[miningmx.com] — EVERYTHING that can be done badly, Zimbabwe does well. Its president Robert Mugabe, provided the ultimate in mixed messages earlier this week after he agreed to privatise the country’s steel business, the barely breathing Zisco, in a $4bn deal with Essar Group which is best described as a sprawling conglomerate.
Only a fortnight ago, Zimbabwe’s minister for indigenisation and economic empowerment, Saviour Kasukuwere, ripped up all 175 indigenisation applications by companies operating in Zimbabwe and threatened to kick them all out by September.
Firms, many of them mining, have until then to redo their applications presumably by transferring more equity into the hands of local Zimbabweans rather than attempting to meet indigenisation regulations through social and labour contracts – the feature of the applications that so angered Kasukuwere.
Back to the Essar deal, however, which moved Mugabe to say: “If partners come in the way they [Essar] have come, because they extended their hand and that they took over the debt Zisco had created, we’ll go beyond the 49%. We’ll give you 54%. We say come, don’t be afraid. But come as friends and not as exploiters.’
Said one mining executive, who didn’t ask but should remain off the record, the place is barking.
In terms of the deal, Essar Africa Holdings will pump $705m into Zisco which immediately dissolves its debt and gets the plant back to 1.2 million tonnes of steel a year. A new company, ZimSteel, will be created which house Essar Africa’s 60% stake in Zisco with government holding the balance. Capacity of Zisco’s plant will then be taken up another million tonnes annually.
Essar Africa will also control Zisco’s mining assets – the Ripple Creek and Mwanesi iron ore mines as well as a limestone deposit, which will be held in NewZim Minerals. This will involve, at some future point, the lionshare of the investment promised by Essar, roughly $3.5bn for a beneficiation plant.
But it’s very fuzzy when and how this will be built. For the record, Essar Africa is a difficult company to contact, notwithstanding the fulsomely supplied contact details at the foot of its press release.
Water and rail infrastructure will be improved, especially linking Hwange, but there’s no mention of how the coal industry, which will be important in supplying the regenerated Zisco with metallurgical coals, will be revitalised through this process.
“There’s no doubt this is a shot in the arm to the Zimbabwean economy,’ says Charles Shonayi, a mining analyst for Frost & Sullivan which has been following the re-emergence of Zimbabwe’s mining sector. “The value chain has been struggling so the upliftment of NRZ [National Rail of Zimbabwe] is helpful,’ he says.
That may be so but what about the rest of the mining related economy currently bedevilled by the indigenisation legislation? If, as Mugabe claims, you open your cheque book – which one assumes is the approach of a friend not an exploiter – does that mean the requirements of indigenisation fall away?
Stuart Murray, CEO of Aquarius Platinum, the company that owns 50% of the highly successful Mimosa platinum mine in Zimbabwe, is philosophical. “I tell shareholders that when we hear something about indigenisation, we’ll tell them,’ he says. “So far, there’s been no formal rejection of the company’s indigenisation application notwithstanding the comments by minister Kasukuwere.’
Says another executive: “It’s easier for Essar to operate in Zimbabwe because it’s not listed. Public companies have to make announcements and provide details and structures of deals,’ he says.
Still, this doesn’t guarantee success. It’s worth remembering that a similar private investment in a Zimbabwean state-owned company was announced when Sinosteel bought control of Zimasco, a formerly state-owned company that produces ferrochrome. Sinosteel has found it difficult to operate in Zimbabwe which owns 12% of world chromite reserves but its production has fallen to 1.2% of world output from 5% previously.
