This paper is an analysis of the Zimbabwe Mining Development Corporation (ZMDC)’s 2012 annual audited financial statements. ZMDC is a state owned company in terms of an Act of Parliament, the ZMDC Act, representing the state on mining investments. In recent years, ZMDC’s stock has risen coinciding with the discovery of Marange diamond fields between 2006/2007. ZMDC was given mineral rights through a Special Grant in Marange diamond fields which it then leveraged as consideration for equity stake in companies exploiting Marange diamonds.

1. !
1!
!
!
Introduction
This paper is an analysis of the Zimbabwe Mining Development Corporation (ZMDC)’s 2012
annual audited financial statements. ZMDC is a state owned company in terms of an Act of
Parliament, the ZMDC Act, representing the state on mining investments. In recent years,
ZMDC’s stock has risen coinciding with the discovery of Marange diamond fields between
2006/2007. ZMDC was given mineral rights through a Special Grant in Marange diamond
fields which it then leveraged as consideration for equity stake in companies exploiting
Marange diamonds.
Despite ZMDC being a state owned enterprise, there has been a dearth of transparency
and accountability in the management of Marange diamonds. This opacity has attracted
local and international attention and outcry.
Hitherto, out of seven companies operating in Marange diamond fields, Mbada Diamonds is
the only one which has shown some modicum of transparency and accountability by
publicly disclosing its diamond revenue.
The year 2012 was a momentous one in the production of diamonds in Zimbabwe. Overall,
diamond production in carats increased by 42% in 2012. 8.5 million carats were produced in
2011 and production peaked up to 12 million carats in 2012. This respectively represents a
7% and 10% share of the world’s diamond production (KPCS 2013). In 2011 and 2012,
Zimbabwe occupied position 5 & 4 respectively in the world ranking of top diamond
producing countries. Consequently, there has been heightened interest in ZMDC’s 2012
audited financial statement given the peak production of diamonds in Zimbabwe during the
same year. Interest in ZMDC’s 2012 audited financial statements is compounded by fiscal
stress suffered in 2012 as a result of underperformance of diamond revenue and in
particular dividends expected from ZMDC.
These audited consolidated financial statements give a bird’s eye view of all Marange
diamond operations. ZMDC has no less than 50% in all companies operating in Marange
diamond fields with the exception of Anjin where it owns a 10% stake.
It must be noted that one of the deliverables of the International Monetary Fund (IMF) Staff
Monitored Program was accounting for 2012 diamond dividends. The publication of 2012
audited financial statements, therefore, can shed some light on whether or not ZMDC
remitted diamond dividends at all and if so how much was remitted.
It is critical to note that rising continental impetus on resource nationalism imposes a
greater burden of transparency and accountability in state owned mining entities. This
discourse [resource nationalism] is rooted in the fact that taxation has failed to adequately
optimise mineral revenue flow to the fiscus. Consequently, state equity participation in
mining has been touted as the panacea to boost mineral revenue flows to treasury. ZMDC
is, therefore, expected to act as a torch bearer in an industry generally muddied with
accusations of tax avoidance and tax evasion.
ZIMBABWE ENVIRONMENTAL LAW ASSOCIATION
Analysis of ZMDC’S 2012 Audited Financial Statements
By Mukasiri Sibanda

2. ! 2!
The former Minister of Finance, Hon. Tendai Biti, constantly lamented that Government was
not getting its fair share of dues from Marange diamond operations. This fact was
corroborated by the current Minister of Finance, Honourable Patrick Chinamasa who
disclosed, during the 2014 National Budget Statement Presentation, that Government did
not receive any diamond dividends in 2013.
The Zimbabwe Environmental Law Association (ZELA), amongst other CSOs, has
consistently decried limited transparency and accountability in the management of Marange
diamond revenues.This perspective was also widely shared by the Parlaimentary Portifolio
Committee on Mines and Energy of the 7th
Parliament chaired by the late Honourable
Chindori Chininga. ZELA, therefore, welcomes the publication of ZMDC’s 2012 audited
financial statements albeit belatedly. ZELA has analysed ZMDC’s 2012 audited financial
statements in the public interest with a view of sharing pertinent issues arising from the
report with other CSOs, media, Government and the general public. The following are the
highlights:
1. Auditor’s opinion- a modified or unmodified report
Basically, there are two types of opinion an Auditor can issue upon examination of
financial statements. An Auditor can issue an unmodified opinion and a modified
opinion. If an opinion is unmodified, the financial statements are considered to be clean.
A modified report reveals some exceptions that have affected the hygiene of the
financial statements.
The ZMDC report was modified on four grounds which are highlighted as follows;
a) ZMDC did not consolidate financial results of some of its subsidiaries.
The failure of ZMDC to consolidate the financial results of some of its subsidiaries is a
failure in terms of financial management of its numerous investments. This places
ZMDC in the limelight regarding its competency to steer the Government’s mining
investments. It defies logic that ZMDC hopes to attract investors and revive mining
operations when it fails to produce financial results. Financial results were not available
from other ZMDC subsidiaries namely Shabani and Mashava Mines (Private) Limited
(76%) as disclosed in Note 33 to the financial statements, and joint ventures namely,
Todal Mining (Private) Limited (40%) and Gye Nyame Resources (Private) Limited
(50%).
b) Lack of valuation of Marange diamond reserves
The lack of valuation of the Marange diamond reserves undermines economic rationale
in terms of joint venture agreements. Consequently, this lack of transparency with
respect to lack of proper economic justification in parcelling out mineral rights presents
a fertile breeding ground for corruption and ultimately prejudices the state of much
needed revenue. Moreover, valuation of mineral rights is a requirement under the
International Auditing Standard 38. Hence the auditors sighted this deficiency as one of
the reasons for issuing a modified report.
c) Questions on existence & valuation of US$10,677,271 Jinan diamond inventory
In the report, the auditors stated that they “were unable to satisfy ourselves by
alternative means as to the valuation and existence of inventories held at 31
December 2012 which are included in the consolidated statement of financial position
at US$10,677,271.” This is particularly worrying given prior reported incidents of
smuggling. A case in point is the Israeli pilot who was caught at the Harare
international airport trying to smuggle 8,486.66 diamond carats valued at
$2,437,708.24 by MMCZ. Hence the need to develop water tight measures to mitigate

3. !
3!
! the risk of smuggling which poses a clear threat to nation’s share of diamond revenue.
Below is a production footprint of Marange diamonds.
Sawables
3%
Makeable
2%
Clivage 5% Rejection
40%
Boart
50%
Source: Kimberly Process 2008
d) US$33,456,046 valuation of property, plant and equipment for joint venture
Jinan Mining (Private) Limited
The auditors drew attention to the fact that some assets that were included in the
valuation of property plant and equipment did not meet the definition of assets as per
International Accounting Standard 16 (IAS 16).
There is a risk that ZMDC could have been prejudiced through inappropriate valuation
of capital contributed by its joint venture partners. This risk is heightened when one
considers the report of the Portfolio Committee on Mines and Energy on diamond
mining (with special reference to Marange Diamond Fields) 2009 – 2013. The report
also expressed grave reservations on valuation of equity contribution by ZMDC’s joint
venture partners.
2. Emphasis of matter - viability concerns of ZMDC’s subsidiaries
The Auditors pointed out that some ZMDC subsidiaries were facing viability challenges
stemming from losses and poor liquidity. It was noted that “Mbada diamonds (Private)
Limited, Marange Resources (Private) Limited incurred a loss before tax of US$24, 387,
958 (2011 profit before tax: US$41, 840,803) and its current liabilities exceeded its
current assets by US$52,598, 293 (2011: US$16, 417, 227), Jena Mines (Private)
Limited incurred a loss before tax of US$1, 856, 548 (2011: US$2, 284, 068) and its
current liabilities exceeded its current assets by US$7,629,939 (2011: US$3, 570,824).
Kimberworth Investments (Private) Limited incurred a loss before tax of US$5, 877,630
(2011: US$3, 373,668) and its current liabilities exceeded its current assets by US$10,
018,284 (2011: US$4,039,313). Mbada Diamonds (Private) Limited’s current liabilities
exceeded its current assets by US$71, 395,606 (2011: US$35, 379,050). These
conditions along with other matters as set forth under Note 32 to the consolidated
financial statements indicate the existence of a material uncertainty that may cast
significant doubt about the ability of the subsidiaries and joint venture to continue as
going concerns”
3. Timeliness of financial information
The chairperson of the ZMDC board signed the 2012 audited financial statements on 10
February 2014. ZMDC released its financial statements roughly a year after its year
end. Key tenets of transparency and accountability especially of accounting information
include the timeliness of information. Timely financial information enables efficiency and
effective decision making processes. It also promotes transparency and accountabiltity
by disclosure of relevant and up to-date information. Ultimately, public confidence and
trust is built by the ability of public institutions to provide timely and accurate data.
ZMDC’s late production and publication of audited financial statements fails the test

4. ! 4!
inasmuch as timeliness of financial information is concerned. The Companies Act
prescribes a threshold of 3 months for production of audited financial statements
ensuing after financial year end with the accounts required to have been produced by
31st
March 2013. ZMDC is also expected to have already produced the 2013 financial
statements by 31st
March 2014 which are still pending.
4. ZMDC Investment in Mining Industry
ZMDC is involved in the extraction of various minerals. According to the financial
statements the minerals range from gold, platinum, graphite and diamonds. The
investment in these minerals is achieved through 7 operating joint ventures and 12
subsidiaries. Of the 12, 2 subsidiaries lie dormant and these are Mhangura Copper
Mine (Private) Limited and Lomagundi Smelting and Refinery (Private) Limited. The
smelting refinery that is dormant goes against what is being espoused in the Zimbawe
Agenda for Sustainable Socio-Economic Transformation (ZimASSET) economic
blueprint that seeks to promote value addition and beneficiation.
5. ZMDC Investment in subsidiaries and joint ventures in Diamond mining
as at 31 December 2012
Table 1: Subsidiaries and Joint Venture in diamond production
Subsidiaries % Holding Partners
Kusena Dimonds (Pvt) Ltd 100% n/a
Marange Resources 100% n/a
Joint Ventures
Mbada Diamond Mining
Company (Pvt) Ltd
50% Grandwell Holdings – 50%
Jinan Mining (Pvt) Ltd 50% Anhui Foreign Economic Construction
Company Ltd of China (AFECC)- 50%
Anjin Investments (Pvt) Ltd 10% Government of Zimbabwe- 40%
Anhui Foreign Economic Construction
Company Ltd of China (AFECC)-50%
Diamond Mining
Corporation (Pvt) Ltd
50% Pure Diam of Dubai – 50%
Gye Nyame Resources
(Pvt) Ltd
50% Bill Minerals (Pvt) Ltd – 50%
Source: ZMDC’s 2012 audited financial statements
6. Unique shareholding of Anjin.
ZMDC has no less than 50% stake in all entities operating in Marange diamonds fields
with the exception of Anjin Investments where it has a minority interest of 10%.
Other major shareholders in Anjin are the Government of Zimbabwe (GoZ) and AFECC
who owns 40% and 50% respectively.
There is need to find out how the other holder of 40% government stock in
Anjin is accounting to the treasury to ensure transparency and accountability
in the management of the country’s mineral resources.
!

5. !
5!
! 7. ZMDC’S Share of Diamond Revenue to Zimbabwe’s Overall 2012 Diamond
Export revenue
Figure 1: ZMDC's Share of Zimbabwe’s 2012 total Diamond Export revenue
!
Figure 1 above clearly shows that ZMDC is a significant player in the exports of
diamonds in Zimbabwe by capturing a share of 42% ($272,259,401.00) of 2012 total
diamond exports earnings.
8. ZMDC is predominantly a Marange diamond mining concern
Basing on revenue contribution, most of the revenue from operating activities was
generated by diamond sales proceeds. In 2011 and 2012, Marange diamond revenue’s
contribution to ZMDC was 90% and 89% respectively. This translated to
US$252,063,707 in 2011 and US$272,259,401. Figure 2 and figure 3 gives a summary
of the revenue contribution from operating activities for the period 2011 and 2012
respectively.
Figure 2: 2011 Revenue Contributions from Operating Activities
ZMDC:&&
272,259,401.00*
42%*
Others&:**
371,774,121.30*
58%*
ZMDC'share from Zim's total 2012 diamond exports

6. ! 6!
Figure 3: 2012 Revenue Contributions from Operating Activities
9. Mbada Diamonds is the lead revenue stream for ZMDC.
Diamond revenue contribution from Mbada diamonds to ZMDC in respect of overall
diamond revenue stood at 58% and 57% in year 2011 and 2012 respectively. This
amounted to a respective contribution of US$145 million and US$155.5 million. This is
so despite the fact that Mbada diamonds is a joint venture operation whereas
government wholly owns the likes of Marange Resources (Pvt) Ltd.
10.Subdued Performance of non – Diamond joint ventures and subsidiaries
The weak perfonamce on non- diamond joint ventures is a cause for concern as this
raises ZMDC’s capacity or lack thereof to manage other minerals other than dimonds on
behalf of the state. The gold mining entities reported losses and some are facing
funding challenges. Already, Sabi Gold Mine has ceased operations rendering about
500 workers jobless (Newsday, 19 June 2014)
Table 2: Perfomance of Non- Diamond Joint ventures and Subsidieries
Entity Status/perfomance (2012) Sector
Jena Mines (Pvt) Ltd 4.4 million loss before tax Gold
Sabi Gold Mine (Pvt) Ltd 0.9 million loss before tax Gold
Elvington Mine (Pvt) Ltd No gold production due to funding challenges Gold

7. !
7!
!
!
!
Source: ZMDC’s 2012 audited financial statements
11.Payment of Dividends and Management Fees
Grandwell Holdings a shareholder in Mbada got more dividends in 2012 than
Government which owns 50% in multiple joint ventures and a 100% in Marange
resources.
Grandwell Holdings Limited, a 50% stakeholder in Mbada Diamonds was paid a total of
US$59,939,453 and US54, 774,081 in 2011 and 2012 respectively. These payments
were made in respect of management fees and dividends. Management fees for 2011
totalled US$14,584,829 while in 2012 the figure was US$15,540,446. With respect to
dividends, Grandwell Holdings received US$44,954,624 in 2011 and US$39,233,635 in
2012. Grandwell Holdings reaped a percentage share of 41% and 35% of total revenue
from Mbada diamonds for the respective years of 2011 and 2012. Total revenue earned
by Mbada Diamonds for the respective years are $145 million and $155,4 million. At the
same time, government received dividends amounting US$76,686,628 in 2011 and
US$19,344,320 in 2012 from ZMDC. This shows that ZMDC prioritised reinvestment of
diamond proceeds at a time when government was suffering fiscal stress in 2012.
12.Tacit valuation of diamond reserves
ZMDC’s 2012 audited financial statements revealed that its 10% share in Anjin
investment was valued $10 million. This can then be extrapolated to combined
investment value of $100 million in Anjin. Given that government’s contribution in the
joint venture was in consideration of the transfer of diamond mining rights to Anjin, the
50% contribution is automatically valued at $50 million in light of the other 40%
shareholding held by GoZ. This implies a massive undervaluation of Marange diamond
reserves which conspires against the quest to unlock socio economic development from
the nation’s minerals.
Sandawana Mines (Pvt)
Ltd
No sales – Emerald mining suspended as
market for emeralds is depressed . Group
concentrating on evaluation of the
Sandawana mine resources for tantalite,
gold, chrome and iron ore.
Emeralds
The Zimbabwe German
Graphite Mine (Private)
Limited
Revenue of $2,7 million 2012. The major
challenge being faced by the company is
marketing of its products.
Graphite
Global Platinum
Resources (Pvt) Ltd
Pre-feasibility studies underway Platinum
Todal Mining Feasibility done, now awaiting special mining
license from Ministry of Mines and Mining
Development.
Platinum
Shin-Zim Global PS At pre-feasibility stage. Platinum

8. ! 8!
13.Contributions to Government
ZMDC has made payments to Government through corporate tax, dividends, royalties
and commissions. These are shown by figure 4 below:
Figure 4: Contributions to Government
!
According to the cash flow statements the amounts of cash payments were 16,787,065
and 10,985,302 for 2011 and 2012 respectively. The corporate tax expense as a
percentage of ZIMRA’s total corporate tax collections was 10% and 5% for 2011 and
2012 respectively. The amount of contribution through corporate tax, dividends to
Government, royalties and commissions as a percentage of total revenue collections
by ZIMRA during the same period constitute 4.4% and 2.2% for 2011 and 2012
respectively.
14.Conclusions and Recommendations
In light of the above analysis, this paper concludes by presenting the following
reccomendations:
! Government must adopt transparency and accountability initiatives such as the
Extractive Industry Transparency Initiative (EITI)
! Government must come with up clear statutory guidelines on the distribution and
sharing of diamond revenue. This is also one of the deliverables of the Staff
Monitored Programme (2013) between Government and IMF. This is necessary so
as to achieve revenue predictability. The guidelines can provide scope for managing
conflict of interest between ZMDC and Government on whether to re-invest diamond
proceeds or to declare dividends and also providing a clear sharing mechanism. The
2012 fiscal stress suffered by failure of diamond dividend revenue to materialise
could have been ameliorated had such dividend sharing mechanism been in place.
! Government should come clean and clear as to which department or agency is in
charge of the 40% ownership in Anjin which is broadly attributed to the “Government
of Zimbabwe”. Further, there is need for transparency and accountability in the
manner that the 40% equity holder in Anjin is accounting to the fiscus.
! ZMDC must immediately release its overdue 2013 audited finacial statements in line
with the best tenets for transparency and accountability which calls for timeliness of
information.
Corporate Tax
Expense
Dividents paid
to
Government
Royalties and
Commision to
MMCZ
2011 $28,333,269.00 $72,686,628.00 $21,877,244.00
2012 $23,486,332.00 $19,344,320.00 $31,436,375.00
Contribution&(USD)&
Contribution to Govenment

9. !
9!
! !ZMDC must prioritise valuation of Marange diamond reserves as this will critically
address a number of factors highlighted as follows:
a. Economic rationale in negotiating joint ventures is achieved when Government
has clear estimates of the mineral worth. This avoids opaqueness and gambling
which can adversley prejudice benefits acruing to the fiscus.
b. The international accounting best practices calls for valuation of mineral
reserves.
c. Reports that alluvial diamonds are running out calls for greater scrutiny for the
exploitation of this finite and intergenerattional wealth.
! ZMDC must forthwith carry out a special audit to verify the appropriate capital
contributed by its joint venture partners.
This paper is a result of the support of: