Zimbabwe – a new beginning? The outlook for mining in the country
Michael Forrest reports on the 6th Annual International Mining in Africa Conference held on 23 June in London, UK.
Zimbabwe has some remarkable mineral inventories, a long mining history, good infrastructure and a recognised mining code that is among the best in Africa. Unfortunately, its political past and social unrest has made the country a pariah to the mining sector (and others). The Government is unable to offer a sense of security to would-be investors, inflation is so large that it defies calculation (excel spreadsheets ran out of zeros) and the legacy of Government expropriation of land has sealed its fate as a financial no-go area.
Morgan Tsvangirai, Prime Minister of Zimbabwe, gave the keynote address at the 6th Annual International Mining in Africa Conference held on 23 June in London, UK, and organised by Omega Investment Mining Partners and international law firm Deloitte. He set out his vision of the future of mining in the country, and the progress that had been made since the beginning of 2009 by the new consensus Government.
In a frank address, he said the country had a long way to go to recover its status as a food and mineral producer in the southern African region, but a number of events in the past four months had set the direction, if not yet confirmed the destination.
The geological base is significant. Coal, diamonds, gold, nickel, chrome and platinum, as well as industrial minerals, comprise the country’s inventory, some of which are truly world class. Some deposits are still supporting producing mines, including Zimplats Ngezi platinum mine based in the 2.58bln-year-old Great Dyke.
Tsvangirai is no novice to the mining sector, and he set out his vision of how the sector could kick start the moribund economy. He said, ‘The mining industry has undoubtedly made its contribution to employment, GDP, and foreign exchange earnings over the past 70 years or more,’ and yet, he continued, ‘in spite of this untapped reserve of wealth, for the past 40 years the country has been all but by-passed in the cycles of mining and commodity price booms – almost exclusively due to the international perception of political risk. We have lost skills in many disciplines to regional and international destinations and this hampers the economic and social recovery of our country’.
The Prime Minister is acutely aware of the skills shortage in Zimbabwe’s mining sector. For a number of years he was a plant superintendent at the Trojan mine of the Bindura Nickel Corporation. This mine is now on care and maintenance, as are a number of other mines in the country, resulting from the past inability to import spares, pay wages and deal in foreign exchange. Tsvangirai recognises that there is a window of opportunity open until the end of 2010, when he expects the mineral commodity boom of 2002-07 to return with higher prices.
The new inclusive Government, established following the global political agreement of 15 September 2008, does give a basis for stability, he says ‘I will not pretend that the process of getting this Government has not been a trying one, but I now have a workable relationship with President Mugabe and we are beginning to succeed in convincing the world to overcome their skepticism.’
Re-creating a mining sector will not be easy, as there are many other developing countries competing for exploration dollars. One of the past difficulties has been exchange controls on the Zimbabwean dollar, whose collapse has meant unfavourable trading conditions for those producing metals and minerals while causing the breakdown of banking in that currency.
Since February, however, the country’s operable currency has been the US dollar and it is likely to remain so until some point far in the future. This has caused inflation to plummet to single figures, which is an essential stepping stone in the short-term emergency programme to restore a quick return to a stable operating environment.
‘This is especially important for long-term mining projects,’ said Tsvangirai. ‘We are working to complete the transparent implementation of the mining code, security of tenure of mining title, a rational and competitive corporate tax, abolition of controls on where and when metals can be sold (already established for gold), multinational investment guarantees, all supported by an independent judiciary. The last factor is a rational, realistic, fair and achievable indigenisation of the mining sector’.
This black economic empowerment (BEE) point has raised more than a few concerns among the global mining community as the initial target is 51%, unacceptable to most mining companies as an investment proposition. ‘We are conscious of the need for further consultation to arrive at a more workable scheme involving local shareholders on a sustainable and transparent basis,’ confirmed Tsvangerai.
Views from the mine
One company at the forefront of exploration and development is African Consolidated Resources plc, headquartered in Harare. It is AIM-listed, and led by Andrew Cranswick, a Zimbabwean citizen. Cranswick extolls the potential of Zimbabwe, and the cost of operating there, ‘My company has a number of projects that offer exceptional investment opportunities with a large upside potential including gold, a major diamond discovery, and nickel both in sulphide and laterite deposits. Zimbabwe has skilled and literate labour, a long mining heritage and modern skills’.
He also believes that the Zimbabwe Shield, a local remnant of the Archean and associated greenstone belts, is an undervalued prospect, which is comparable with the Yilgarn craton of Western Australia both in size and geology. Until 1975, gold production and discovery rates were similar, says Cranswick. However, Western Australia – through investment and technology – multiplied gold production by a factor of 35 in the 13 years after 1972. Applying Australian technology offers an unparalleled opportunity to investigate a greenstone belt with modern techniques.
Pot of gold
African Consolidated has taken 85,000 soil samples from the Zimbabwe Shield, carrying out 95,000m of diamond core drilling, three aeromagnetic and two electro-magnetic surveys, and 700km2 of detailed mapping, in addition to substantial ground acquisition. The total cost is under £10m. As a result, the company now has JORC-compliant gold resources of over 800,000oz.
Central African Gold plc, registered in London, UK, also favours the exploration potential in Zimbabwe. According to CEO Roy Pitchford, the country has over 6,000 gold occurrences, a long history of gold mining and the potential to become a major gold producer again. Last year, gold production was 5,500oz, a fraction of the 59,415oz of uncovered in 1991.
Pitchford’s company has two operational mines – Dalny, 175km southwest of Harare, and Golden Quarry, 180km northeast. The company’s objective is to maintain production of around 20,000oz per year from reserves of 580,000oz within 2.17Moz of resources. The deregulation of the Gold Sales Act earlier this year has allowed free gold sales in US dollars, and consequently mining costs and remuneration predictions are more accurate – previously the currency fluctuations affected such processes.
Not all chief executives are as enthusiastic as those of African Consolidated or Central African, however. Mark Wellesley-Wood, former CEO of Metallon Gold, Zimbabwe’s largest gold producer, resigned his position ahead of the 2008 election in despair of the lack of Government transparency, widespread kleptocracy, and the currency issues which resulted in only half the value for gold being paid, before the move to the US dollar.
Wellesley-Wood also slammed the plan for indigenisation, saying, ‘BEE at the proposed 51% [is] expropriation’.
Kalaa Mpinga, CEO of Mwana Africa plc, the first African-owned and managed mining company listed in London, has considerable assets in Zimbabwe, with a core based on the Bindura Nickel Company which holds the Trojan and Shangani mines, Bindura smelter and concentrator, and 3,000 employees. In addition, the company owns the Freda Rebecca gold mine. Reserves of nickel at Bindura are 27,400t, with another measured and indicated at 368,990t. Measured gold reserves are at 207,000oz and 878,000oz indicated.
As of November 2008, all of Mwana’s operations are on care and maintenance, as the collapsing Zimbabwe dollar prevented continued operations. Plans are in hand to bring all back into production as soon as possible. Mwana has made significant investments of US$10m at Freda Rebecca and US$60m at Bindura in the past three years. ‘The challenges ahead will be people, administrative procedures, capital and restoring the credibility of Zimbabwe as an investment destination,’ said Mpinga.