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Playing the Zimbabwean gamble
David McKay
Posted: Sat, 16 Jul 2005
[miningmx.com] -- THREE months after placing a moratorium on investment in Zimbabwe, Impala Platinum (Implats) said advances had been made. However, it required evidence of legislative and economic improvements. “Zimbabwe is a medium term issue for us,” says David Brown, Implats financial director. “It could be a powerful agent for share price growth.”
Implats said in March that it wanted clarity on the protection of foreign currency accounts, security of tenure, empowerment targets – plus the signing of a bilateral treaty between the SA and Zimbabwean governments. Implats owns 84,5% of Zimplats, a company with platinum resources totalling 300m oz – half of Implats’ mineral resources.
A number of preconditions set by Implats ahead of further Zimbabwean investment have been partly met. For example, the company has been given security of tenure over the southern part of its mining
leases, situated in the north of Zimbabwe’s Great Dyke. But guarantees over its ownership of other portions of its mining lease have not yet been confirmed, says Brown.
The bilateral trade agreement is also close to signing. A meeting to sign in February – it would provide Implats recourse to the SA Government in the event of its assets being nationalised – was postponed. It’s just a matter of synchronising the diaries of the two governments, Brown says, slightly nonplussed at the delay.
But there’s less certainty regarding Zimbabwe’s plans for local empowerment – a policy it terms “indigenisation”.
Says Brown: “That’s still a concern for us. From a practicality point of view, funding large greenfields projects is difficult for empowerment. The capital pool in Zimbabwe is even smaller than in SA.”
In a document leaked to the press in 2004, the Zimbabwean government said it wanted 50% local ownership of mining assets. It’s now understood that it’s
more conciliatory.
Says Brown: “We understand the government would allow for peculiarities of certain industries, of which mining is one.” A smaller handover to local business, similar in size to the 26% equity stake that the SA Government insists on, would be preferable. If larger interests in ventures were sought by Zimbabwean business it could lead to dilution, as projects would eventually demand capital drawdowns.
Greg Hunter, CEO of Metallon Gold, derives the majority of the company’s 195 000oz/year of gold from Zimbabwe. “It’s manageable,” Hunter says of operating in Zimbabwe. Metallon is a SA firm preparing to list on the JSE Securities Exchange later this year.
Hunter says: “We’ve shown a commitment to operating in the Zimbabwean environment. All our cash stays in Zimbabwe. We get some out though dividends and a technical management fee. The gold stays there too.”
Metallon produces about a third of all Zimbabwe’s gold. Inflation is partially offset by
importing SA equipment. “Zimbabwe hasn’t been called elephant country (host to large gold mines), but we’re going to prove them wrong.” Hunter adds that there’s a perception that platinum mining firms have a monopoly over the industry and its resources and don’t beneficiate any product. The situation with gold is different, he says.
However, Brown is supportive of building platinum refining capacity in Zimbabwe. “We believe platinum output of – hypothetically, 400 000oz/year – could support a smelter.” Implats derived 84 300oz of platinum from Zimplats in the 2004 financial year, a 17,2% increase year-on-year.
Zimbabwe’s other main platinum producer is Mimosa, in which Implats has a 50% stake. It recently completed an expansion, giving it total estimated concentrate output of 69 000oz for 2005. But Mimosa could be doubled in four years.
British research house Johnson Matthey reported in its Platinum 2005 review that Zimbabwe produced 145 000oz of platinum last
year.
Implats would meantime address its plans by expanding output from its projects at Marula (written down for R1,4bn in the first half of the 2005 financial year) and Two Rivers, an investment held with African Rainbow Minerals. There are also plans to find replacement ounces in the Impala lease area, where R6,5bn is to be spent developing two shafts.
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