large ore reserves with a

lifespan of 25 years at a production of about 180,000 metric tones per annum. Historically,

the 2 mines have contributed significantly to the socio-economic development of Mashava-

Zvishavane towns as well as to the nation. In view of the large reserves and demand for the


4/16

resource globally, the 2 mines still have an important role to play in the development of this

country.

3. Methodology In an endeavor to understand the causes leading to the closure of the mines in 2010, the

Committee had an opportunity to meet all the key stakeholders. These

interactions varied from s ite visits to the mines , public hearings with affected communities of

Zvishavane and Mashava towns and also through Committee meetings at Parliament

building. The key stakeholders into this enquiry included, the then Minister of Justice, Legal

and Parliamentary Affairs, Hon P. Chinamasa; Mr Mutumwa Mawere, Mr A

Gwaradzimba, (the Administrator); Management team of African Associate Mines (AA

Mines); the Permanent Secretary of Home Affairs, (Mr Matshiya); Governor of Reserve Bank

of Zimbabwe, (Dr Gideon Gono); and the workers of both Gaths and Shabani Mines and their

labor structures. The Committee made a site visit to Shabani Mine in 2010. Later, in 2011

the Committee held 2 public hearings which were attended by about 2500 people that

included the workers, business community, local authorities, provincial political leadershipfrom political parties in the GNU and members of civic society.

The data gathering process was not without its challenges. Firstly, the management team of

AA Mines refused to attend the public hearings that was conducted by the Committee despite

the fact that they were given an official invitation and a Parliamentary secretariat advance

team went on site to make public hearing arrangement with AA Mines officials, the workers

and local authorities. Secondly, with respect to the ques tion of ownership, Hon Chinamasa

made the submission that the control of SMMs parent company registered in the United

Kingdom, SMM Holdings Limited (SMMH) was vested with AMG Global Nominees Private

Limited (AMG), a company that was used as a nominee by the government to acquire the

claims held by T & N Plc as security pursuant to the original acquisition transaction

concluded with Mr. Mutumwa Mawere.

Hon. Chinamasa submitted that AMG acquired the entire shareholding in SMMH and then

diluted its stake to 24% in lieu of the injection made by the Reserve Bank into SMM

Zimbabwe after the placement of the company under reconstruction. Accordingly, the

ownership of SMM Holding Limited ( registered in the U.K) as represented by Hon.

Chinamasa is as follows: AMG 24% and Nickdale Investments Private Limited, a nominee of

the government, - 76%.

However, according to Mr. Mawere, the ownership of SMMH ( registered in the U K) is as itwas before the placement of SMM Zimbabwe under reconstruction. SMMH (U.K) ordinary

shares are held by a company, Africa Construction Limited (ACL) registered in the United

Kingdom, that is beneficially owned by Africa Resources Limited (ARL), a company that is

in turn wholly owned by Mr. Mawere (see Annex A).

The Committee was presented with judgments handed down in the United

Kingdom dismissing the application by AMG Global Nominee Private Limited to be registered

as a shareholder of SMMH. In addition, a copy of letters from AMG Global United Kingdom

attorneys undertaking to surrender the bearer share warrants to the order of T & N Plc was

presented to the Committee (see Annex B)


5/16

Hon Chinamasa who had made the representation that Mr. Mawere is not a shareholder of

SMMH (United Kingdom), made an undertaking to provide the Committee with copies of the

bearer share warrants that he said were in the possession of the government but up to this

day the Committee has not had sight of the copies. The Committee resolved to write to the

Minister of Justice reminding him that he made a commitment under oath to present to the

Committee on Mines and Energy, the share bearer warrants. Three letters signed by the

Clerk of Parliament were delivered to the Minister and signed for but there has not been any

response to date. The letter requested information on the following:

a) Copy of Bearer Share Warrants relating to SMM Holdings (pvt) Limited and THZ Holdings

Limited Shares.

b) Copy of a Special Report presented to the Minister of Justice and Legal Affairs on the

Reconstruction of SMM Holdings by Mr A Gwaradzimba, State appointed administrator for

SMM Holdings.

c) A breakdown of legal cos ts that the government has incurred on its legal battles with Mr

Mawere in Zambia, South Africa, UK and other places .

The first letter was written on the 28

th

of January 2011, the second letter on the24

thFebruary 2011 and the final letter on the 18

thof March 2011 (see annex T)

Thirdly, through interactions with the Administrator, it emerged that he tried in vain on

several occasions to cast aspersions on the Committees work, on the grounds that the

enquiry was scaring away potential international investors.

4. Findings 4.1 Operational Performance of AA Mines Currently, the 2 mines are not producing anything and the downturn in production as per

table started in 2004, improved in 2005 and started to seriously decline leading to closure

toward 2008 up to its final closure up to date, during the Reconstruction period. Below is a

eleven year annual production chart in tons depicted in Table 1.

Annual Production Chart (tons)

Period 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Gaths 53 663 77 957 72 904 76 116 78 329 55 423 63 675 53 373 50 978 2 085 1 356 o

Shabani 61 139 73 887 68 386 67 872 78 595 49 046 58 360 48 048 33 794 10 038 6 451 o

Table 1

Source: Management Reports of AA Mines

The mines last realized near full capacity before 2003. The slump in production has largely

been attributed to the lack of re-capitalization before reconstruction and more seriously

during the reconstruction period. As a result, there has neither been the replacement of

aging plant and equipment nor the purchase of spares and other consumables. The situation

was also worsened by the resignation of skilled managerial and technical employees at the

commencement of reconstruction and during the reconstruction phase.

In one of the site visits, the Committee observed that the mines had become desolated andghastly looking. The only functioning departments were the hospital and the Mine Golf course


6/16

and Club. In the underground shaft a lot of equipment had been cannibalized to repair other

equipment and the remaining submerged in water and there was inadequate power and

machinery for de-watering the mines. ZESA had disconnected power due to non-payment

of bills. After negotiations, limited power was provided only for de-watering and not for

production. In the midst of this quagmire, the Committee was informed that the company was

sitting on book orders of 200 000 tons of asbestos worth US$105 million coming from the

Asian market.

At the same time the Committee also found it tragic that the country has now been forced to

import asbestos fiber from Eastern Europe and South America (Russ ia, Brazil and

Kazakhstan) because of this crisis.

The position of the Committee is that it is not right for this developmental resource of such

importance to become more of curse rather than a blessing for the people of Zimbabwe while

the dispute regarding the future and ownership of the company rages on.

4.2 Ownership Wrangle The Committee observed that the major hurdle in the resuscitation of the 2 mines lay in

resolving the issue of control and ownership of SMM Holdings (United Kingdom) which owns

SMM Zimbabwe. Mr Mawere claims that through his company Africa Resources Limited

(ARL), is the beneficial shareholder of Africa Resources Limited (ARL) as reflected in the

records of SMM Holding United Kingdom parent company kept at the Companies House

(Registrar of Companies) in the United Kingdom (see Annex A)

Africa Resources Limited (ARL) acquired the control of SMM Holding (United Kingdom)

pursuant to a Sale and Purchase Agreement concluded with T & N Plc (United Kingdom) in

March 1996 (see Annex C). Under the vendor purchase payment arrangement agreed

between the parties , Africa Resources Limited (ARL) had an obligation to procure the

payment of US$60 million payable over a 13 month period from the export proceeds of SMM

Zimbabwe. At the time SMM Zimbabwe and associated companies were placed under

reconstruction, T & N (United Kingdom) had been paid US$37 million in reduction of the

purchase price leaving a balance of US$23 million. AMGs Global main contention in the

United Kingdom litigation was that Africa Resource Limited ( ARL) had defaulted in its

payment obligations to T & N (United Kingdom). The finding of the United Kingdom courts

was that Africa Resources Limited (ARL) had not defaulted as alleged. The United Kingdom

court ordered that the bearer share warrants that were delivered to AMG Global by T & N

(United Kingdom) should be returned to T & N ( United Kingdom) (see Annex B). As such,the bearer share warrants should be in the possession of T & N (United Kingdom). Africa

Construction Limited (United Kingdom) (ACL) is the holder of the entire ordinary shares in

SMM holding (United Kingdom) in turn Africa Construction Limited is owned by Africa

Resources Limited.

The Government represented by the Minister of Justice, Hon P Chinamasa, told the

Committee that SMM Holdings (United kingdom) is owned 100 % by government, made up of

76% of shares which were State loans converted into equity and 24% through the agreement

that we crafted with T & N who had canceled their agreement with Mr Mawere[1].

To the extent that the Minister of Justice, Hon. Chinamasas claiming ownership of SMM

Holdings (United Kingdom) , he has the burden of proof to show that this is the case
http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn1http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn1http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn1


7/16

notwithstanding the fact that the very same issue as to who was the rightful owner of SMM

Holding (United Kingdom) was the subject of dispute in the United Kingdom Courts. The

High Court in the United Kingdom ruled that Africa Resources Limited (ARL) was the

rightful owner of SMM Holding (United Kingdom) (see Annex B). AMG Global appealed but

the appeal was dismissed. This means that the issue of ownership was resolved in United

Kingdom court of law (where the companies are domiciled) in which the government was

represented through AMG Global and Mr. Mawere through Africa Resources Limited (ARL) .

No dispute should, therefore, exists as to who is the shareholder of SMM Holding (United

Kingdom). The shares (both ordinary shares and bearer share warrant) in question are

legally held in companies domiciled in the United Kingdom and not in Zimbabwe. The

company domiciled in Zimbabwe are SMMZ, AAM and associated companies whose principal

shareholder is Mr. Mutumwa Mawere through companies domiciled in the United Kingdom,

SMMH and Africa Construction Limited which is turn owned by Africa Resources Limited.

With respect to bearer share warrants, the United Kingdom Court ordered that AMG Globalshould give them back to T & N. In terms of the United Kingdom Court order submitted to

the Committee by Mr. Mawere (Annex B) Africa Resources Limited is the rightful owner

of SMM Holding (United Kingdom). This is in terms of paragraph 8 of the orde r. AMG

through its United Kingdom lawyers made an undertaking pursuant to the Court Order to

surrender the original bearer share warrants to the order of T & N. Accordingly the bearer

share warrants according to court order should not be in the possession of either AMG

Global or the government after the conclusion of the United Kingdom litigation.

It emerged during the Committee hearings that AMG Global paid US$2 million for the bearer

share warrants. The funds were provided by the Reserve Bank of Zimbabwe. However, Dr.

Gideon Gono submitted that he had not seen the bearer share warrants. In the absence of

bearer share warrants the Reserve Bank of Zimbabwe want the US$2 million refunded and

this has not materialized.

The Committee established that bearer share warrants do not provide evidence of ownership

rather the said share warrants were pledged by Africa Resources Limited (ARL) as security

to the mortgagor. The bearer share warrants should now be in possession of T & N as

ordered by Court and the s tatus quo ante is supposed to be prevailing in respect of control

and management of SMMH being vested in ARL.

4.3 Acquisition of SMM Holdings:Both parties explained to the Committee how they got acquisition of SMM Holdings and

subsequently AA Mines. These were their arguments:

Hon P Chinamasa's Arguments:

[2]'Africa Resources signed the sales purchase agreement for the purchase of shares in

SMMH, THZH and ACL in 1996 and at time of agreement/signing ARL and Mr. Mawere did

not have the funding for the transaction with T & N (the transaction), and an arrangement

had to be made between Mr. Mawere and T&N, with the concurrence of Government of

Zimbabwe which underwrote the transaction, in terms of which arrangement SMMZ would

make the payment of US$60 million to T&N on behalf of Africa Resources Limited. SMMZ


8/16

paid, at the instigation of Mr. Mawere, US$5 million per month to T & N on behalf of Africa

Resources Limited.

In contravention of the Companies Act (chapter 24.03) (The Companies Act) section 58 (1)

as with Section 73 (1) of the Companies Act provides that It shall not be lawful for a

company to give, whether directly or indirectly, and whether by means of a loan, guarantee,

the provision of security or otherwise, any financial assistance for the purpose of or in

connection with a purchase or subscription made or to be made by any person of or for any

shares in the company or, where the company is a subsidiary company, in its holding

company..) SMMZ was then a subsidiary of SMMH and in terms of Section 58/73 of the

Companies Act, SMMZ was prohibited from providing financial assistance to Africa Resources

and Mr. Mawere. Therefore:

4.3.1 Mr Mawere never invested any money into the mines and all the money that was inves tedinto A A Mines came from the government, through guarantees. Therefore, Mr Mawere never

had any passion about the growth and development of the mines .4.3.2 The Sale and Purchase agreement that Mr Mawere signed with T & N (United Kingdom)was fraudulent because it violated section 73 of the Companies Act. This section highlights

that it is unlawful to provide financial assistance for the purchase of any share from the cash

flow of the company. In essence Mr Mawere paid US$43 million to T & N ( United Kingdom)

from the cash flow of the company and not from the profits, in violation of the law. In the

process this deprived the 2 mines of the much needed working capital to sustain and boost

operations.

4.3.3 Mr Mawere misled the seller ( T & N) into believing that he would provide workingcapital for the operations of the mine. This was recorded in the company's Minutes of 1996.

The Committee was shown a copy of the Minutes were Mr Mawere stated that 'working

capital of the order of US$25 million to US$30 million was expected to be injected into the

company shortly to underpin operations.[3]The assumption was that Mr Mawere would

provide this money from his own resources. Instead Mr Mawere began borrowing money and

the SMM holdings, SMM Zimbabwe became 'over-borrowed'.

4.3.4 In the process government had to intervene to save the mines from collapsing byproviding guarantees for loans. The first loan worth US$60 million was borrowed from

KBC of the UK and channeled to SMM Holding through MMCZ in 1998. The second loan of

US$18 million in 2001 to SMM Holding was also made possible through a government

guarantee. Hon Chinamasa, told the Committee that the major part of the money borrowed by

Mr Mawere was never used to re-capitalise the two mines but was diverted and invested into

his other subsidiary companies such as Steel-net.4.3.5 Africa Resources Limited (ARL) owned by Mr Mawere defaulted on its payments to T & N(United Kingdom) which had to be completed by the end of 1997. This was in violation of the

contract (Sales and Purchase Agreement).

4.3.6 SMMZ was also granted a special dispensation for the marketing and exporting ofasbes tos (see Annex I). In 1997, SMMZ was allowed to receive the proceeds of export

earnings without going through MMCZ. However, Mr Mawere abused this facility through a

company, which he formed known as Southern Asbestos Sales Limited (SAS), which acted as

an agent/buyer of the asbestos. When SAS had withheld or not remitted to Zimbabwe,

US$18 464 071.27, ZAR 4 513 025.28, CAD 628 071.84 due to SMMZ[4] the two mines

started experiencing serious cash flow problems.
http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn3http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn3http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn3http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn4http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn4http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn4http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn3


9/16

4.3.7 Due to serious cash flow problems, government took control of SMM Holdings in 2004. Atthe time of the takeover the two mines had an operational loss of US$18 million (See Annex

Q). In order to prevent the company from being liquidated, government crafted the

reconstruction laws in order to resuscitate the 2 mines. Mr Mawere was then specified and

an investigator, Mr Saruchera was appointed to investigate the causes leading to the cash

flow problems at AA Mines.4.3.8 In the investigator's report, Mr Mawere was accused of externalizing about US$18 million,ZAR 4 million and CAD 600 thousand. At the same time SMM holdings owed the State

ZW$115 billion in the form of direct advances, loans from RBZ and through debts to other

arms of the government such from ZIMRA, ZESA, NSSA and MMCZ (see Annex P) . In the

process the debts that were assumed by the state were later converted into equity amounting

to 76% ownership.

4 .3 .9 The balance of the 24% was acquired by government after it paid US$2 million to T & Nthrough AMG Global Nominees who hold 'the bearer warrants on behalf of GOZ[5].

Mr M u tumwa Maw ere 's Argumen t s : 4.3.10 Africa Resources Limited ( ARL) wholly owned by Mr Mawere signed a Sale andPurchase agreement with T & N in 1996 to purchase SMM Holdings and THZH for US$60

million. Of that amount US$43 million including interest has since been paid and there has

never been any default in payments. There is still an outstanding balance of US$23 million

which when fully paid will lead to full transference of ownership to Africa Resources Limited

(ARL).

4.3.11 The payment mechanism was a private arrangement made between Africa ResourcesLimited (ARL) and T & N of United Kingdom. The agreement states that the purchase

payments would be made from SMM's export proceeds. This was not in violation of any laws

both in Zimbabwe and the UK. Accordingly, if there was any illegality the only aggrieved

person would have been T & N who should have raised alarm and not the government. The

matter was the subject of litigation wherein AMG Global argued that the payment mechanism

violated Zimbabwe and United Kingdom laws. The United Kingdom Court ruled that the

transaction in its construction and performance did not violate Zimbabwean and United

Kingdom laws. In fact the court ruled that the payment mechanism complied with the

provisions of the Zimbabwe laws. Mr. Mawere furnished the Committee with copies of

the United Kingdom judgments dealing with the issue of financial assistance (See Annex C)

4.3.12 On government guarantees to purchase SMM Holdings - these were not meant for thepurchase of SMM Holdings because the Sale and Purchase agreement had already been

concluded in 1996. The government guarantees of 1998 and 2001, were meant to convert

short-term loans to medium term facilities and subsequently to allow SMM to access workingcapital that was made available to exporters through various concessionary financing

schemes and Productive Sector Facilities schemes put in place by the government and the

Reserve Bank of Zimbabwe (see Annex H)

4.3.13 On the question of injecting working capital from own resources worth US$25 US$30million, the seller knew that the money that was going to be injected was not going to be

injected by me because if I had the money I would simply pay and we move on[6]. The

money for re-capitalising the mines was going to be borrowed from the local banks which

had the backing of government guarantees. It was understood by all parties to the

transactions that funds were to be borrowed by SMM hence the need to pass resolutions

authorizing the company to increase its borrowing limits to US$60 million. The audited
http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn5http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn5http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn5http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn6http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn6http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn6http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn5


10/16

financial statements of SMM for 1996 and 1997 confirm that SMM was able to borrow the

funds from local banks as expected (see Annexes D,E and L)

4.3.14 When government assumed control of SMM in 2004, a meeting was convened which wassupposed to include the creditors, shareholders among others to discuss the future of

SMM. However the shareholder (Mr Mawere) was not invited but was purportedly

represented by the workers. (see Annex J). This was also in contravention of clause 4 of the

Reconstruction of State-Indebted Insolvent Companies which stipulates that the Minister

may, after affording the company an adequate opportunity to make representations in the

matter, issue a reconstruction order in relation to the company..

Mr. Mawere argued that the only person who has right of ownership is the one who is

registered in the United Kingdom as the holder of ordinary shares in SMMH.

4.4 The Mines Under the Recons truc tion Era: When government assumed control of SMM Holdings in 2004, a lot of court battles ensued in

the process between the Administrator and companies controlled by Mr. Mawere (SeeAnnexes M, N and R). The court cases ranged from the spec ification of Mr. Mawere, to the

challenge regarding the decision to place SMM under reconstruction, constitutionality of the

Reconstruction Act to violations of the exchange control regulations. The Committee also

observed that there were a lot of accusations and counter-accusations on the reasons why

the mines were not getting any inves tors. The Committee was informed by the

Administrator, Mr. Gwaradzimba, that about US$115 million is required to revive operations

at the two mines of which US$78 million would be used to pay for liabilities. The Minister of

Justice, Hon Chinamasa, told the Committee that the legal battles with Mr Mawere, the

negative press reports based on the 'Advisory Paper' issued by the Governor of the Reserve

Bank of Zimbabwe to H. E. the President were making it hard for the Administrator to

secure commitment from potential investors...[7] .

The Committee also noted with concern that the Administrator was also not without his faults

in the management of these mines . During the enquiry, the Committee came across

information relating to the application of the payments that were made in Zambia to the

Administrator, Mr. Gwaradzimba, by TAP Building Products, a company registered in Zambia

that was placed erroneously under reconstruction only to be removed after a court challenge

by Africa Resources Limited the shareholder of the company (see Annex G). Evidence

furnished to the Committee shows that Mr. Gwaradzimba using a Zambian company was a

beneficiary of payments of about US$345,000. A total of about US$700,000 was paid by TAP

on the instruction of Mr. Gwaradzimba to various parties including Mr. Manikai and other

board members who received board fees from TAP a subsidiary company of SMM Holdings.The Governor of RBZ was unable to confirm to the Committee whether these payments were

cleared under the Exchange control regulations applicable at that time (see Annex F).

In the same vein during the over 7 years of tenure that Mr Gwaradzimba has been

administrator there has not been much positive reconstruction of the mines casting a shadow

of doubt on his c redibility as the best person in reviving these two mines. At the s ame time,

the administrator paid US$2 million to T & N (United Kingdom) for the purchase of Bearer

Share Warrants, a case which government lost in United Kingdom courts. The money has

not yet been recovered. The Committee believes that this money could have been used to

pay the wages and salaries of the suffering workers at the two mines. These funds must be

recovered to contribute to national development or priority needs .


11/16

4.5 Impac t of the De-spec ification of Mr Mawere:The Committee observed that after the de-specification of Mr Mawere no assets were

returned to him. Mr. Maweres argument is that he is entitled to get his assets back from the

Investigators as provided for by the Prevention of Corruption Act while the Minister of

Justice, Hon. Chinamasas, line of defence was found in the Reconstruction of State Indebted

and Insolvent Company Act (Reconstruction Law). Mr. Mawere s main line of argument was

based on Section 10 (2) of the Anti-Corruption Act, which stipulates that the assets of a

spec ified person should not be disposed of during specification and after de -spec ification

should be returned to the owner. These arguments were being made in view of the fact

that the Administrator had disposed some of the companys assets such as mining claims (see

Annex K) and several subsidiary companies of SMM whilst Mr. Mawere was still under

specification.

Hon P Chinamasa defended the Administrator's actions on the grounds that the

Reconstruction Act gives the Administrator powers to dispose of any assets with theapproval of the Minister for purposes of reconstructing the mines. At the same time Hon

Chinamasa said the Prevention of Corruption Act is not, by any form of imagination, superior

to, nor does it have the effect of overriding, the Reconstruction Act[8]. The Committees

position is that one of the basic principles in law making is that there should be harmony

between all laws.

It is the Committee's considered position that the Prevention of Corruption Act is solely

meant to allow for the State to investigate corruption and where finding of corruption is made

the assets of a specified person can then be used to make good on the financial injury

caused. The law is meant to protect both the specified and the state. Equally the

Reconstruction Laws are meant to protect the State as a creditor and not infringe on any

persons right to property. The question that emerges from the facts presented to the

Committee is whether the Minister by invoking the Reconstruction Laws on the specified

person, has abused the powers bestowed on him? Can the two laws operate simultaneously

on the affairs and circumstances of the same person? Does the Reconstruction Act

compliment and co- exist without conflict with other legal statutes and legislation that relate

to legal recourse that government, parastals etc can take against companies and citizens to

recover debts through the judiciary (Courts). Your Committee, Mr. Speaker, presents these

challenges to you and recommends that the House review the law and advise accordingly.

4.6 State Indeb tednes s :The Committee also observed with concern the selective and arbitrary application of the

clause on state indebtedness. This was noted in Minister of Justice, Hon P

Chinamasa's, response during the enquiry where he defined state indebtedness as 'anything

owed by the mines to State companies and government.[9].'Some of the companies listed as

state companies, including RBZ, ZIMRA, ZESA,NSSA and MMCZ and yet these entities have

legal powers to claim any debts without the State as sistance. Hon Chinamasa,

further highlighted that the debt owing to the State directly or indirectly by SMM and AA

Mines was lumped together to achieve ' efficiency and effectiveness'.

A question then arises whether this was prudent decision on the part of the

Executive. The Committee would not like to see or to support the selective and arbitrary
http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn8http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn8http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn9http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn9http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn9http://www.blogger.com/post-create.g?blogID=6841141378498280747#_ftn8


12/16

application of the law. The concept of state indebtednes s should be applied to all companies

without discretion as currently there are many companies which owe money to these

institutions (RBZ, ZIMRA, ZESA and MMCZ) but have not been placed under

reconstruction. The Reconstruction of State Indebted and Insolvent Companies Act

(Reconstruction Laws and regulations) if assigned to any authority with mischief can result in

many of our farmers and many companies in mining, manufacturing, commerce who owe or

are in debt to RBZ, ZIMRA,ZESA or NSSA being State indebtedness and being put under

Reconstruction.

4.7 Conflic ting Interes ts The enquiry into Shabani-Mashava revealed that there was a conflict of interest in the

appointment of Mr Gwaradzimba as administrator and Mr Manikai as the legal advisor on

reconstruction of the mines. Mr. Gwaradzimba once worked at KPMG as an auditor and at one

stage audited the Accounts books of SMM. He was working at KPMG and providing auditorservices at the time when the alleged violations of the Companies Act in terms of payment to

T & N for acquisitions were being made. Mr. Manikai who is the legal advisor for the

Administrator and government on SMM once served as a Board Secretary for SMM in 1996

for a period. Both men have strong historical links with the AA mines, SMM, SMMH, Africa

Resources Limited and Mr. Mawere.

At the same time the Committee observed a conflict of interest by the company AMG Global

Nominees which sought to buy bearer share warrants from T & N of United Kingdom on

behalf of the government. The company has strong links with the Administrator.

Mr Gwaradzimba was working at KPMG the time when the alleged violations of the

Companies Act in terms of payments to T & N for the acquisition. If any violations of the

Companies Act as alleged took place, then Mr Gwaradzimba (KPMG) should have been cited

as co-Respondents for not qualifying the audited financial statements. On the same note Mr

Manikai was one of the transaction legal advisor to ARL in its acquisition of SMMH. It is now

alleged that the payment mechanism for the acquisition by ARL violated the provisions of the

Companies Act. If this was the case, Mr Manikai ought to have recused himself from acting as

legal advisor to Mr Gwaradzimba on allegations that involved a period in which he was acting

for ARL and also on facts that he provided an opinion regarding legality. There is no

evidence that Mr Manikai ever raised an issue regarding the alleged violations at all material

times. The Committees position is that this is unprofessional and is not in line with best

international practices.

4.8 Plight of Workers at AA Mines The Committee had an opportunity to interact with the workers during the public hearings

and the adage 'when two elephants fight the grass suffers'best describes their

situation. The majority of the workers have gone for more than (two) 2 years without a

salary and are s truggling to meet their basic needs such as food, clothing and shelter. At the

same time they have no access to clean water and electricity because of failure to pay their

bills. Children have dropped out of school and the sick are s truggling to get adequate health

care. Domes tic violence and moral decadence are the order of the day in the townships .


13/16

Mine workers were placed on unpaid leave without fully adhering to labour laws such as

application for exemption from appropriate labor authorities.

The situation has also been worsened by the acrimonious relations between the

Administrator and Management on one hand and the workers on the other side. The workers

told the Committee of harrowing stories of victimisation, unfair dismissals and other unfair

labour practices. In 2010 the workers tried to air their grievances through a demonstration;

riot police were called in leading to skirmishes and 4 workers sustained gunshot wounds .

Theirs is a s tory of struggle, pain and suffering where the workers feel they have los t their

human dignity. However, the Committee noticed that they still have a glimmer of hope in

that once government and Mr. Mawere agree to a final settlement and an investor is

found their lives will change for the better. Currently the workers are owed about US$10

million by their employer (see Annex V)

4.9 Lack of Collec tive Res pons ibility by the Executive During the enquiry, the Committee observed that there seems to be no collective

responsibility between the Ministry of Home Affairs and the Ministry of Justice on the

reasons leading to the de-specification of Mr Mawere. The Minister of Justice, Hon

Chinamasa, in his submission to the Committee showed that he doubted the validity of the

reasons leading to the de-specification of Mr Mawere. He states that'I am not aware of the

reasons why the Ministry of Home Affairs canceled the Specification Order in respect of Mr

Mawere,' taking into account the fact that the money that he externalised had not yet been

recovered. The Minister of Justice, Hon Chinamasa, also highlighted to the Committee that

under Section 10 of the Reconstruction Act, the Administrator had not cleared Mr Mawere et

al of culpability and the matter was still awaiting court judgment.

On the other hand the Committee was told by the Permanent Secretary of Home Affairs, Mr

Matshiya that before the de-specification of Mr Mawere, they conducted thorough

investigations both in South Africa and Zimbabwe with the assistance of

Interpol. Consultations were also made with the key stakeholders such as the Administrator,

RBZ and the Attorney General before the issuance of the de-specification order. The

Permanent Secretary also confirmed that the Co-Ministers of Home Affairs consulted widely

with appropriate authorities including the Minister of Justice although this is denied by Hon

Chinamasa. The Committee is deeply concerned that three Ministers who sit in the same

Cabinet have not been able to assume collective responsibility on a matter of such critical

importance.

4.10 Opportunities for Resuscitation of AA Mines Despite all these challenges, the Committee noted that there were a number of window of

opportunities for the revival of A A mines. These include:

i.Mediator: The RBZ offered to mediate between the feuding parties. This offer was made on the basis

of their experience and successes in resolving some of the challenges that had rocked the banking

sector in the last 5 years which resulted in specification of bank executives, closure and restructuring

of banks. The Reserve Bank of Zimbabwe after careful consideration de-specified former bank

Executives and authorized the closed and restricted banks to re- align, re-invest and re-open for

bus iness.


14/16

ii.Demand for Product: The two mines are sitting on book orders worth US$105 million and with a quick

capital injection, the companies will regain their glory of yesteryear in the shortest period pos sible.

iii.Committed Labour Force: Most of the workers s howed willingness to return to work in order to revive

the fortunes of the company.

iv.Transference of the A A Mines to Ministry of Mines. The Committee took notice that H. E President has

re-assigned SMM under Reconstruction to the Ministry of Mines and Mining Development. It

is Committees expectation that the Ministry of Mines and Mining Development will be open minded

in its search for lasting s olutions to revive SMM mining operations.

The Committee however, does not recommend the use of ZMDC as a vehicle for investment

into SMM. SMM Mines have great potential and the solution to resuscitation of the mines lies

in finding a last solution of the dispute and creating an environment that will allow andattract massive financial inves tment into the two Mines.

4.11 Contempt o f ParliamentIn the gathering of evidence, the Committee noted that two of its witnesses, SMM

administrator, Mr. Gwaradzimba, and the Minister of Justice, Hon Chinamasa, contravened

the provisions of the Privileges, Immunities and Powers of Parliament Act. The Committee

finds the SMM Administrator, Mr. Arafas Mutausi Gwaradzimba, at fault by publishing a

defamatory statement in the press (The Newsday of Friday 4th

March 2011) hence

demeaning the proceedings and character of the Committee (see Annex U).

The Committee notes the second witness Minister of Justice, Hon Patrick Chinamasa, could

have lied under oath regarding the possession of bearer share certificates of SMM holdings

that were previously in the possession of T & N. The Minister of Justice, Hon Chinamasa

made a commitment under oath to present the bearer share warrant as proof of government

ownership of SMM Holding after payment of US$2million. Three letters from Parliament

requesting the Minister to fulfill his commitment have been presented to the Minister of

Justice and to date no bearer share warrant from T & N has been presented to the

Committee (see Annex T). From evidence presented, the Governor of the Reserve Bank of

Zimbabwe and the Co Minister of Home Affairs are also seeking proof of government

possession of Bearer Share Warrants as evidenced by Hon Minister of Mines and Mining

Development,( Hon Mpofu) letter to Hon K D Mohadi, Co Minister of Home Affairs datedMay 24, 2011 attached as Annex (S).

5. Recommendations 5.1 Ownership Wrangle

5.1.1 A mediator is required to resolve the differences between the key stakeholders and negotiate a lasting solution,

in order to pave the way for the resuscitation of the 2 mines. There should not be any ownership wrangle. Any

dispute regarding the shareholding of SMMH was exhaus tively and legally resolved by a court decision in the

United Kingdom courts where parent companies T and N, Africa Construction Limited, SMM Holding, Africa

Resources Limited are domiciled.


15/16

5.1.2 The Reserve Bank of Zimbabwe should collect the funds advanced to AMG to acquire T & Ns rights in

respect of SMMH as AMG lost its bid to gain control of SMM Holding in the United Kingdom Courts and

surrendered the Bearer Share Warrants in accordance with U.K.Court decision, order 8.

5.1.3 The guarantee of protection and right of property should rest with the holder of valid legal documents. This

should be respected in line with the country's laws and the Constitution.

5.2 Operational Performance of AA Mines 5.2.1 Investment opportunities for the mines should not be restricted to the Far East only. Government should

open up and approach other local and international investors.

5.2.2 Once investment has been found, a management team with the technical knowledge and expertise should

be appointed in order to realize optimal performance of the two mines.

5.3 The Mines in the Rec ons truction Era The Prevention of Corruption Act provides protection to any specified person in so far as any

dealings with his assets. Section 10(2) specifically prohibits any person from disposing of

assets of a specified person. Section 10(7) sets out what should happen in respect of any

transactions concluded without the permission of the Investigator. At issue is whether aspecified persons assets can be dealt with in terms of another law other than the law

providing for his specification.

5.4 Impac t of De-spec ification of Mr Mawere on SMM Holdings The consequences of de-spec ification must be s elf evident and credible lest the ins trument

can eas ily be abused to deprive citizens of their right to property. The de-spec ification of Mr

Mawere should be followed by restoration of his rights

5.5 State Indeb tednes s The effect of the law is to make all persons, natural and juristic, indebted to the state by

virtue of doing business with any state-owned institution including utilities. The operation of

the law exposes citizens to the risk of losing assets to the s tate without any meaningful

judicial oversight. A law that arbitrarily converts claims of state owned institutions to state

obligations governed under the Reconstruction Laws has to be carefully examined and

interrogated by the House.

5.6 Conflic ting Interes ts Mr Manikai and Mr Gwaradzimba should recuse themselves from the reconstruction efforts

of AA Mines taking into account their historical links with the companies . Failure to recuse

themselves, then the Executive must retire them from these responsibilities. This is in

line with bes t international practices .

5.7 Plight of Workers at Shabani-Mashava Mines 5.7.1 The rights of A A mine workers should be respected in line with the country's

labour laws and the Constitution.

5.7.2 Management at AA Mines should desist from using excess ive or coercive force in the handling of workers

grievances.

5.7.3 The Anti-Corruption Commission and the police should be directed by appropriate authorities to

inves tigate allegations of abus e of office, theft of mining material, vehicles, building material, mining

equipment, mining claims, unauthorized sale of ass ets and mismanagement of resources at the two mines and

ass ociated SMM companies.

5.8 Lack of Collec tive Res pons ibility by the Executive


16/16

The Executive should be encouraged to communicate internally in order to avert making conflicting

decisions and issuing out conflicting statements on SMM Holdings.

5.9 Contemp t of ParliamentThe Speaker should make a ruling on the actions of Mr Gwaradzimba the Administrator for SMMH

and Hon Chinamasa, the Minister of Justice who contravened the provisions of the

Privileges, Immunities and Powers of Parliament Act.

5.10 Due Diligence Audit on SMMThe Executive should carry out an independent due diligence audit of SMM and

associated companies, to fully understand the current financial status of SMM since it went

under Reconstruction and also specifically look at:

Disposal and sell of assets claims and mining equipment and material from AA Mines

Disposal and sell of associated companies

Debt arrears or debt status of SMM

Legal and professional fee costs that relate to payments made to the Administrator and the

legal advisor under Reconstruction of SMM

Outstanding wages, salaries and other benefits of workers.

6. ConclusionThe Committee would like to see the speedily recovery of the 2 mines. In order to achieve

this, it is important that government and Mr Mawere agree and recognize that the current

dispute on ownership of SMM Holding (United Kingdom) was settled by United Kingdom

courts. Government has not been able to acquire transfer of the bearer share warrants from

T & N to government of Zimbabwe or AMG Global. Government has only been able to take

control of physical operations of the now closed SMM Zimbabwe mining operations and

associated companies using the Reconstruction Act but not the shareholding control of the

parent company SMM Holding in the United Kingdom.

The Committee encourages the government and Mr Mawere to enter into dialogue, negotiate

and develop a win win lasting solution that will allow the resuscitation of the two mines and

allow a window of opportunity for investors to inject developmental capital into the two

mines. As long as the key stakeholders remain divided and hostile to each other, it would be

difficult to build confidence and trust in the investors. The workers will continue to suffer,

the construction industry will continue to import material at high cost and the NationalTreasury will be deprived of the much needed foreign currency revenue resources. In turn

national economic development is retarded. Parliament passed the Reconstruction of State

Indebted and Insolvent Companies Act (Reconstruction Laws) and must take ownership and

responsibility. The Judiciary interprets laws passed by Legislature and that they are in

harmony with the Constitution. The Reconstruction Order has been confirmed by the

Zimbabwean courts. However, the discretionary application of the Reconstruction Laws by

the Minister raises many challenges of confidence and security of ownership to Zimbabwean

indigenous business men and women who have benefited or will benefit from governments

implementation of the indigenisation and economic empowerment programme anchored by

the Indigenisation and Economic Empowerment Act.

Report of the Portfolio Committee on Mines and Energy on the State of Affairs at Shabani-mashava...

Documents

Transcript of Report of the Portfolio Committee on Mines and Energy on the State of Affairs at Shabani-mashava...