Monthly Archives: April 2015

Botswana: Will Botswana Allow Diamond Cutting Industry to Perish?

22nd April 2015

Opinion

DIAROUGH, which owns Teemane in Serowe, will continue to operate its Bhopal factory in India as well as its factory in Thailand and neither they nor De Beers will suffer the consequences of the job losses in Botswana.

For the diamond cutting industry the news last week could hardly have been much worse. In January the press reported that MotiGanz and Leo Schachter had laid off 150 workers. Then last week a bombshell was dropped that Teemane Manufacturing Company owned by Diarough would close with the loss of some 320 jobs in Serowe.

With a total reported employment in the diamond cutting and polishing industry of 3 750 in 2014 this was a massive retrenchment and will cause real pain to many thousands of low income Batswana. This is a time of great sorrow and pain in many households in Botswana.

BIGGEST EXPORTER

In 2013 Botswana is reported to have exported of polished diamonds making it by far the biggest manufacturing exporter in the country. Two reasons are commonly given for the sudden rash of closures in Botswana’s diamond sector. The first is quite correctly a structural one – Botswana, like Namibia and South Africa, is simply not competitive in comparison to low cost and high productivity locations like Surat and Mumbai where most of the world’s diamonds are cut. The second is the squeezed margins. Wages in Botswana are about the same as they are in India but the differences are in the productivity. Indian cutters will produce 2-3 times as much as those in Botswana.

Botswana has become more competitive over time but it just cannot compete with India yet but it is a more competitive location than either South Africa or Namibia.

This structural lack of competitiveness of Botswana and the rest of southern Africa has meant that, despite growth in employment in Botswana over the last few years, they are now all going elsewhere in terms of employment in the industry. But what has changed to make it necessary to close so many factories and to lay off thousands of workers across the continent?

Even in good times it is said that Botswana’s diamond manufacturers are not able to make a profit on diamonds that are much smaller than half a carat polished. The diamond cutting industry has also fallen victim worldwide to a limiting of bank credit to the industry which has made it even more difficult to operate. Gross margins are falling in the cutting industry and diamond manufacturers are closing their highest cost operations in Southern Africa. No surprises in any of this except for the fact that the deal that the Government of Botswana made with De Beers in 2004 and revised in 2011 specifically required diamantaire who were Diamond Trading Company (DTC) -Botswana – sightholders to cut and polish in Botswana.

Under this deal these sight holders would eventually get US$800 million worth of rough to process here in Botswana. But these sight holders are not fools, they knew at the time that Botswana is a high cost location, so why did they set up here ? Industry sources have claimed that in the past the DTCB sightholders would get thrown a ‘special stone’ by De Beers occasionally to compensate them for locating in Botswana.

These stones are multimillion dollar diamonds and the profits from one is often enough to compensate producers for low productivity in Botswana. De Beers strongly denied this at the time but now this practice has certainly come to an end. In 2012, the last year before diamond exports figures became confused with re-exports associated with aggregation, Botswana exported some US$4 billion of diamonds. If US$800 million or so goes to DTCB sight holders what happens to the other US$3 billion that Botswana produces? Well, De Beers has many sight holders, 84 according to its website of which some 21 are in manufacturing in Botswana. The rest take their diamonds in what is one of the other boxes that is Namibia, South Africa and Canada where some of these De Beers sight holders have beneficiation obligations. But a large chunk of all the diamonds produced in southern Africa go into what used to be called the ‘London box’ which, since the move to Gaborone is called an ‘international sight’. Therefore sight holders may get up to five boxes of diamonds at the Gaborone sights every 10 weeks.

LONDON BOX

But the so-called London or international box can be sent anywhere for processing and so in a bear market for polished diamonds, such as is presently the case, the local manufacturers, many of whom have access to a London box, can simply close their factories in Botswana, lose access to their Botswana box but still continue production in India or China.

What has happened to the diamond cutting industry is what economists call ‘regulatory failure’. The closure of the factories in Botswana would probably never have occurred if our agreement with De Beers had said that firms that do not beneficiate a portion of their sites in Southern Africa cannot have access to southern African diamonds, full stop.

But instead, we have created a complex marketing formula which made the cost of exiting Botswana in the current bear market very low indeed. The firms that closed their doors will continue to have access to Botswana’s diamonds. Thus, in a sense, the situation where De Beers was claimed to have ‘subsidized rough with rough’ has now been reversed … Botswana provides rough for the Indian industry at the cost of our evaporating polished diamond industry. If we had an arrangement which said that only those firms operating plants in Botswana, Namibia and South Africa can have access to De Beers African diamonds, the plant in Serowe would probably be open today.

Botswana has imposed beneficiation obligations on De Beers but at the same time we are exempting state-owned companies like Okavanago or private ones like Lucara and Gem Diamonds from the same obligations. The buyers from these companies can take their stones and cut in India and so it is becoming easier and easier to get Botswana diamonds without any beneficiation. In this way government policy encourages diamond trading but undermines our beneficiation efforts.

In the meantime, it is certainly time for Botswana, Namibia and South Africa to reconsider their agreements with De Beers and see what can be done to assure that diamond beneficiation in Southern Africa occurs in the way it was intended.

*These are the views of Roman Grynberg and not necessarily those of any institution with which he is affiliated.

 

SOURCE: http://allafrica.com/stories/201504220954.html

Zimbabwe: Riozim Woes Mount

1st April 2015

GOLD and diamond miner RioZim Limited sunk deeper into the red after its third straight loss almost tripled to $18,5 million on low nickel matte supply and high debt interest.

RioZim hinted a few weeks back it would report a bigger loss and its December 2014 results show that the net loss worsened from $4,7 million in 2013 and $5,5 million in 2012.

Its statement of financial position for the period under review also graphically depicts the group’s mounting woes with current liabilities now exceeding current assets by $50,8 million.

RioZim said the loss was essentially a result of two main factors. The first was its unit, Empress Nickel Refinery, which saw sole matte supplier declare a series of force majeure.

The situation reportedly resulted in the refinery receiving less than 30 percent of the contractual supplies of matte and the facility operating at below 25 percent of capacity.

As a result, the refinery posted a loss of $10 million at the operating level, RioZim said.

Secondly, it was the interest cost arising from the debt of the group, which accounted for $9,4 million of the total net loss recorded by the group in the period to December 2014.

RioZim advised in its December 2014 year end accounts that this scenario indicated existence of material uncertainty on the group’s ability to continue as a going concern.

RioZim has now rested its hope of rescuing the situation on the $10 million rights issue that shareholders of the company approved for reopening of Cam and Motor Mine.

Chairman Mr Lovemore Chihota said he was convinced that the rights issue would progress according to plan and that Cam and Motor Mine would be commissioned by year end.

It is not clear, however, if the $10 million right issue will be enough to turnaround its fortunes, considering management said in 2010 that Cam and Motor required $50-$100 million.

At the time, in 2013, RioZim owed banks over $60 million and creditors about $31 million.

Like its situation today, it was also burdened by inexhaustible high interest charges.

Its precarious situation, which once saw banks threaten liquidation, seemed to be on the mend when revenue rose 33 percent to $72 million, while EBITDA grew 317 percent to $7 million.

Then chief executive, Mr Ashton Ndlovu, said $17,8 million had been paid towards settling liabilities, with a staggering $11,8 million going towards clearing accumulated interest.

The multi-commodity miner, however, seems to have gone back in time and appears to be facing exactly similar problems to the ones that almost saw it going under around 2011.

Apart from its loss making position, RioZim is saddled by interest bearing loans amounting to $41,7 million from $30,8 million last year and trade payables of $60 million.

Operationally, RioZim said base metal production decreased by 52 percent in volume terms to 2 915 tonnes, which pulled down ENR revenue by 49 percent to $40 million last year.

Gold production at Renco increased by 69 percent to 648 kilogramme’s in 2014.

The increase was a result of improved ore milled and plant recoveries.

However, the increased production was neutralised by the weakening gold price, resulting in a fall in revenue.

RioZim’s associate, Murowa Diamond’s performance was also affected by low productivity and low prices, resulting in lower profitability compared to the previous year.

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SOURCE: http://allafrica.com/stories/201504010392.html

Churches stress negative impact of mining at World Social Forum side-event

Churches speak against negative impact of mining at World Social Forum

Fr Dário Bossi speaking at the churches’ side-event at the WSF in Tunis.

31 March 2015

The social and ecological cost of expanding mineral exploration and extraction was highlighted by the churches in a side-event at the World Social Forum (WSF) held last week in Tunis, Tunisia. Church representatives stressed that mining projects often hamper the wellbeing and sustainability of local communities, noting the need to find new alternatives to extraction as a development paradigm.

The side-event, which took place on 27 March, was organized by Iglesias y Minería (Churches and Mining), Franciscans International, Missionários Combonianos and the Rural Women’s Assembly, among other groups.

The 14th WSF this year has gathered some 70,000 participants from around the world, representing more than 4,000 mass-based movements and organizations. The World Council of Churches (WCC) was represented at the event by Athena Peralta, the WCC’s consultant for the Economic and Ecological Justice Programme.

The discussion at the churches’ side event, titled “The Christian Church and Mining”, underlined how several countries especially in Latin America are increasingly witnessing the negative impacts of mining projects. According to several reports, these projects have harmed the health and the sources of sustenance of people in mining areas.

In response to this situation, since 2013, the Roman Catholic Church and Protestant church groups in Latin America have worked together to support communities resisting large-scale mining, promoting the protection of vulnerable communities and working together to find alternatives to extraction.

“Churches are among the most reliable actors in defense of the communities’ rights to their territory, land, water and all the common goods,” said Fr Dário Bossi, a Comboni missionary and member of the International Network of those Affected by Vale, a mining company. “In Latin America, our network Iglesias y Minería is strengthening its position for the promotion of social and ecological justice,” he said.

“As Christians we have a common vision of a just and peaceful world,” said Athena Peralta.

“To translate this vision into a reality we must address the injustices arising from extractive activities and the extractive model of development. This model tends to benefit only multinational corporations and economic elites at the expense of people and ecology,” added Peralta.

The participants urged support for the struggles of communities against mining corporations. The churches must contribute to a spirituality of struggle in defense of life and the human right to land and water, they said. They also encouraged churches to lift up in dialogue the cries and demands of vulnerable communities affected by mining.

The church representatives agreed to raise awareness about mining issues and to develop collaboration among affected communities. They strategized to publicize and oppose human rights violations in mining areas, such as displacement and the persecution of community leaders and activists. They hoped to share their reports with the United Nations and other international platforms for effective redress of the situation.

The participants at the event also agreed strongly to denounce any attempt by mining companies to “buy the churches” and influence their theologies and liturgies.

Website of the World Social Forum

WCC’s work on Poverty, Wealth and Ecology

SOURCE: https://www.oikoumene.org/en/press-centre/news/churches-speak-against-negative-impact-of-mining-at-world-social-forum

Canadian mining company Eldorado Gold devastates Greek communities, uses the Netherlands, Barbados to avoid tax

Source: SOMO – Canadians for Tax Fairness – MiningWatch Canada

(Ottawa/Amsterdam, March 30, 2015) Canadian mining company Eldorado Gold is undermining Greek economic recovery by large-scale tax avoidance according to a new report by the Dutch Centre for Research on Multinational Corporations (SOMO). Eldorado is also supported by Export Development Canada.

Skouries protestFool’s Gold reveals that tax avoidance by Canadian mining company Eldorado Gold, using “mailbox” (shell) companies in the Netherlands, has led to tax losses of at least CDN $2.3 million for Greece in the past two years. There are also serious environmental and human right concerns related to the company’s operations.

Eldorado Gold avoids tax in Greece

Fool’s Gold shows that Eldorado Gold finances its Greek operations using internal loans, shifting interest payments from Greek subsidiary, Hellas Gold SA, via Dutch mailbox companies to its Barbados subsidiary – where this income remains untaxed. Eldorado has no material operations in the Netherlands or in Barbados. Under this financing structure, future profits from Eldorado’s Greek operations and related income tax can be substantially reduced – especially when combined with transfer mispricing and other tax avoidance techniques widely used by extractive sector firms.

“The European Union and the Netherlands have double standards. On the one hand they impose harsh austerity measures which have devastating social and economic impacts in Greece; on the other hand, they actively facilitate tax avoidance which costs the Greek state millions of euros,” says SOMO researcher Katrin McGauran.

Canadian government supports tax avoidance and irresponsible investment

Canada supports tax avoidance through lax disclosure requirements and tax treaties with tax havens, allowing companies to channel their international investments through tax havens and minimize tax paid anywhere, including Canada and the country they are operating in.

“Canada has been very timid in pursuing tax avoidance by Canadian companies operating internationally, including profit-shifting using tax havens,” Dennis Howlett, Executive Director of Canadians for Tax Fairness, says. “We are calling on the federal government to step up enforcement, but also to review all of its bilateral tax treaties to eliminate this theft of money rightfully owed – and especially in the case of Greece, desperately needed.”

The Canadian government also supports Canadian mining investment politically – as seen in a Youtube video of Canadian Ambassador to Greece, Robert Peck, hectoring Alexandroupolis Mayor Vagelis Lampakis over his community’s opposition to Eldorado Gold’s operations in Thrace. In addition, and despite widely reported human rights and environmental concerns, both the Canada Pension Plan and Export Development Canada have significant interests in Eldorado Gold.

The Canadian government promotes mining investment as good for both Canada and the host country, but according to MiningWatch Canada’s Communications Coordinator, Jamie Kneen, this is deceptive and needs to be dropped. “In reality, there’s no evidence this investment benefits more than a few very wealthy people – not most Greeks, or even Canadians.”

Tax avoidance, a structural problem

The case of Eldorado Gold is not an isolated one. The Netherlands and Luxembourg are widely used tax conduit countries for foreign companies investing in Greece. The report shows that 80 per cent of direct investments from the Netherlands to Greece are routed through mailbox companies – an underreported issue in discussions on the causes of Greece’s budget deficit.

Livelihoods threatened

Mining is set to destroy local ancient forests in Halkidiki, and the local community fears pollution from the mine will endanger them and destroy local jobs that depend on tourism, small-scale farming, forestry and fishing. Protests by the local community against the mine have been brutally repressed by police and criminalised by the Greek state. While the former government supported the company’s mining plans, the new government has stopped Eldorado’s expansion while it reviews the company’s permits and contracts.

Note for editors

Contacts

For specific questions regarding the SOMO report:

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About MiningWatch Canada

MiningWatch Canada is a pan-Canadian initiative supported by environmental, social justice, Aboriginal and labour organisations from across the country. It addresses the urgent need for a co-ordinated public interest response to the threats to public health, water and air quality, fish and wildlife habitat and community interests posed by irresponsible mineral policies and practices in Canada and around the world. www.miningwatch.ca

About Canadians for Tax Fairness

Canadians for Tax Fairness is a not-for-profit, non-partisan organization advocating for ;fair and progressive tax policies aimed at building a strong and sustainable economy, reducing inequalities and funding quality public services. It is a member of the Global Alliance for Tax Justice. www.taxfairness.ca

About SOMO

SOMO is an independent not-for-profit research and network organisation. SOMO works on sustainable development, in social, environmental and economic terms. Since 1973 SOMO has been researching multinational enterprises and the consequences of their activities for people and environment around the world. www.somo.nl

SOURCE: http://www.miningwatch.ca/news/canadian-mining-company-eldorado-gold-devastates-greek-communities-uses-netherlands-barbados-av