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com/twitter@pmtzi mbabwe) _________________________ REPO RT _________________________ O F THE PO RTFO LIO CO MMITTEE O N MINES AND ENERG Y

ON
THE STATE O F AFFAIRS AT SHABANI-MASHAVA MINES _________________________________________________________

THIRD SESSION SEVENTH PARLIAMENT

_____________________________________

Presented To Parliament in July, 2011

[ S.C, 10 2011] ANNOUNCED 13th July 2011 That the Committee consists 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 Muneng ami, 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

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

a) Subject to these Standing Orders a Portfolio Committee shall: consider and deal with all bills and statutory instruments or other matters which are referred to it by or under a resolution of the House or by the Speaker;

(b) consider 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 assigned 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. Intro d uc tio n The 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 governme nt 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 adminis tration of both the Prevention of Corruption Act (PCA) and the Reconstruction of State Indebted and Insolvent Companies Act

(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 statutory instrument permitting the placement of SMM under reconstruction 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-assigned 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. Bac kg ro und Info rmatio n Shabani and Gaths mines are part of SMM Holdings and during their heydays were ranked the th 6 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 MashavaZvishavane towns as well as to the nation. In view of the large reserves and demand for the

resource globally, the 2 mines still have an important role to play in the development of this country. 3. Me tho d o lo g y 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 site 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 leadership from 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 Co mmittee 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 b y 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 it was 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)

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 informatio n 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 costs that the government has incurred on its legal battles with Mr Mawere in Zambia, South Africa, UK and other places. th The first letter was written on the 28 of January 2011, the second letter on the th th 24 February 2011 and the final letter on the 18 of 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 Committee s work, on the grounds that the enquiry was scaring away potential internatio nal investors. 4. Find ing s 4.1 O p e ratio nal Pe rfo rmanc e o f AA Mine s 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 Gaths 1999 53 663 2000 77 957 73 887 2001 72 904 68 386 2002 76 116 67 872 2003 78 329 78 595 2004 55 423 49 046 2005 63 675 58 360 2006 2007 2008 2 085 10 038 2009 1 356 6 451 2010 o o

53 373 50 978 48 048 33 794

Shabani 61 139

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 and ghastly looking. The only functioning departments were the hospital and the Mine Golf course

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 (Russia, 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 O w ne rs hip Wrang le 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

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 Global should 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

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 invested into 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 working capital 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 by providing 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 of asbestos (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.

4.3.7 Due to serious cash flow problems, government took control of SMM Holdings in 2004. At the 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 & N through AMG Global Nominees who hold ' the bearer warrants on behalf of GOZ [5].

Mr Mutumw a Maw ere's A rg uments:

4.3.10 Africa Resources Limited ( ARL) wholly owned by Mr Mawere signed a Sale and Purchase 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 Resources Limited (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 the purchase of SMM Holdings because the Sale and Purchase agreement had already bee n 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 working capital 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$30 million, 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

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 was supposed 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 Mine s Und e r the Re c o ns truc tio n 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 (See Annexes M, N and R). The court cases ranged from the specification 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 investors. 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 credibility as the best person in reviving these two mines. At the same 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.

4.5 Imp ac t o f the De -s p e c ific atio n o f Mr Maw e re : 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 specified person should not be disposed of during specification and after de -specification should be returned to the owner. These arguments were being made in view of the fact that the Administrator had disposed some of the comp anys 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 the approval 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 Ind e b te d ne s 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 assistance. Hon Chinamasa, further highlighted that the debt owing to the State direc tly 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

application of the law. The concept of state indebtedness 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 plac ed 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, comme rce who owe or are in debt to RBZ, ZIMRA,ZESA or NSSA being State indebtedness and being put under Reconstruction.

4.7 Co nflic ting Inte re s 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 auditor services 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 mate rial times. The Committees position is that this is unprofessional and is not in line with best internatio nal practices. 4.8 Plig ht o f Wo rke rs at AA Mine s 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 struggling 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 struggling to get adequate health care. Domestic violence and moral decadence are the order of the d ay in the townships.

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 story of struggle, pain and suffering where the workers feel they have lost 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 Lac k o f Co lle c tive Re s p o ns ib ility b y the Exe c utive 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 O p p o rtunitie s fo r Re s us c itatio n o f AA Mine s 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 business.

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 possible. iii.Committed Labour Force: Most of the workers showed 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 solutions 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 and attract massive financial investment into the two Mines. 4.11 Co nte mp t o f Parliame nt In 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 th defamatory statement in the press ( The Newsday of Friday 4 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 dated May 24, 2011 attached as Annex (S). 5. Re c o mme nd atio ns 5.1 O w ne rs hip Wrang le 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 exhaustively 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.

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 O p e ratio nal Pe rfo rmanc e o f AA Mine s 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 Mine s in the Re c o ns truc tio n 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 a specified persons assets can be dealt with in terms of another law other than the law providing for his specification. 5.4 Imp ac t o f De -s p e c ific atio n o f Mr Maw e re o n SMM Ho ld ing s The consequences of de-specification must be self evident and credible lest the ins trument can easily be abused to deprive citizens of their right to property. The de -specification of Mr Mawere should be followed by restoration of his rights 5.5 State Ind e b te d ne s 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 state without any meaningful judicial oversight. A law that arbitrarily c onverts 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 Co nflic ting Inte re s 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 best international practices. 5.7 Plig ht o f Wo rke rs at Shab ani-Mas hava Mine s 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 excessive 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 investigate allegations of abuse of office, theft of mining material, vehicles, building material, mining equipment, mining claims, unauthorized sale of assets and mismanagement of resources at the two mines and associated SMM companies. 5.8 Lac k o f Co lle c tive Re s p o ns ib ility b y the Exe c utive

The Executive should be encouraged to communicate internally in order to decisions and issuing out conflicting statements on SMM Holdings. 5.9 Co nte mp t o f Parliame nt

avert making conflicting

The 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 Dilig e nc e Aud it o n SMM The 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. Co nc lus io n The 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 National Treasury 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 be en 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.