Illegal Manganese Mining In Zambia

By Robert Young — Exlcusive to Manganese Investing News 

While most countries embrace the mining activity within their borders, the Ministry of Mines and Natural Resources in Zambia has a different situation to deal with when it comes to manganese production. In October of last year, the government suspended the issuance of mining licences and non-mining rights due to irregularities, litigations, and allegations bordering on corruption in company processes. But that suspension has not stopped companies from continuing the production of manganese. Now, according to some reports, the government is losing millions of kwacha (the currency in Zambia since 1968) in revenue through illegal manganese mining.

In February, Richard Musukwa, the Deputy Minister of the Ministry of Mines, said in an interview that the government has lost more than K3.2 billion in revenue from the suspension of mining licences and non-mining rights.

Musukwa also stated that lifting suspensions by the end of March would be in the best interest of the government, and assured the cooperating partners and mining companies that everything was being done to speed up the process. By the end of March, the revenue lost since the suspension could be much more than the K3.2 billion estimated.

For the last twelve months, the price of manganese has struggled to maintain its average of $2,868.75 per ton. Manganese flake prices have fallen considerably since last March’s price of $3,600 per ton to the recent price of $2,850 per ton, and with the issue of licencing and legalities hovering over the metal, pressure is still evident.

In another interview, Brighton Mbaimbai, the Town Clerk for Mansa, disclosed the fact that his government is losing millions. Mbaimbai would not commit to an actual financial amount, but did say the situation was due to the failure of manganese extraction firms to formalize their operations with the proper authorities. Local authorities have made attempts to appeal to the Ministry of Mines and Natural Resources to help curb the issue and to compel mining firms in the region to start paying taxes.

Mbaimbai also claimed that seven mining companies have been issued large-scale mining licences, but have not formalized their operations with the council with respect to paying the appropriate taxes.

“These mining companies are currently mining without leaving anything for the Government and the council. This is so because the mines are not appearing anywhere in our valuation roll and deeds records, although some of the mining firm’s activities are legal.” Mbaimbai named Genesis, Taurian, Tycoon, and Amanita as part of the seven illegal operations.

Manganese mining firms in the area are considered to be the largest contributor to revenue in terms of taxes toward the government of Zambia. According to Finance and National Planning Minister Situmbeko Musokotwane, Zambian mining revenues are expected to increase to 30 percent by the year 2013 from the current four percent when mining firms start making profits. Last year the government of Zambia collected K9.67 trillion in tax revenue with mining taxes accounting for K388.5 billion.

Foreign mining companies operating in Zambia include London-listed Vedanta Resources Plc (LSE:VED), Equinox Minerals, Glencore International (LSE:GLEN), Metorex (OTC Pink:MRXLY), and China Nonferrous Metal Mining Company.

The Federation of Small-Scale Miners Association of Zambia (FSSMAZ) claims the increase in illegal mining in the country is definitely due to delays by the Ministry of Mines in issuing licences. FSSMAZ president, Marc Kalema, spoke to the association claiming the bureaucracy in processing mining licences had forced some miners to engage in illegal activities. Kalema said the government should ensure that all the contentious issues in the issuance of permits were dealt with before the ban on licences was lifted and that illegal mine traders ensure that they legalised their operations to avoid any risk.

Small-scale mining operations have remained the least developed and unregulated operations by the previous government of Zambia. They have failed to provide the appropriate incentives to encourage and advance ownership of larger mines by indigenous Zambians.

Musukwa said currently the ministry was working at resolving the licensing conflicts and irregularities which have arisen. He said the government had hired a South African firm to put up the computerisation system which had since been completed.

Despite legal issues and flat manganese prices, the activity in Zambia still continues. Kaboko Mining (ASX:URA) has agreed to an arrangement with Chinese steel maker Sinosteel (SZSE:000928). Kaboko, formerly uranium explorer Uran Ltd., has agreed to sell an intial 180,000 tonnes of manganese from the company’s Zambian projects to Sinosteel on an exclusive basis.

“The signing of our first off-take agreement with such a well-known and significant end user is a key milestone for the company and will significantly underpin our mining and development plans and our debt funding arrangements that we are progressing,” Executive Director Jason Brewer said.

Securities Disclosure: I, Robert Young, hold no direct investment interest in any company mentioned in this article.